<PAGE> 1
As filed with the Securities and Exchange Commission on February 11, 1998
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETWORKS ASSOCIATES, INC.
(FORMERLY MCAFEE ASSOCIATES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 77-0316593
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2805 Bowers Avenue
Santa Clara, California 95051
(408) 988-3832
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM L. LARSON
President and Chief Executive Officer
Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
(408) 988-3832
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Jeffrey D. Saper, Esq.
Kurt J. Berney, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box.[ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant
to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to be Registered Amount to be Registered Price per Security (1) Offering Price(1) Registration Fee
- --------------------------- ----------------------- ---------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 1,059,477 shares $56.13 $59,532,013 $17,543
Common Stock Issuable Upon
Exercise of Warrants 250,000 shares $60.00 $15,000,000 $ 4,425
---------------- ----------- -------
Totals 1,309,477 shares $74,532,013 $21,968
================ =========== =======
</TABLE>
- ----------
(1) The price of $56.13 per share, which was the average of the high and low
prices of the Common Stock on the Nasdaq National Market on February 6, 1998, is
set forth solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933, as amended.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY AN
OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1998
1,309,477 SHARES
NETWORKS ASSOCIATES, INC.
COMMON STOCK
-----------------
This Prospectus relates to the public offering, which is not being
underwritten, of 1,309,477 shares (the "Shares") of Common Stock, $0.01 par
value (the "Common Stock") of Networks Associates, Inc. (the "Company"). The
Shares are outstanding shares of Company Common Stock or shares of Common Stock
issuable upon the conversion of Company warrants to acquire Common Stock that
may be sold from time to time by or on behalf of certain stockholders of the
Company or by pledgees, donees, transferees or other successors in interest that
receive such Shares as a gift, distribution or other non-sale related transfer
(the "Selling Stockholders"). The Selling Stockholders acquired the Shares and
such Company warrants in private transactions in which the Company acquired
Schuijers Holding B.V., a Dutch corporation ("Schuijers"), FSA Combination
Corp., a Delaware corporation ("FSA"), Kabushiki Kaisha Jade, a Japanese
corporation ("Jade"), Helix Software Company, Inc., a Georgia corporation
("Helix"), and Pretty Good Privacy, Inc., a Delaware corporation ("PGP").
The Shares may be offered by the Selling Stockholders from time to time
in transactions on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. In addition, the Company has agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
On February 6, 1998, the closing bid price of the Company's Common
Stock on the Nasdaq National Market was $56.13 per share. The Common Stock is
traded under the Nasdaq symbol "NETA."
-------------------------------
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
-------------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES
OFFERED HEREBY.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------
The date of this Prospectus is February 11, 1998
<PAGE> 3
TRADEMARKS
This Prospectus contains trademarks of the Company, including
CyberCop, McAfee, McAfee Total Service Desk, McAfee Total Virus Defense, Net
Tools, PGP, PGP Total Network Security, Sniffer and Sniffer Total Network
Visibility. This Prospectus may contain trademarks of others.
------------------------
MCAFEE ASSOCIATES/NETWORK GENERAL MERGER
On December 1, 1997, McAfee Associates, Inc. ("McAfee") and Network General
Corporation ("Network General") consummated a strategic business combination
(the "Network General Merger") through the merger of a wholly-owned subsidiary
of McAfee with and into Network General. The Network General Merger was
accounted for as a pooling of interests. In connection with the Network General
Merger, McAfee changed its name to "Networks Associates, Inc." and has since
conducted business using the name "Network Associates, Inc.," marketing products
using, among other names, Network Associates, McAfee and Network General.
- ------------------------
AVAILABLE INFORMATION
The Company is, and Network General was prior to the Network General
Merger, subject to the informational requirements of the Exchange Act, and in
accordance therewith files or filed, as the case may be, reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
with the Commission by the Company and Network General can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 500 West Madison Street, Room 1400, Chicago, Illinois 60661
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549, at prescribed rates, or
on the World Wide Web at http://www.sec.gov. Copies of other materials
concerning the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (formerly McAfee Associates,
Inc.) with the Commission (File No. 000-20558) pursuant to the Exchange Act are
incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended September
30, June 30, and March 31, 1997;
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<PAGE> 4
3. The Company's Registration Statement on Form S-4 filed on October 31, 1997;
4. The Company's Current Reports on Form 8-K filed on February 10, 1998,
December 11, 1997, December 1, 1997, November 24, 1997 and March 14, 1997;
and
5. The description of the Company's Common Stock contained in its Registration
Statement on Form 8-A filed on August 21, 1992, including any amendments or
reports filed for the purpose of updating such description.
The following documents previously filed with the Commission by Network
General (File No. 0-17431) pursuant to the Exchange Act are incorporated by
reference in this Prospectus:
1. Network General's Annual Report on Form 10-K for the fiscal year ended March
31, 1997;
2. Network General's Quarterly Reports on Form 10-Q for the quarters ended June
30, 1997 and September 30, 1997; and
3. Network General's Current Reports on Form 8-K filed on August 20, 1997 and
October 21, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus but
prior to the termination of the offering to which this Prospectus
relates shall be deemed to be incorporated by reference in this Prospectus
and to be part hereof from the date of filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, in its
unmodified form, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of this Prospectus is delivered a copy of
any of the documents incorporated by reference herein (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be submitted to Prabhat
K. Goyal, Secretary, at the principal executive offices of the Company in
writing at Network Associates, Inc., 2805 Bowers Avenue, Santa Clara, California
95051 or by telephone at (408) 988-3832.
------------------------
FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus or
incorporated by reference herein that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this document
or incorporated by reference herein 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 as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus.
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THE COMPANY
The Company is a leading developer and provider of network security and
management software products. The Company has historically derived a significant
majority of its revenues from the licensing of its flagship McAfee anti-virus
products and Sniffer network fault and performance management products. The
Company is currently focusing its efforts on broadening its revenue base by
providing network security and management solutions to enterprise customers,
targeting in particular the Windows NT/Intel platform. In furtherance of this
strategy, the Company recently organized its products into four product
suites -- McAfee Total Virus Defense and PGP Total Network Security (together
comprising "Net Tools Secure") and Sniffer Total Network Visibility and McAfee
Total Service Desk (together comprising "Net Tools Manager"). These four product
suites together form an integrated solution called "Net Tools".
The following table depicts the Company's product suites:
- --------------------------------------------------------------------------------
NET TOOLS
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET TOOLS SECURE NET TOOLS MANAGER
- --------------------------------------------------------------------------------------------------------
McAfee Total Virus PGP Total Network Sniffer Total Network McAfee Total Service
Defense Security Visibility Desk
</TABLE>
- --------------------------------------------------------------------------------
Net Tools Secure is designed to protect the enterprise from viruses,
hackers, thefts, lost data and threats to data security at all points of entry.
McAfee Total Virus Defense is a multi-tiered approach to virus protection
covering the client, server and Internet gateway; and PGP Total Network Security
combines security products with desktop encryption software and key management
tools. Net Tools Manager is a network management and service desk solution
designed to make computer networks more efficient and users more productive.
Sniffer Total Network Visibility is a comprehensive set of products and services
for network fault and performance management (also known as analysis and
monitoring); and McAfee Total Service Desk is designed to integrate robust help
desk applications with asset management software. The Company also provides
product support, education and consulting services.
Many of the Company's network security and management products, including
its industry-leading network security products for anti-virus protection and
Sniffer software-based fault and performance solutions for managing computer
networks, are also available as stand-alone products or as part of smaller
product suites. The Company is also a leader in electronic software
distribution, which is the principal means by which it markets its products and
one of the principal ways it distributes its software products to its customers.
The Company generally utilizes a two-year subscription model for licensing its
non-Sniffer products to corporate clients and is in the process of developing a
two-year subscription model for licensing its Sniffer products as well.
The Company is a Delaware corporation incorporated in August 1992. The
Company's principal executive offices are located at 2805 Bowers Avenue, Santa
Clara, California 95051. Its telephone number at that address is (408) 988-3832.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
On December 1, 1997, McAfee and Network General consummated the Network
General Merger pursuant to which the Company issued an aggregate of 17.9 million
shares of its Common Stock (0.4167 shares of McAfee common stock for each
outstanding share of Network General common stock) in a
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transaction accounted for as a pooling of interests. The combined company also
assumed all outstanding options to purchase Network General common stock.
Network General designed, manufactured, marketed and supported software-based
fault and performance solutions for managing computer networks.
On December 1, 1997, the Company acquired Helix Software Company, Inc.
("Helix") through the merger of a wholly-owned subsidiary of the Company with
and into Helix. The aggregate consideration payable in the acquisition was
550,000 shares of Company Common Stock in a transaction accounted for as a
pooling of interests. Helix is a provider of system and performance enhancement
software for personal computers.
On December 9, 1997, the Company acquired Pretty Good Privacy, Inc. ("PGP")
through the merger of a wholly-owned subsidiary of the Company with and into
PGP. The aggregate consideration payable in the acquisition was approximately
$35 million (payable in cash and the assumption of certain liabilities) and
warrants to acquire approximately 250,000 shares of Company Common Stock. The
PGP acquisition was accounted for under the purchase method of accounting. The
Company also assumed all outstanding unvested options to acquire PGP common
stock. PGP is a provider of applied cryptographic solutions for securing
corporate digital assets and protecting individual privacy.
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<PAGE> 7
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements that involve risks and uncertainties. The
statements contained in this Prospectus or incorporated by reference herein that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document or incorporated by reference herein 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 as a result of certain factors, including those set
forth in "Risk Factors" and elsewhere in this Prospectus.
Variability of Quarterly Operating Results. The Company's results of
operations have been subject to significant fluctuations, particularly on a
quarterly basis, and the Company's future results of operations could fluctuate
significantly from quarter to quarter and from year to year. Causes of such
fluctuations may include the volume and timing of new orders and renewals,
distributor inventory levels and return rates, Company inventory levels, the
introduction of new products, product upgrades or updates by the Company or its
competitors, changes in product mix, changes in product prices and pricing
models, seasonality, trends in the computer industry, general economic
conditions (such as the recent economic turbulence in Asia), extraordinary
events such as acquisitions or litigation and the occurrence of unexpected
events. The operating results of many software companies reflect seasonal
trends, and the Company'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.
Although the Company has experienced significant growth in net revenue and
net income (before acquisition and other related costs) in absolute terms, the
Company's growth rate has slowed in recent periods. The Company has experienced
increased price competition for its products and the Company expects competition
to increase in the near-term, which may result in reduced average selling prices
for the Company's products. Due to these and other factors (such as a maturing
anti-virus market and an increasingly higher base from which to grow), the
Company's historic revenue growth rate will be difficult to sustain or increase.
To the extent these trends continue, the Company's results of operations could
be materially adversely affected. Renewals have historically accounted for a
significant portion of the Company's net revenue; however, there can be no
assurance that the Company will be able to sustain historic renewal rates for
its products in the future. Risks related to the Company's recent change in
business strategies could also cause fluctuations in operating results and could
make comparisons with historic operating results and balances difficult or not
meaningful. See "-- Risks Related to Certain Business Strategies."
The timing and amount of the Company's revenues are subject to a number of
factors that make estimating operating results prior to the end of a quarter
uncertain. The Company does not expect to maintain a significant level of
backlog and, as a result, product revenues in any quarter will be dependent on
contracts entered into or orders booked and shipped in that quarter. During
1997, the Company generally experienced a trend toward higher order receipts
toward the end of the last month of a quarter, resulting in a higher percentage
of revenue shipments during the last month of a quarter than in 1996, which
makes predicting revenues more difficult. The timing of closing larger orders
increases the risks of quarter-to-quarter fluctuation. To the extent that the
Company is successful in licensing larger product suites under the Net Tools
umbrella (particularly to large enterprise and national accounts), the size of
its orders and the length of its sales cycle are likely to increase. If orders
forecasted for a specific customer for a particular quarter are not realized or
revenues are not otherwise recognized in that quarter, the Company's operating
results for that quarter could be materially adversely affected. See
" -- Potentially Longer Sales and Implementation Cycles for Certain Products."
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The trading price of the Company's Common Stock has historically been
subject to wide fluctuations, with factors such as earnings announcements and
litigation developments contributing to this volatility. Failure to achieve
periodic revenue, earnings and other operating and financial results as
forecasted or anticipated by brokerage firms, industry analysts or investors
could result in an immediate and adverse effect on the market price of the
Company's Common Stock. The Company may not discover, or be able to confirm,
revenue or earnings shortfalls until the end of a quarter, which could result in
an immediate and adverse effect on the price of the Company's Common Stock.
Risk of Inclusion of Network Management and Security Functionality in
Hardware and Other Software. In the future, vendors of hardware and of operating
system software or other software (such as firewall or electronic mail software)
may continue to enhance their products or bundle separate products to include
functionality that currently is provided primarily by network security and
management software. Such enhancements may be achieved through the addition of
functionality to operating system software or other software or the bundling of
network security and management software with operating system software or other
products. For example, Cisco Systems, Inc. ("Cisco") recently incorporated a
firewall in certain of its hardware products and Microsoft Corporation
("Microsoft") introduced limited anti-virus functionality into its MS-DOS
versions in 1993. The widespread inclusion of the functionality of the Company's
products as standard features of computer hardware or of operating system
software or other software could render the Company's products obsolete and
unmarketable, particularly if the quality of such functionality were comparable
to that of the Company's products. Furthermore, even if the network security
and/or management functionality provided as standard features by hardware
providers or operating systems or other software is more limited than that of
the Company'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 the Company were unable to develop new network security
and management products to further enhance operating systems or other software
and to replace successfully any obsolete products, the Company's business,
financial condition and results of operations would be materially adversely
affected.
Risks Associated with Recent Acquisitions. In addition to risks described
under "-- Risks Associated with Acquisitions Generally," the Company faces
significant risks associated with its recent combination with Network General
and other recent acquisitions (including the acquisitions of PGP and Helix).
There can be no assurance that the Company will realize the desired benefits of
these transactions. In order to successfully integrate these companies, the
Company must, among other things, continue to attract and retain key management
and other personnel; integrate, both from an engineering and a sales and
marketing perspective, the acquired products (including Network General's
Sniffer and CyberCop products, PGP's encryption products and Helix's utilities
products) into its suite of product offerings; integrate and develop a cohesive
focused direct and indirect sales force for its product offerings; consolidate
duplicate facilities; and develop name recognition for its new name. The
diversion of the attention of management from the day-to-day operations of the
Company, or difficulties encountered in the integration process, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Need to Develop Enterprise and National Accounts
Sales Force and Security Products Sales Force; Risks Related to Direct Sales
Force" and "-- Use of Indirect Sales Channels; Need to Develop Indirect Sales
Channel for Sniffer and PGP Security Products."
During 1997, the Company incurred significant non-recurring charges
associated with the Network General combination and the acquisitions of PGP and
Helix. There can be no assurance that the Company will not incur additional
material charges in subsequent quarters to reflect additional costs associated
with these transactions and with respect to its name change and the marketing of
its products under the "Network Associates" name.
Risks Related to Certain Business Strategies. The Company has historically
derived a significant majority of its revenues from the licensing of its
flagship anti-virus products and Sniffer products. See "-- Dependence on Revenue
from Flagship Anti-Virus and Sniffer Products." The Company is currently
focusing its efforts on broadening its revenue base by providing network
security and management solutions to enterprise customers, targeting in
particular the Windows NT/Intel platform. In furtherance of this strategy, the
Company recently organized its products into four product suites -- McAfee Total
Virus Defense, PGP
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<PAGE> 9
Total Network Security, and Sniffer Total Network Visibility and McAfee Total
Virus Defense. These four product suites together form an integrated solution
called "Net Tools" which utilizes a new pricing model. There can be no assurance
that potential customers will respond favorably to the modified pricing
structure and the lack of a favorable response could materially adversely affect
the Company's operating results. Although the Company will continue to offer
perpetual licenses with annual support and maintenance contracts for its Sniffer
products, it is currently developing a subscription licensing model for those
products. In addition, in an effort to increase total Sniffer unit sales the
Company intends to develop software only versions of its Sniffer products --
meaning that the Company would no longer sell the hardware components contained
in the current Sniffer products. There can be no assurance that the Company can
produce a software only Sniffer product on a timely basis or at all, that
customers will not continue to require that the Company provide the associated
hardware platform and components, that total unit licenses of Sniffer products
will increase over previous levels or that customers will react favorably to the
subscription pricing model for Sniffer products. To the extent that customers do
license Sniffer products on a two-year subscription basis or license significant
amounts of software only Sniffer products, the Company's operating results and
financial condition would likely be affected. In the case of subscription
licenses, the Company would, among other things, expect an increase in deferred
revenues related to the service portion of the two-year Sniffer license that
would be capitalized on the Company's balance sheet. In the initial year of the
license, the corresponding revenue would be lower than if the license were
perpetual. In the case of the software only Sniffer product, for any individual
license, the Company would expect lower total revenues and a higher overall
gross margin related to the transaction, as the Company would not be selling the
corresponding hardware component. Currently, the hardware component has a lower
gross margin than the total product gross margin.
The Company has been acquiring (and is continuing to investigate the
acquisition of) existing independent agents and distributors of its products in
certain strategic markets or has been converting these independent agents into
resellers who must purchase Company products from Company approved distributors.
These actions may require, among other things, that the Company provide the
technical support to customers that was previously provided by such agents and
distributors. There can be no assurance that the Company can provide such
support as effectively or on a timely basis or at all, that the Company will
operate any acquired distributor or agent as successfully as the previous
operators, that the acquisition of any distributor or agent or the conversion of
any agent into a reseller will result in the desired increased foreign revenues
or that the Company will be able to identify and retain suitable distributors in
any market in which it converts an independent agent. See " -- Risks Associated
with Acquisitions Generally" and " -- Risks Related to International Revenue and
Activities."
As part of the Net Tools concept, the Company is in the process of
designing a centralized console from which the various component suites can be
operated, administered and maintained utilizing a common look and feel. The
Company faces significant engineering challenges related to these efforts. In
addition, the Company faces significant engineering and other challenges related
to the integration of its various security products (such as its recently
acquired PGP encryption products and Network General CyberCop product) into a
marketable suite of products and the development of a software only Sniffer
product. Success of the Company's Net Tools suite strategy will also depend, in
part, upon successful development and coordination of the Company's sales force;
on successful development of a national accounts sales force and an effective
indirect sales channel for the Company's Sniffer and PGP security products; and
on the development and expansion of an effective professional services
organization. See " -- Risks Associated with Recent Transactions," " -- Risks
Associated with Acquisitions Generally," " -- Need to Develop Enterprise and
National Accounts Sales Force and Security Products Sales Force; Risks Related
to Direct Sales Force," " -- Use of Indirect Sales Channels; Need to Develop
Indirect Sales Channel for Sniffer and PGP Security Products" and " -- Need to
Expand and Develop An Effective Professional Services Organization."
The foregoing factors, individually or in the aggregate, could materially
adversely affect the Company's operating results and could make comparison of
historic operating results and balances difficult or not meaningful.
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Risks Associated with Acquisitions Generally. The software industry has
experienced and is expected to continue to experience a significant amount of
consolidation. In addition, it is expected that the Company will grow internally
and through strategic acquisitions in order, among other things, to expand the
breadth and depth of its product suites and to build its professional services
organization. The Company continually evaluates potential acquisitions of
complementary businesses, products and technologies. In addition to the
combination with Network General in December 1997, the Company has consummated a
series of significant acquisitions since 1994, including the acquisitions of PGP
and Helix in December 1997, Cinco Networks, Inc. in August 1997, 3DV Technology,
Inc. in March 1997, FSA Corporation of Canada in August 1996, Vycor Corporation
in February 1996, Saber Software Corporation, Inc. in August 1995 and ProTools,
Inc. in January 1994. In addition, since 1995 the Company has acquired a number
of its international distributors, including distributors in Australia, Brazil,
Japan and The Netherlands and is currently investigating acquisitions of
additional foreign distributors. Past acquisitions have consisted of, and future
acquisitions will likely include, acquisitions of businesses, interests in
businesses and assets of businesses. Any acquisition, depending on its size,
could result in the use of a significant portion of the Company's available cash
or, if such acquisition is made utilizing the Company's securities, could result
in significant dilution to the Company's stockholders, and could result in the
incurrence of significant acquisition related charges to earnings. Acquisitions
by the Company may result in the incurrence or the assumption of liabilities,
including liabilities that are unknown or not fully known at the time of
acquisition, which could have a material adverse effect on the Company.
Furthermore, there can be no assurance that any products acquired in connection
with any such acquisition will gain acceptance in the Company's markets or that
the Company will obtain the anticipated or desired benefits of such
transactions.
Achieving the anticipated benefits of an acquisition will depend, in part,
upon whether the integration of the acquired business, products or technology is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. Moreover, successful acquisitions in the high technology
industry may be more difficult to accomplish than in other industries. Combining
a merged or acquired company requires, among other things, integration of
product offerings and coordination of sales and marketing and research and
development efforts. There can be no assurance that such an integration can be
accomplished smoothly or successfully. The difficulties of such integration may
be increased by the necessity of coordinating geographically separated
organizations, the complexity of the technologies being integrated, and the
necessity of integrating personnel with disparate business backgrounds and
combining two different corporate cultures. The integration of operations
following an acquisition requires the dedication of management resources that
may distract attention from the day-to-day business, and may disrupt key
research and development, marketing or sales efforts. The inability of
management to successfully integrate any acquisition could have a material
adverse effect on the business, operating results and financial condition of the
Company. In addition, as commonly occurs, during the pre-acquisition and
integration phases of technology company acquisitions, aggressive competitors
may undertake initiatives to attract customers and to recruit key employees
through various incentives.
Rapid Technological Change; Risks Associated with Product Development. 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. The Company's success depends upon its 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 the Company believes that
it 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 evolves and competitive pressures
increase, the Company believes that it will need to further expand its product
offerings. There can be no assurance that the Company will be successful in
developing and marketing, on a timely basis, enhancements to its existing
products or new products, or that such enhancements or new products will
adequately address the changing needs of the marketplace.
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In addition, from time to time, the Company or its competitors may announce
new products with new or additional capabilities or technologies. Such
announcements of new products could have the potential to replace, or shorten
the life cycles of, the Company's existing products and to cause customers to
defer or cancel purchases of the Company's existing products.
The Company has in the past experienced delays in software development, and
there can be no assurance that the Company will not experience delays in
connection with its current or future product development activities. Complex
software products such as those offered by the Company 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, the Company experienced compatibility issues in
connection with its recent NetShield upgrade, and the Company'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, performance or
enhancements could have a material adverse effect on the Company's business,
financial condition and results of operation.
The Company's development efforts are impacted by the adoption or evolution
of industry standards related to its products and the environments in which they
operate. For example, no uniform industry standard has developed in the market
for encryption security products. As industry standards are adopted or evolve,
the Company may be required to modify existing products or develop and support
new versions of existing products. In addition, to the extent that no industry
standard develops, the Company's products and those of its competitors may be
incompatible if they use competing standards, which could prevent or
significantly delay overall development of the market for a particular product
or products. The failure of the Company's products to comply, or delays in
compliance, with existing or evolving industry standards could have a material
adverse effect on the Company's business, financial condition and results of
operation.
The Company's long-term success will depend on its ability on a timely and
cost-effective basis to develop upgrades and updates to its existing product
offerings, to modify and enhance acquired products, and to introduce new
products which meet the needs of current and potential customers. 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. The Company believes that the ability to
provide these upgrades and updates to users frequently and at a low cost is a
key to success. For example, 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 the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be successful in these efforts. In addition, future changes in Windows 95,
Windows NT, NetWare or other popular operating systems may result in
compatibility problems with the Company's products. Further, delays in the
introduction of future versions of operating systems or lack of market
acceptance of future versions of operating systems would result in a delay or a
reduction in the demand for the Company's future products and product versions
which are designed to operate with such future versions of operating systems.
The Company's failure to introduce in a timely manner new products 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.
Dependence on Revenue from Flagship Anti-Virus and Sniffer Products. In
recent years, the Company has derived a substantial majority of its net revenue
from its flagship McAfee anti-virus software products and Sniffer network fault
and performance management products. These products are expected to continue to
account for a significant portion of the Company's net revenue for the
foreseeable future. Because of this concentration of revenue, a decline in
demand for, or in the prices of, these anti-virus and network management
products as a result of competition, technological change, a change in the
Company's pricing model for such products, the inclusion of anti-virus or
network management and analysis functionality in system hardware or operating
system software or other software or otherwise, or a maturation in the
respective markets for these products could have a material adverse effect on
the Company's business, financial condition and results of operations.
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Dependence on Emergence of Network Management and Network Security
Markets. The markets for the Company's network management and network security
products are evolving, and their growth depends upon broader market acceptance
of network management and network security software, including help desk
software. Although the number of LAN-attached personal computers ("PCs") has
increased dramatically, the network management and network security markets
continue to be emerging markets and there can be no assurance that such markets
will continue to develop or that further market development will be rapid enough
to benefit the Company significantly. In addition, there are a number of
potential approaches to network management and network security, including the
incorporation of management and security tools into network operating systems.
Therefore, even if network management and network security tools gain broader
market acceptance, there can be no assurance that the Company's products will be
chosen by organizations which acquire network management and network security
tools. Furthermore, to the extent that either the network management or network
security market does continue to develop, the Company expects that competition
will increase. See "-- Competition" and "-- Risk of Inclusion of Network
Security and Management Functionality in Hardware and Other Software."
Competition. The markets for the Company's products are intensely
competitive and the Company expects competition to increase in the near-term.
The Company believes that the principal competitive factors affecting the
markets for its products include performance, functionality, quality, customer
support, breadth of product line, frequency of upgrades and updates, integration
of products, manageability of products, brand name recognition, company
reputation and price. Certain of the criteria upon which the performance and
quality of the Company'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 the Company's competitors have been in the network management
market longer than the Company, and other competitors, such as Symantec
Corporation ("Symantec"), Intel Corporation ("Intel"), Seagate Technology Inc.
("Seagate") and Hewlett-Packard Company ("HP"), are larger and have greater name
recognition than the Company. The Company will also need to develop name
recognition for its new name, "Network Associates." In addition, certain larger
competitors such as Intel, Microsoft and Novell Inc. ("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 security and management products. As is the case
in many segments of the software industry, the Company has been encountering,
and expects to further encounter, increasing competition. This increased
competition 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 events would materially adversely
affect the Company's business, financial condition and results of operations. In
addition, competitive pressures may make it difficult for the Company to
maintain or exceed its growth rate.
Although there is a trend toward consolidation in the network security and
management market, the market is currently highly fragmented with products
offered by 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. The Company's other competitors include Computer
Associates/Cheyenne Software, IBM, Seagate, the Dr. Solomon Group and Trend
Micro, Inc., as well as numerous smaller companies and shareware authors that
may in the future develop into stronger competitors or be consolidated into
larger competitors. In the encryption portion of the security market, the
Company's principal competitors are Security Dynamics Technologies, Inc., Cylink
Corporation, Entrust Technologies and VeriSign, Inc. The Company's principal
competitors in the help desk market are Remedy Corporation, Software Artistry
(recently acquired by Tivoli Systems/IBM) and Magic Solutions, Inc. The
Company's principal competitor in the software-based network fault and
performance management market is HP, with other competitors including Azure
Technologies Incorporated, Concord Communications, DeskTalk Systems, Kaspia
Systems, Shomiti Systems, Inc. and Wandel & Goltermann, Inc. The Company also
faces competition in the security market from Cisco, Security Dynamics
Technologies, Inc., Checkpoint Software and other vendors in the
encryption/firewall market. In addition, the Company faces competition from
large and established software companies such as Microsoft, Intel, Novell and HP
which offer network management products as enhancements to their network
operating systems. As the network management market develops, the Company may
face increased competition from these large companies, as well as other
companies seeking to enter the
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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. In addition, to the extent that the Company
is successful in developing its Net Tools suite of products designed around a
centralized management and administration console for the Windows NT platform,
the Company will likely compete with large computer systems management companies
such as Tivoli Systems (TME) and Computer Associates (Unicenter). 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 local competitors in specific foreign
markets present stronger competition and 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 lagged significantly behind North America
and Europe in their adoption of networking technology. There can be no assurance
that the Company will be able to compete successfully in international markets.
Need to Develop Enterprise and National Accounts Sales Force and Security
Products Sales Force; Risks Related to Direct Sales Force. In connection with
its recent acquisitions and as part of its evolving strategy of offering product
suites under the Net Tools umbrella, the Company has recently reorganized its
direct sales force into three tiers. The first tier focuses on the sale of the
full product suite under the Net Tools umbrella to enterprise and national
account customers. The second tier consists of four separate sales groups
focused on the sale of the individual product suites (i.e., McAfee Total Virus
Defense; PGP Total Network Security; Sniffer Total Network Visibility; or McAfee
Total Service Desk) to the departmental level. The third tier consists of four
separate outbound corporate telesales forces who actively market the Company's
individual product suites to customers with less than 1,000 nodes. The Company
historically has not had a large enterprise or national accounts sales force and
only recently developed a direct sales group focused on these larger accounts.
In addition, the Company has not historically had a separate sales force focused
on the sale of its suite of security products (many of which were only recently
acquired and are currently being engineered into a common suite). To succeed in
the direct sales channel for the enterprise and national accounts market and for
the sale of the separate security product suite, the Company will be required to
build a significant direct sales organization and will be required to attract
and retain qualified personnel, which personnel will require training about, and
knowledge of, product attributes for the Company's suite of products. There can
be no assurance that the Company will be successful in building the necessary
sales organization or in attracting, retaining or training these individuals.
Historically, the Company has sold its products at the departmental level. To
succeed in the enterprise and national accounts market will require, among other
things, establishing relationships and contacts with senior technology officers
at these accounts. There can be no assurance that the Company or its sales force
will be successful in these efforts.
The Company's sales organization structure may result in multiple customer
contacts by different Company sales representatives (particularly in
circumstances where the customer has multiple facilities and offices), a lack of
coordination between the Company's various sales organizations and a lack of
focus by the individual sales representatives on their designated customers or
products. The occurrence of these events could lead to customer confusion,
disputes in the sales force and lost revenue opportunities which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, while the development of a direct sales
channel reduces the Company's dependence on resellers and distributors, it may
lead to conflicts for the same customers and further customer confusion,
pressure by current and prospective customers for price reductions on products
and, consequently, in reductions in the Company's gross margin and operating
profit.
Use of Indirect Sales Channels; Need to Develop Indirect Sales Channel for
Sniffer and PGP Security Products. The Company markets a significant portion of
its products to end-users through distributors,
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resellers and VARs. The Company's distributors sell other products that are
complementary to, or compete with, those of the Company. While the Company
encourages its distributors to focus on its products through market and support
programs, there can be no assurance that these distributors will not give
greater priority to products of other suppliers, including competitors.
The Company does not have an extensive indirect sales channel for its
Network Sniffer products or its PGP security products. To succeed in the
indirect sales channel, the Company will be required to build a more extensive
network of distributors, resellers and VARs who will support and market these
products. These indirect channel participants will require significant training
about, and knowledge of, product attributes for these products and the related
product suites. There can be no assurance that the Company can successfully
establish such an indirect channel on a timely basis or at all or that such a
channel, once established, can be maintained.
The Company's agreements with its distributors provide for a right of
return. This right of return may be triggered by a number of events, including
returns to distributors by end users, inaccurate estimates of end user demand by
distributors, increased purchases by distributors in response to sales
incentives or transitions to new products or versions of products. As a result
of this right of return, revenue recognized by the Company upon sales to
distributors is subject to a reserve for returns. Returns could exceed reserves
as a result of distributors holding excessive Company product inventory. There
can be no assurance that current or future reserves established by the Company
will be adequate.
Need to Expand and Develop An Effective Professional Services Organization;
Risks Related to Third-Party Professional Services. As the Company's products
and computer networks become more complex, customers will increasingly require
greater professional assistance in the design, installation, configuration and
implementation of their networks and acquired products. To date, the Company has
relied on its limited professional services capabilities and increasingly on
outside professional service providers (including its distributors, resellers
and system integrators). There can be no assurance that third party service
providers can or will continue to be willing to provide adequate levels (both in
terms of time and quality) of professional services. Moreover, reliance on these
third parties reduces the Company's control over the provision of support
services for its products and places a greater burden on these third parties,
which, in turn, could delay the Company's recognition of product revenue, could
harm the Company's relationships or reputation with such third parties or the
end users of its products and could result in decreased future sales of, or
prices for, its products.
To more effectively service its customer's evolving needs, the Company
intends to significantly expand and develop its worldwide professional service
organization. There can be no assurance that the Company will be successful in
its efforts to expand and develop an effective professional services
organization. This will require that the Company hire and train additional
service professional who must be continually trained and educated to ensure that
they possess sufficient technical skills and product knowledge. In particular,
the market for qualified professionals is intensely competitive, making hiring
and retention difficult. The Company expects significant competition in this
market from existing providers of professional services and future entrants. The
Company must also properly price its services to attract customers, while
maintaining sufficient margins for its services. The Company expects that it
will have lower profit margins on its service revenues. The failure to develop
an effective professional services organization could have a material adverse
effect on the Company's business, financial condition and results of operations.
Reliance on Microsoft Technology. Although the Company intends to support
other operating systems, the Company's mission is to be the leading supplier of
network security and management products for Windows NT/Intel based networks.
Sales of the Company's products would be materially and adversely affected by
market developments which are adverse to the Windows operating environments,
including the failure of users and application developers to accept Windows NT.
In addition, the Company's ability to develop products using the Windows
operating environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance.
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Risks Associated with Failure to Manage Growth. The Company's growth
internally and through its numerous acquisitions has placed, and any further
expansion would continue to place, a significant strain on its limited
personnel, management and other resources. In the future, the Company's ability
to manage any growth, particularly with the anticipated expansion of the
Company's international business and growth in indirect channel business, will
require it to attract, train, motivate and manage new employees successfully, to
effectively integrate new employees into its operations and to continue to
improve its operational, financial, management and information systems and
controls. The failure to effectively manage any further growth could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Proprietary Technology and Rights. The Company's success is heavily
dependent upon proprietary software technology. The Company relies on a
combination of contractual rights, trademarks, trade secrets and copyrights to
establish and protect proprietary rights in its software. There can be no
assurance these protections will be adequate or that competitors will not
independently develop technologies or products that are substantially equivalent
or superior to the Company's products.
The Company recently changed its legal name to "Networks Associates, Inc."
and has recently begun conducting business as "Network Associates." The Company
believes that there are a number of other companies with similar names and,
although the Company has not been served in any suit, three companies (including
Network Associates Corporation in California and Network Associates, Inc. in
Oregon) have made claims (including various trademark claims) or demands with
respect to the Company's use of the name Network Associates. There can be no
assurance that the Company will be able to enforce rights in that name, that it
will be free to use the name in all jurisdictions, that there will be no
additional challenges to the use of that name or that it will not be required to
expend significant resources in securing the use of that name.
The Company does not typically obtain signed license agreements from its
corporate, government and institutional customers who license products directly
from it. The Company 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 such
licenses may not be enforceable under the laws of many states and foreign
jurisdictions. In addition, the laws of some foreign countries either do not
protect proprietary rights or offer only limited protection for those rights.
There can be no assurance that the steps taken by the Company to protect its
proprietary software technology will be adequate to deter misappropriation of
this technology. For example, the Company is aware that a substantial number of
users of its anti-virus products have not paid any registration or license fees
to the Company. Changing legal interpretations of liability for unauthorized use
of the Company's software, or lessened sensitivity by corporate, government or
institutional users to avoiding copyright infringement, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's principal assets are its intellectual property, and the
Company competes in an increasingly competitive market. There has been
substantial litigation regarding intellectual property rights of technology
companies. The Company has in the past been, and currently is, subject to
litigation related to its intellectual property (including a pending unfair
trade practice case and a patent infringement case involving Symantec and Trend
Micro Inc., respectively). There can be no assurance that there will be no
developments arising out of such pending litigation or any other litigation to
which the Company is or may become party which could have a material adverse
effect on the Company's business, financial condition and results of operation.
In addition, as the Company may acquire a portion of software included in
its products from third parties, its exposure to infringement actions may
increase because it must rely upon such third parties as to the origin and
ownership of any software being acquired. Similarly, exposure to infringement
claims exists and will increase to the extent that the Company employs or hires
additional software engineers previously employed by competitors,
notwithstanding measures taken by them to prevent usage by such software
engineers of intellectual property used or developed by them while employed by a
competitor. In the future, litigation may be necessary to enforce and protect
trade secrets and other intellectual property rights owned by the Company. The
Company 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
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and cause diversion of management's attention, either of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Adverse determinations in such litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its products, any one of which could
have a material adverse effect on the Company'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.
Litigation. The Company's principal assets are its intellectual property,
and the Company competes in an increasingly competitive market. There has been
substantial litigation regarding intellectual property rights of technology
companies. The Company has in the past been, and currently is, subject to
litigation related to its intellectual property. There can be no assurance that
there will be no developments arising out of such pending litigation or any
other litigation to which the Company is or may become party which could have a
material adverse effect on the Company's business, financial condition and
results of operation.
On April 24, 1997, the Company was served by Symantec with a suit filed in
the United States District Court, Northern District of California, San Jose
Division, alleging copyright infringement and unfair competition by the Company.
Symantec alleges that the Company's computer software program called "PC Medic"
copied portions of Symantec's computer software program entitled "CrashGuard."
Symantec's complaint sought injunctive relief and unspecified money damages. On
July 20, 1997, Symantec sought leave to amend its complaint to include
additional allegations of copyright infringement and trade secret
misappropriation pertaining to the Company's "VirusScan" product. Symantec
sought injunctive relief and unspecified money damages. On October 6, 1997, the
Court issued an order granting Symantec's motion to amend its complaint and
enjoining the Company from shipping any product containing either an
approximately 30-line routine found in Crash Guard or an approximately 100-line
routine found in a Symantec DLL. The Court's order expressly stated that "the
court is not enjoining the sale or distribution of [McAfee's] current product."
On December 19, 1997, the Court denied Symantec's motion to enjoin sale or
distribution of the Company's current PC Medic product. Trial is set for
September 1998.
On May 13, 1997, Trend Micro Inc. ("Trend") filed suit in United States
District Court for the Northern District of California against both the Company
and Symantec. Trend alleges that the Company's "WebShield" and "GroupShield"
products infringe a Trend patent which issued on April 22, 1997. Trend's
complaint seeks injunctive relief and unspecified money damages. On June 6,
1997, the Company filed its answer denying any infringement. The Company also
filed a counterclaim against Trend alleging unfair competition, false
advertising, trade libel, and interference with prospective economic advantage.
On September 19, 1997, Symantec filed a motion to sever Trend's action against
the Company from its action against Symantec. The Company did not oppose
Symantec's motion to sever, other than to recommend a joint hearing on patent
claim interpretation. On December 19, 1997, the Court granted Symantec's motion
to sever and adopted the Company's recommendation regarding a joint hearing on
patent claim interpretation. As a result of the Court's decision, Trend's
actions against the Company and Symantec will proceed separately. The exact
terms of the severance order have not yet been approved by the Court, and the
Court has yet to reset key dates for discovery and trial in the two cases. The
Company anticipates that the Court will shortly reset the date for the joint
patent claim interpretation hearing for late June or July, 1998. Thirty days
after the joint patent claim interpretation hearing, the Court has indicated it
will set further dates for discovery and trial.
On May 6, 1997, RSA Data Security, Inc. ("RSA") filed a lawsuit against
PGP, a wholly owned subsidiary of the Company since December 9, 1997, in San
Mateo County Superior Court. RSA seeks a declaration from the court that certain
paragraphs of a license agreement between PGP and Public Key Partners (the
"License Agreement") have been terminated and certain other paragraphs have
survived RSA's purported termination of the License Agreement. RSA, which
purports to act on behalf of Public Key Partners, also seeks an accounting of
PGP's sales of products subject to the License Agreement. PGP denies that RSA
has the authority to act on behalf of Public Key Partners, and denies that the
License Agreement has been breached or terminated in whole or in part. On May
22, 1997, PGP filed a motion to compel arbitration of the action pursuant to an
arbitration clause in the License Agreement. PGP's motion was granted on October
9, 1997. The Court stayed the state court proceedings and ordered the action to
arbitration. The arbitration proceedings are in the preliminary stages.
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On October 14, 1997, RSA filed a patent infringement lawsuit against PGP in
the United States District Court for the Northern District of California. RSA
alleges PGP has infringed one of the patents which was licensed to PGP under the
License Agreement. On November 4, 1997, PGP moved to stay the federal action,
or, in the alternative, compel it to arbitration. On December 23, 1997, RSA
filed a motion to amend its complaint to include the Company as defendant. PGP's
motion to stay and RSA's motion to amend its complaint are scheduled to be heard
by the federal court in February 1998.
On September 15, 1997, the Company was named as a defendant in a patent
infringement action filed by Hilgraeve Corporation ("Hilgraeve") in the United
States District Court, Eastern District of Michigan. Hilgraeve alleges that
the Company's VivusScan product infringes a Hilgraeve patent which was issued
on June 7, 1994. Hilgraeve's action seeks injunctive relief and unspecified
money damages. The case is in discovery.
Although the Company has not been served in any suit, three companies
(including Network Associates Corporation in California and Network Associates,
Inc. in Oregon) have made claims (including various trademark claims) or demands
with respect to the Company's use of the name Network Associates.
Although the Company intends to defend itself vigorously against the
claims asserted against it in the foregoing actions or matters, there can be no
assurance that such pending litigation will not have a material adverse effect
on the Company's business, financial condition or operating results. The
litigation process is subject to inherent uncertainties and no assurance can be
given that the Company will prevail in any such matters, or will be able to
obtain licenses, on commercially reasonable terms, or at all, under any patents
or other intellectual property rights that may be held valid or infringed
by the Company or its products. Uncertainties inherent in the litigation
process involve, among other things, the complexity of the technologies
involved, potentially adverse changes in the law and discovery of facts
unfavorable to the Company.
Risks Related to International Revenue and Activities. In 1997, 1996 and
1995, net revenue from international licenses represented approximately 28%, 24%
and 25%, respectively, of the Company's net revenue. Historically, the Company
has relied primarily upon independent agents and distributors to market its
products internationally. The Company expects that international revenues will
continue to account for a significant percentage of net revenue. The Company
also expects that a significant portion of such international revenue will be
denominated in local currencies. To reduce the impact of foreign currency
fluctuations, the Company uses non-leveraged forward currency contracts.
However, there can be no assurance that the Company's future results of
operations will not be adversely affected by such fluctuations or by costs
associated with currency risk management strategies. Other risks inherent in
international revenue generally include the impact of 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, tariffs and other trade barriers,
uncertainties relative to regional economic circumstance (such as the current
economic turbulence in Asia), political instability in emerging markets and
difficulties in staffing and managing foreign operations. 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.
There are a number of additional risks related to the export of the
Company's PGP security products. See "-- Risks Relating to Cryptography
Technology."
In addition, a portion of the Company's international revenue is expected
to continue to be generated through independent agents. Since these agents will
not be employees of the Company and will not be required to offer the Company's
products exclusively, there can be no assurance that they will continue to
market the Company's products. Also, the Company is likely to have limited
control over its agents, limited access to the names of the customers to whom
the agents sell its products and limited knowledge of the information provided
by, or representations made by, these agents to its customers.
16
<PAGE> 18
Risk of Sabotage. Given the Company's high profile in the anti-virus
software market, the Company has been a target of computer "hackers" who have
created viruses to sabotage its 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 the Company's
software products will not suffer as a result. In addition, since the Company
does not control diskette duplication by distributors or its independent agents,
there can be no assurance that diskettes containing the Company's software will
not be infected.
Risk of False Detection of Viruses. The Company'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 the Company's products and may therefore
adversely impact market acceptance of the Company's products. In addition, the
Company 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. The board of directors of the Company
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 Company Common Stock will be subject
to, and may be adversely 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. Further,
certain provisions of Delaware law and the Company'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 the Company. While
such provisions are intended to enable the Company's Board to maximize
stockholder value, they may have the effect of discouraging takeovers which
could be the best interest of certain stockholders. There is no assurance that
such provisions will not have an adverse effect on the market value of the
Company's Common Stock.
Risks Relating to Cryptography Technology. Certain of the Company's PGP
network security products, technology and associated assistance are subject to
export restrictions administered by the U.S. Department of State and the U.S.
Department of Commerce, which permit the export of encryption products only with
the required level of export license. In addition, these U.S. export laws
prohibit the export of encryption products to a number of countries deemed
hostile by the U.S. government. U.S. export regulations regarding the export of
encryption technology require either a transactional export license or the
granting of Department of
17
<PAGE> 19
Commerce Commodity jurisdiction. As result of this regulatory regime, foreign
competitors facing less stringent controls on their products may be able to
compete more effectively than the Company in the global market. While the
Company has obtained approval from the Department of Commerce to export to
certain end users, there can be no assurance that the U.S. government will
approve pending or future export license requests. Further, there can be no
assurance that the list of products and countries for which export approval is
required, and the regulatory policies with respect thereto, will not be revised
from time to time. Failure to obtain the required licenses or the costs of
compliance could have a material adverse effect on the Company's international
revenues.
The Company's PGP network security products are dependent on the use of
public key cryptography technology, which depends in part on the application of
certain mathematical principles known as "factoring." The security afforded by
public key cryptography technology is predicated on the assumption that the
factoring of the composite of large prime numbers is difficult. Should an easy
factoring method be developed, then the security afforded by encryption products
utilizing public key cryptography technology would be reduced or eliminated.
Furthermore, any significant advance in techniques for attacking cryptographic
systems could also render some or all of the Company's existing products and
services obsolete or unmarketable. There can be no assurance that such
developments will not occur. Moreover, even if no breakthroughs in factoring or
other methods of attacking cryptographic systems are made, factoring problems
can theoretically be solved by computer systems significantly faster and more
powerful than those presently available. If such improved techniques for
attacking cryptographic systems are ever developed, it could have a material
adverse effect on the Company's business, operating results and financial
condition.
Product Liability. The Company's anti-virus and network management software
products are used to protect and manage computer systems and networks that may
be critical to organizations and, as a result, the sale and support of these
products by the Company may entail the risk of product liability and related
claims. The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in these license agreements may not be effective under the
laws of certain jurisdictions, particularly in circumstances involving unsigned
licenses. A product liability claim brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence upon Key Personnel. The success of the Company will depend to a
significant extent upon a number of key technical and management employees.
While employees are required to sign standard agreements concerning
confidentiality and ownership of inventions, Company employees are generally not
otherwise subject to employment agreements or to noncompetition covenants. The
loss of the services of any key employees could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company does not maintain life insurance policies on its key employees. The
ability of the Company to achieve its revenue and operating performance
objectives will depend in large part on its ability to attract and retain
technically qualified and highly skilled sales, consulting, technical, marketing
and management personnel. Competition for such personnel is intense and is
expected to remain so for the foreseeable future. There can be no assurance the
Company will be successful in retaining its existing key personnel and in
attracting and retaining the personnel it requires, and failure of the Company
to retain and grow its key employee population could adversely affect the
Company's business and operating results. Further, additions of new and
departures of existing personnel, particularly in key positions, can be
disruptive and can result in departures of existing personnel, which could have
a material adverse effect upon the Company's business, operating results and
financial condition.
Customer Purchase Decisions; Potentially Longer Sales and Implementation
Cycles for Certain Products Suites. The products offered by the Company may be
considered to be capital purchases by certain customers or prospective
customers. Capital purchases are often considered discretionary and, therefore,
are canceled or delayed if the customer experiences a downturn in its business
or prospects or as a result of economic conditions in general. Any such
cancellation or delay could adversely affect the Company's results of
operations. In addition, as the Company proceeds with its strategy of selling
product suites under the Net Tools umbrella (particularly to larger enterprise
and national accounts), its sales cycle is likely to lengthen.
18
<PAGE> 20
Such sales may involve a lengthy education process and a significant technical
evaluation and commitment of capital and other resources and may be subject to
the risk of delays associated with customers' internal budget and other
procedures for approving large capital expenditures, deploying new technologies
within their networks and testing and accepting new technologies that affect key
operations. Because of the potentially lengthy sales cycle and the potentially
large size of such orders, if orders forecasted for a specific customer for a
particular quarter are not realized or revenues are not otherwise recognized in
that quarter, the Company's operating results for that quarter could be
materially adversely affected. See "-- Variability of Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Although the Company
believes that its products and systems are Year 2000 compliant, the Company
utilizes third-party equipment and software that may not be Year 2000 compliant.
Failure of such third-party equipment or software to operate properly with
regard to the Year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on the Company's business, operating results and financial
condition. The business, operating results and financial condition of the
Company's customers could be adversely affected to the extent that they utilize
third-party software products which are not Year 2000 compliant. Furthermore,
the purchasing patterns of customers or potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products and services such as those offered
by the Company, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Supplier Dependence; Third Party Manufacturing. Certain of the Company's
products contain critical components supplied by a single or a limited number of
third parties. The Company has been required to purchase and inventory certain
of the computer platforms around which it designs its network fault and
performance management products to ensure an available supply of the product for
its customers. Any significant shortage of these platforms or other components
or the failure of the third party supplier to maintain or enhance these products
could lead to cancellations of customer orders or delays in placement of orders
which could materially adversely affect the Company's results of operations. If
the Company's purchase of such components or platforms exceeds demand, the
Company could incur losses or other charges in disposing of excess inventory,
which could also materially adversely affect the Company's results of
operations.
The Company's manufacturing operations consist primarily of final assembly,
testing and quality control of materials, components, subassemblies and systems
for its Sniffer based products. The Company intends to outsource these
manufacturing operations in 1998. There can be no assurance that the Company
will be able to qualify and secure on commercially acceptable terms satisfactory
third party manufacturers on a timely basis or at all. In addition, reliance on
third party manufacturers will involve a number of risks, including the lack of
direct control over the manufacturing process, the absence or unavailability of
adequate capacity and reduced control over delivery schedules, quality control
and costs. In the event that, once initially secured, the Company's third party
manufacturers are unable or unwilling to continue to manufacture the Sniffer
based products in required volumes, on a cost effective basis, in a timely
manner or at all, the Company will have to secure additional manufacturing
capacity. Even if such additional capacity is available at commercially
acceptable terms, the qualification process could be lengthy and could create
delay in product shipments.
Possible Price Volatility of Common Stock. The trading price
of the Company's Common Stock has historically been, and is expected to be,
subject to wide fluctuations. The market price of the Company Common Stock may
be significantly impacted by 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 the Company or its
competitors, announcements of extraordinary events such as acquisitions or
litigation or general economic conditions. Statements or changes
19
<PAGE> 21
in opinions, ratings, or earnings estimates made by brokerage firms or industry
analysts relating to the market in which the Company does business or relating
to the Company specifically could result in an immediate and adverse effect on
the market price of the Common Stock. 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. There can be no assurance that the market price of the
Common Stock will not decline below the levels prevailing at the time of this
offering. Securities class action lawsuits are often brought against companies
following periods of volatility in the market price of their securities. Any
such litigation against the Company could result in substantial costs and a
diversion of resources and management attention.
20
<PAGE> 22
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders, the number of
shares of the Company's Common Stock which each owned or had the right to
acquire as of February 11, 1998. Because the Selling Stockholders may offer all
or some of the Shares which they hold pursuant to the offering contemplated by
this Prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares, no estimate can be
given as to the amount of Shares that will be held by the Selling Stockholders
after completion of this offering. The Shares are being registered to permit
public secondary trading of the Shares, and the Selling Stockholders may offer
the Shares for resale from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholders were acquired from
the Company in connection with the Company's acquisition of (i) all of the
outstanding stock of Helix (the "Helix Acquisition"), (ii) all the issued and
outstanding stock of PGP (the "PGP Acquisition"), (iii) all the outstanding
stock of Jade (the "Jade Acquisition"), (iv) a controlling interest in FSA (the
"FSA Acquisition") or (v) all the outstanding stock of Schuijers (the "Schuijers
Acquisition"). The Helix Acquisition was accomplished pursuant to the terms of
an Agreement and Plan of Reorganization, dated December 1, 1997, whereby all
issued and outstanding shares of Helix were exchanged for an aggregate of
550,000 shares of the Company's Common Stock. The PGP Acquisition was
accomplished pursuant to the terms of an Agreement and Plan of Reorganization,
dated as of December 1, 1997, among the Company, PGP and PG Acquisition Corp., a
wholly owned subsidiary of the Company whereby the Company paid approximately
$36 million in cash and assumed liabilities and issued certain warrants to
acquire approximately 250,000 shares of the Company's Common Stock to the former
holders of PGP Series B Preferred Stock. The Jade Acquisition was accomplished
pursuant to the terms of a Stock Exchange Agreement dated January 13, 1997,
whereby all the issued and outstanding shares of stock of Jade were exchanged
for an aggregate of 336,071 shares of the Company's Common Stock. The FSA
Acquisition was accomplished pursuant to the terms of a Combination Agreement,
dated August 16, 1996, whereby the Company issued an aggregate of 375,065 shares
of its Common Stock in exchange for Class F Exchangeable Shares of FSA (the
"Exchangeable Shares") issued to the former shareholder of FSA. The Schuijers
Acquisition was accomplished pursuant to the terms of a Stock Exchange Agreement
dated February 28, 1997 whereby the Company issued 63,721 shares of its Common
Stock in exchange for all issued and outstanding shares of Schuijers.
The Company has filed with the Commission, under the Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions. The Company has agreed to use
reasonable efforts to keep such Registration Statement effective for 365 days
from the date of effectiveness of the Registration Statement on Form S-3, of
which this Prospectus forms a part, subject to certain restrictions, or, if
earlier, until the distribution contemplated in this Prospectus has been
completed.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
21
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIALLY OWNED PRIOR PERCENTAGE OF
NAME OF SELLING STOCKHOLDER TO THE OFFERING OUTSTANDING SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
N.A.M. Huijbregts 21,028 *
Drs P.A.G. Peters 21,028 *
Amitges Beheer B.V 21,665 *
Seiji Murakami 65,870 *
Sange Murakami 40,328 *
Atsuhiro Murakami 9,410 *
Kanako Murakami 9,410 *
Daniel Freedman 325,062 *
Michael L. Spilo 326,408 *
Jeremy J. Biggs 2,837 *
John T. Dunne 4,254 *
Janet M. Spitzer 11,348 *
Daniel A. Fabrizio 17,022 *
Jonathan A. Daub 11,348 *
Tami Spilo 39,718 *
Daniel Spilo 19,859 *
Frances E. Refol 7,943 *
Estate of James Pancamo 11,914 *
Attachmate Corp. 98,059 *
Gerard Klauer Mattison & Co., Inc. 5,000(1) *
Cornerstone Properties I, LLC 62,955(1) *
Robert Carroll, M.D 8,705(1) *
Troy S. Potter 3,731(1) *
James B. Howard 6,218(1) *
Mark Zwecker 2,488(1) *
Robert W. White, II 249(1) *
Ozawa Family Trust 3,109(1) *
David Heller and Etta Heller 3,109(1) *
RPM Asset Management 7,462(1) *
PGP Partners 5,223(1) *
James N. Oliphant 1,866(1) *
Michael Nichols 1,244(1) *
Robert M. Murphy 3,731(1) *
Patrick E. Murphy 2,488(1) *
Thomas A. Burg 622(1) *
William A. Benton 3,731(1) *
Jeffrey W. Benton 2,488(1) *
Frederick F. Tramutola, Jr 622(1) *
Stephen J. Lewis and Lori D. Sutherland JTWROS 1,244(1) *
Timothy Sommerfield 1,244(1) *
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
<S> <C> <C>
Calco Partners, Ltd. 1,244(1) *
Robert C. Fitzwilson Trust 3,109(1) *
Susan Jackson Trust 3,109(1) *
Holt Hickman 2,488(1) *
James E. Askew 622(1) *
Paul David Rohrbaugh and Jennifer Sullivan 498(1) *
Johnny G. Bills 622(1) *
Earl V. Swift 622(1) *
Carlos Green and Jo Ann Green 622(1) *
George Kostohryz and Brenda Bostohryz 622(1) *
Richard W. Ehlers Trustee of Endodontic Association 1,244(1) *
Richard W. Ehlers and Jean W. Ehlers Trustees of Waldo 1,244(1) *
Solimar Company 6,218(1) *
Richard Parrillo 2,488(1) *
Richard S. Lipson and Francine R. Gursky Lipson 747(1) *
William N. Melton 24,872(1) *
W A & H Investment, LLC 6,218(1) *
Matt Kohn 1,244(1) *
John F. Morgan 3,731(1) *
Charles Ying 3,109(1) *
Richard Ying 3,109(1) *
Frank M. Bishop 1,866(1) *
Willis M. Everett, III 622(1) *
John J. Monahan 1,244(1) *
Chattahoochee Leasing Corporation 2,488(1) *
Julio C. Beaton, Jr 1,244(1) *
James A. Slazas 871(1) *
James A. Slazas and Mary Ann Slazas 374(1) *
AOSA Ventures Limited Partnership 3,109(1) *
William J. Steding 9,949(1) *
Paul T. Leonard, Jr 2,488(1) *
Thomas L. Ward 1,393(1) *
John C. Dunning 2,488(1) *
Neal M. Allen 2,488(1) *
Leonard E. Oliver 1,244(1) *
Melville Marx 2,488(1) *
The Martin C. and Edis Robinson Revocable Trust 2,488(1) *
Hasan 1995 Living Trust 3,731(1) *
Lida Urbanek Revocable Trust 2,488(1) *
Frederick M. Hoar and Sheila J. Hoar 622(1) *
The Kahn Revocable Family Trust 1,244(1) *
Alston & Bird LLP 1,084(1) *
James Seltzer 8,705(1) *
</TABLE>
- ----------
* Less than 1%
(1) Such shares are purchasable pursuant to a Warrant Agreement dated
December 9, 1997 by and between the Company and such Beneficial Owner.
23
<PAGE> 25
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling
Stockholders may be delivered and/or sold from time to time in transactions on
the Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. After the effectiveness of the
Registration Statement of which this Prospectus is a part, the Selling
Stockholders may make short sales of the Company's Common Stock and may use the
Shares to cover the resulting short positions. The Selling Stockholders may
effect such transactions by selling the Shares to or through broker-dealers and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
the Shares for whom such broker-dealers may act as agent or to whom they sell as
principal or both (which compensation to a particular broker-dealer might be in
excess of customary commissions). There is no assurance that any of the Selling
Stockholders will sell any or all of the Shares offered by them.
Any Selling Stockholder and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Each Selling
Stockholder may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company has agreed to indemnify in certain circumstances certain Selling
Stockholders against certain liabilities, including liabilities arising under
the Securities Act and Exchange Act. Certain Selling Stockholders have agreed to
indemnify in certain circumstances the Company and certain related persons
against certain liabilities, including liabilities arising under the Securities
Act and Exchange Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from a Selling Stockholder (and, if it acts as agent for the
purchase of such Shares, from such purchaser). Broker-dealers may agree with
such Selling Stockholder to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for such Selling Stockholder, to purchase as principal any
unsold Shares. Broker-dealers who acquire Shares as principal may thereafter
resell such Shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) on the
Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices, and in connection with such
resales may pay to or receive from the purchasers of such Shares commissions
computed as described above.
Each Selling Stockholder will be subject to applicable provisions of
the Exchange Act, and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the time of bids for and
purchases of shares of the Company's Common Stock by such Selling Stockholder.
Each Selling Stockholder will pay all commissions and other expenses
associated with the sale of the Shares by such Selling Stockholder. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to bear certain expenses in connection with
the registration and sale of the Shares being offered by every such Selling
Stockholder. The Company has not made any underwriting arrangements with respect
to the sale of Shares offered hereby.
24
<PAGE> 26
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum
extent permitted by Delaware law, the personal liability of directors for
monetary damages for breach of their fiduciary duties as a director. The
Company's Bylaws provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest extent
permitted by Delaware law. The Company has entered into indemnification
agreements with its officers and directors containing provisions which are in
some respects broader than the specific indemnification provisions contained in
the Delaware General Corporation Law. The indemnification agreements require the
Company, among other things to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance, if available on reasonable terms. The
Company believes that these agreements are necessary to attract and retain
qualified persons as directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and with respect to any criminal action, had no reasonable cause
to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996
and 1995, and the consolidated statements of income, stockholders' equity, and
cash flows and the financial statement schedule for each of the years in the
three-year period ended December 31, 1996, incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants, and are incorporated herein by reference in
reliance upon the report of Coopers & Lybrand L.L.P., and upon the authority of
such firm as experts in accounting and auditing.
The audited consolidated financial statements of Network General
Corporation as of March 31, 1996 and 1997 and for each of the three years in the
period ended March 31, 1997 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports.
25
<PAGE> 27
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THE PROSPECTUS.
TABLE OF CONTENTS
PAGE
Trademarks 2
McAfee Associates/Network General Merger 2
Available Information 2
Information Incorporated by Reference 2
Forward-Looking Statements 3
The Company 4
Risk Factors 6
Selling Stockholders 21
Plan of Distribution 24
Use of Proceeds 25
Indemnification of Directors and Officers 25
Legal Matters 25
Experts 25
1,309,477 SHARES
NETWORKS ASSOCIATES,
INC.
Common Stock
------------------
------------------ , 1998
------------------
<PAGE> 28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The fees and expenses incurred by the Company in connection with the
offering are payable by the Company and, other than filing fees, are estimated
as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee................ $21,968
NASDAQ Filing Fee.................................................. 17,500
Legal Fees and Expenses ........................................... 20,000
Accounting Fees.................................................... 10,000
Miscellaneous...................................................... 5,000
-------
Total............................................................ $74,465
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interest, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
In accordance with the DGCL, the Company's Second Restated Certificate
of Incorporation ("Certificate") contains a provision to limit the personal
liability of the directors of the Registrant for violations of their fiduciary
duty. This provision eliminates each director's liability to the Registrant or
its stockholders for monetary damages except (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit. The effect of this provision is to
eliminate the personal liability of directors for monetary damages for actions
involving a breach of their fiduciary duty of care, including any such actions
involving gross negligence.
Article Sixth of the Company's Certificate and Article VIII, Section 1
of the Company's Bylaws provide for indemnification of the officers and
directors of the Registrant to the fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
II-1
<PAGE> 29
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of October 13,
1997, among McAfee Associates, Inc., Mystery Acquisition Corp.
and Network General Corporation, as amended by the First
Amendment thereto, dated as of October 22, 1997.
2.2 Combination Agreement dated August 16, 1996 among the Registrant,
FSA Combination Corp., FSA Corporation and Daniel Freedman.(1)
2.3 Stock Exchange Agreement dated January 13, 1996 among the
Registrant, FSA Combination Corp., Kabushiki Kaisha Jade and
the shareholders of Jade.(2)
2.4 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, Helix Software Company and DNA
Acquisition Corp.
2.5 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, PGP and PG Acquisition Corp.,
incorporated by reference to the Report on Form 8-K of the
Registrant as filed with the Securities and Exchange Commission
on December 11, 1997 (the "December 11, 1997 Form 8-K").
4.1 Registration Rights Agreement, dated as of August 30, 1996,
by and among McAfee Associates, Inc., FSA Combination Corp.
and FSA Corporation, incorporated by reference to the Report
on Form 8-K of McAfee Associates, Inc., as filed with the
Securities and Exchange Commission on September 24, 1996
(the "September 24 Form 8-K").
4.2 Registration Rights Agreement, dated January 13, 1997 by and
between McAfee Associates, Inc. and the shareholders of Jade,
incorporated by reference to the Report on Form 8-K of McAfee
Associates, Inc., as filed with the Securities and Exchange
Commission on March 14, 1997 (the "March 14 Form 8-K").
4.3 Registration Rights Agreement, dated as of February 28, 1997,
by and between McAfee Associates, Inc. and shareholders of
Schuijers, incorporated by reference to Exhibit 10.50 to the
Report on Form 10-K of McAfee Associates, Inc. for the year
ended December 31, 1996 (the "1996 Form 10-K").
4.4 Registration Rights Agreement, dated December 1, 1997 by and
between McAfee Associates, Inc. and the shareholders of Helix.
4.5 Registration Rights Agreement, dated December 9, 1997 between
McAfee Associates, Inc. and certain shareholders of PGP,
incorporated by reference to the Report on Form 8-K of McAfee
Associates as filed with the Securities and Exchange Commission
on December 11, 1997 (the "December 11 Form 8-K").
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Standard Business Lease (Net) for Network General's principal
facility dated June 18, 1991, between Network General and Menlo
Oaks Partners, L.P., which is incorporated by reference to
Exhibit 10.3 of Network General's Annual Report on Form 10-K
for the year ended March 31, 1991.(3)
10.2 First Amendment to Lease dated June 10, 1992, between Network
General and Menlo Parks Partners, L.P., which is incorporated by
reference to Exhibit 10.3 of Network General's Annual Report on
Form 10-K for the year ended March 31, 1992 ("Network General
1992 Form 10-K").(3)
10.3 Standard Business Lease (Net) for Network General's principal
facility dated March 11, 1992, between Network General and Menlo
Oaks Partners, L.P., which is incorporated by reference to
Exhibit 10.4 of the Network General 1992 Form 10- K.(3)
10.4 First Amendment to Lease dated June 18, 1992, between Network
General and Menlo Oaks Partners, L.P., which is incorporated by
reference to Exhibit 10.5 of the Network General 1992 Form 10-K.(3)
</TABLE>
II-2
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
10.5 Lease dated March 31, 1992, between Network General and
Equitable Life Assurance Society of the United States, which
is incorporated by reference to Exhibit 10.4 of the Network
General 1992 Form 10-K.(3)
10.6 Second Amendment to Lease dated February 1, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.2 of Network
General's Quarterly Report on form 10-Q for the quarter
ended December 31, 1994 ("Network General December 1994 form
10-Q").(3)
10.7 Third Amendment to Lease dated February 1, 1995 between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.23 of the Network
General December 1994 Form 10-Q.(3)
10.8 Fourth Amendment to Lease dated May 31, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.27 of Network
General's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 ("Network General June 1995 Form
10-Q").(3)
10.9 Fifth Amendment to Lease dated June 13, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.28 of the Network
General June 1995 Form 10-Q.(3)
10.10 Lease dated July 3, 1996, between Network General and
Campbell Avenue Associates, which is incorporated by
reference to Exhibit 10.21 of Network General's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.(3)
10.11 Sixth Amendment to Lease dated November 29, 1996, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.22 of Network
General's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996.(3)
10.12 Sublease Agreement for facility at 2805 Bowers Avenue, Santa
Clara, California, dated as of February 20, 1997, by and
between McAfee Associates, Inc. and National Semiconductor
Corporation, incorporated by reference to Exhibit 10.51 of
the Form 10-Q of McAfee Associates, Inc. for the Quarter
ended June 30, 1997.
10.13 Lease Agreement dated November 17, 1997 for facility at 3965
Freedom Circle, Santa Clara, California by and between
Informix Corporation and McAfee Associates, Inc.
10.14 Consent to Assignment Agreement dated December 19, 1997 by
and among Birk S. McCandless, LLC, Guaranty Federal Bank,
F.S.B., Informix Corporation and Networks Associates, Inc.
10.15 Subordination, Nondisturbance and Attornment Agreement dated
December 18, 1997 between Guaranty Federal Bank, F.S.B.,
Networks Associates, Inc., and Birk S. McCandless, LLC.
10.16 Lease dated November 22, 1996 by and between Birk S.
McCandless, LLC and Informix Corporation for facility at
3965 Freedom Circle, Santa Clara, California.
10.17 Quota Purchase Assignment Agreement, dated as of April 14,
1997, by and among McAfee Associates, Inc. and McAfee Do
Brasil Ltda., Compusul-Consultoria E Comericio De
Informatica Ltda., and the stockholders of
Compusul-Consultoria E Comericio De Informatica Ltda.,
incorporated by reference to Exhibit 10.52 of the Form 10-Q
of McAfee Associates, Inc. for the Quarter ended June 30,
1997.
</TABLE>
II-3
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C>
10.18 1997 Stock Incentive Plan, incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of
McAfee Associates, Inc., filed with the Securities and
Exchange Commission on August 8,1997.
21.1 Subsidiaries of Networks Associates, Inc.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included in Part II of this Registration
Statement under the caption "Signatures").
</TABLE>
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K filed with the Commission on September 24, 1996.
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K filed with the Commission on March 14, 1997.
(3) Network General's filings with the Commission were made under File
Number 0-17431.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii)to reflect in
the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement; provided, however, that (i) and
(ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective amendment
by (i) and (ii) is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report
II-4
<PAGE> 32
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment of
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California on this 11th day of
February, 1998.
NETWORKS ASSOCIATES, INC.
By: /s/ William L. Larson
--------------------------------
William L. Larson
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Networks Associates,
Inc., a Delaware corporation, do hereby constitute and appoint jointly and
severally, William L. Larson and Prabhat K. Goyal, and each of them, the lawful
attorneys and agents, with power and authority to do any and all acts and things
and to execute any and all instruments which said attorneys and agents determine
may be necessary or advisable or required to enable said corporation to comply
with the Securities Act, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents or
any of them shall do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
II-6
<PAGE> 34
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William L. Larson President, Chief Executive Officer and February 11, 1998
- ------------------------ Chairman of the Board (Principal Executive
William L. Larson Officer and Chairman of the Board)
/s/ Prabhat K. Goyal Vice President of Finance and February 11, 1998
- ------------------------ Administration, Chief Financial Officer,
Prabhat K. Goyal Treasurer and Secretary (Principal Financial
and Accounting Officer)
/s/ Virginia Gemmell Director February 11, 1998
- ------------------------
Virginia Gemmell
/s/ Leslie G. Denend Director February 11, 1998
- ------------------------
Leslie G. Denend
/s/ Edwin L. Harper Director February 11, 1998
- ------------------------
Edwin L. Harper
/s/ Harry J. Saal Director February 11, 1998
- ------------------------
Harry J. Saal
</TABLE>
II-7
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of October
13, 1997, among McAfee Associates, Inc., Mystery Acquisition
Corp. and Network General Corporation, as amended by the
First Amendment thereto, dated as of October 22, 1997.
2.2 Combination Agreement dated August 16, 1996 among the
Registrant, FSA Combination Corp., FSA Corporation and
Daniel Freedman.(1)
2.3 Stock Exchange Agreement dated January 13, 1996 among the
Registrant, FSA Combination Corp., Kabushiki Kaisha Jade and
the shareholders of Jade.(2)
2.4 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, Helix Software Company and DNA
Acquisition Corp.
2.5 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, PGP and PG Acquisition Corp.,
incorporated by reference to the Report on Form 8-K of the
Registrant as filed with the Securities and Exchange
Commission on December 11, 1997 (the "December 11, 1997 Form
8-K").
4.1 Registration Rights Agreement, dated as of August 30, 1996,
by and among McAfee Associates, Inc., FSA Combination Corp.
and FSA Corporation, incorporated by reference to the Report
on Form 8-K of McAfee Associates, Inc., as filed with the
Securities and Exchange Commission on September 24, 1996
(the "September 24 Form 8-K").
4.2 Registration Rights Agreement, dated January 13, 1997 by and
between McAfee Associates, Inc. and the shareholders of
Jade, incorporated by reference to the Report on Form 8-K of
McAfee Associates, Inc., as filed with the Securities and
Exchange Commission on March 14, 1997 (the "March 14 Form
8-K").
4.3 Registration Rights Agreement, dated as of February 28,
1997, by and between McAfee Associates, Inc. and
shareholders of Schuijers, incorporated by reference to
Exhibit 10.50 to the Report on Form 10-K of McAfee
Associates, Inc. for the year ended December 31, 1996 (the
"1996 Form 10-K").
4.4 Registration Rights Agreement, dated December 1, 1997 by and
between McAfee Associates, Inc. and the shareholders of
Helix.
4.5 Registration Rights Agreement, dated December 9, 1997
between McAfee Associates, Inc. and certain shareholders of
PGP, incorporated by reference to the Report on Form 8-K of
McAfee Associates as filed with the Securities and Exchange
Commission on December 11, 1997 (the "December 11 Form
8-K").
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Standard Business Lease (Net) for Network General's
principal facility dated June 18, 1991, between Network
General and Menlo Oaks Partners, L.P., which is incorporated
by reference to Exhibit 10.3 of Network General's Annual
Report on Form 10-K for the year ended March 31, 1991.(3)
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C>
10.2 First Amendment to Lease dated June 10, 1992, between
Network General and Menlo Parks Partners, L.P., which is
incorporated by reference to Exhibit 10.3 of Network
General's Annual Report on Form 10-K for the year ended
March 31, 1992 ("Network General 1992 Form 10-K").(3)
10.3 Standard Business Lease (Net) for Network General's
principal facility dated March 11, 1992, between Network
General and Menlo Oaks Partners, L.P., which is incorporated
by reference to Exhibit 10.4 of the Network General 1992
Form 10- K.(3)
10.4 First Amendment to Lease dated June 18, 1992, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.5 of the Network
General 1992 Form 10-K.(3)
10.5 Lease dated March 31, 1992, between Network General and
Equitable Life Assurance Society of the United States, which
is incorporated by reference to Exhibit 10.4 of the Network
General 1992 Form 10-K.(3)
10.6 Second Amendment to Lease dated February 1, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.2 of Network
General's Quarterly Report on form 10-Q for the quarter
ended December 31, 1994 ("Network General December 1994 Form
10-Q").(3)
10.7 Third Amendment to Lease dated February 1, 1995 between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.23 of the Network
General December 1994 Form 10-Q.(3)
10.8 Fourth Amendment to Lease dated May 31, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.27 of Network
General's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 ("Network General June 1995 Form
10-Q").(3)
10.9 Fifth Amendment to Lease dated June 13, 1995, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.28 of the Network
General June 1995 Form 10-Q.(3)
10.10 Lease dated July 3, 1996, between Network General and
Campbell Avenue Associates, which is incorporated by
reference to Exhibit 10.21 of Network General's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.(3)
10.11 Sixth Amendment to Lease dated November 29, 1996, between
Network General and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.22 of Network
General's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996.(3)
10.12 Sublease Agreement for facility at 2805 Bowers Avenue, Santa
Clara, California, dated as of February 20, 1997, by and
between McAfee Associates, Inc. and National Semiconductor
Corporation, incorporated by reference to Exhibit 10.51 of
the Form 10-Q of McAfee Associates, Inc. for the Quarter
ended June 30, 1997.
10.13 Lease Agreement dated November 17, 1997 for facility at 3965
Freedom Circle, Santa Clara, California by and between
Informix Corporation and McAfee Associates, Inc.
10.14 Consent to Assignment Agreement dated December 19, 1997 by
and among Birk S. McCandless, LLC, Guaranty Federal Bank,
F.S.B., Informix Corporation and Networks Associates, Inc.
</TABLE>
<PAGE> 37
10.15 Subordination, Nondisturbance and Attornment Agreement dated
December 18, 1997 between Guaranty Federal Bank, F.S.B.,
Networks Associates, Inc., and Birk S. McCandless, LLC.
10.16 Lease dated November 22, 1996 by and between Birk S.
McCandless, LLC and Informix Corporation for facility at
3965 Freedom Circle, Santa Clara, California.
10.17 Quota Purchase Assignment Agreement, dated as of April 14,
1997, by and among McAfee Associates, Inc. and McAfee Do
Brasil Ltda., Compusul-Consultoria E Comericio De
Informatica Ltda., and the stockholders of
Compusul-Consultoria E Comericio De Informatica Ltda.,
incorporated by reference to Exhibit 10.52 of the Form 10-Q
of McAfee Associates, Inc. for the Quarter ended June 30,
1997.
10.18 1997 Stock Incentive Plan, incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-8 of
McAfee Associates, Inc., filed with the Securities and
Exchange Commission on August 8,1997.
21.1 Subsidiaries of Networks Associates, Inc.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in opinions filed as Exhibit 5.1).
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included in Part II of this Registration
Statement under the caption "Signatures").
(1) Incorporated by reference from the Registrant's Current Report on Form
8-K filed with the Commission on September 24, 1996.
(2) Incorporated by reference from the Registrant's Current Report on Form
8-K filed with the Commission on March 14, 1997.
(3) Network General's filings with the Commission were made under File
Number 0-17431.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as
of October 13, 1997, among McAfee Associates, Inc., a Delaware corporation
("PARENT"), Mystery Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), and Network General Corporation, a Delaware
corporation ("COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW"), Parent and Company intend to enter into a
business combination transaction.
B. The Boards of Directors of Company and Parent (i) have determined
that the Merger (as defined in Section 1.1) is consistent with and in
furtherance of their respective long-term business strategies and fair to, and
in the best interests of, their respective stockholders, (ii) have approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) have, in the case of Company, subject to the provisions of this
Agreement, determined to recommend that the stockholders of Company adopt and
approve this Agreement and approve the Merger and, in the case of Parent,
subject to the provisions of this Agreement, determined to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock (as
defined in Section 1.6(a)) pursuant to the Merger.
C. The Board of Directors of Merger Sub has approved this Agreement,
the Merger and the other transactions contemplated by this Agreement.
D. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's and Company's respective willingness to
enter into this Agreement, certain stockholders of Company are entering into
Voting Agreements in substantially the form attached hereto as Exhibit A-1 (the
"COMPANY VOTING AGREEMENTS"), and certain stockholders of Parent are entering
into Voting Agreements in substantially the form attached hereto as Exhibit A-2
(the "PARENT VOTING AGREEMENTS").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
<PAGE> 2
F. It is also intended by the parties hereto that the Merger shall
qualify for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation. Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
a Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the Certificate of Merger) being
the "EFFECTIVE TIME") as soon as practicable on or after the Closing Date (as
herein defined). The closing of the Merger (the "CLOSING") shall take place at
the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a
time and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
-2-
<PAGE> 3
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; provided, however, that at the Effective Time the
Certificate of Incorporation of the Surviving Corporation shall be amended so
that the name of the Surviving Corporation shall be "Network General
Corporation."
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Company immediately prior
to the Effective Time shall continue as directors of the Surviving Corporation
(together with such additional directors as may be elected by Parent effective
as of or after the Effective Time). For transition purposes, Parent intends that
such directors shall continue to serve as directors of the Surviving Corporation
for 180 days or more following the Effective Time. The initial officers of the
Surviving Corporation shall be the officers of Merger Sub immediately prior to
the Effective Time.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Company or the holders
of any of the following securities:
(a) Conversion of Company Common Stock. Each share of Common
Stock, $0.01 par value per share, of Company (including, with respect to each
such share of Company Common Stock, the associated Rights (as defined in that
certain Rights Agreement (the "COMPANY RIGHTS PLAN") dated as of June 26, 1992,
between Company and Chemical Trust Company of California, as Rights Agent, as
amended))(the "COMPANY COMMON STOCK") issued and outstanding immediately prior
to the Effective Time, other than any shares of Company Common Stock to be
canceled pursuant to Section 1.6(b), will be canceled and extinguished and
automatically converted (subject to Sections 1.6(e) and (f)) into the right to
receive 0.4167 (the "EXCHANGE RATIO") shares of Common Stock of Parent (the
"PARENT COMMON STOCK") upon surrender of the certificate representing such share
of Company Common Stock in the manner provided in Section 1.7 (or in the case of
a lost, stolen or destroyed certificate, upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.9).
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(b) Cancellation of Parent-Owned Stock. Each share of Company
Common Stock held by Company or owned by Merger Sub, Parent or any direct or
indirect wholly owned subsidiary of Company or of Parent immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the
Effective Time, all options to purchase Company Common Stock then outstanding
under Company's 1989 Stock Option Plan (the "ISO PLAN"), Company's 1989 Outside
Directors Stock Option Plan (the "DIRECTORS' PLAN"), the Cinco Networks, Inc.
1997 Stock Option Plan (the "CINCO PLAN"), and options granted by ProTools, Inc.
and assumed by Company (the "PROTOOLS OPTIONS" and together with the ISO Plan,
the Directors' Plan and the Cinco Plan, the "COMPANY STOCK OPTION PLANS") shall
be assumed by Parent in accordance with Section 5.8 hereof. Rights outstanding
under Company's 1989 Employee Stock Purchase Plan (the "ESPP") shall be treated
as set forth in Section 5.8.
(d) Capital Stock of Merger Sub. Each share of Common Stock,
$0.001 par value per share, of Merger Sub (the "MERGER SUB COMMON STOCK") issued
and outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, $0.01
par value per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock or Company Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) shall
receive from Parent an amount of cash (rounded to the nearest whole cent) equal
to the product of (i) such fraction, multiplied by (ii) the average closing
price of one share of Parent Common Stock for the five (5) most recent days that
Parent Common Stock has traded ending on the trading day immediately prior to
the Effective Time, as reported on the Nasdaq National Market System ("NASDAQ").
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1.7 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust
company reasonably acceptable to Company to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the shares of Parent Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock, and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions to which holders
of shares of Company Common Stock may be entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. As soon as practicable after the
Effective Time, and in no event later than five (5) business days thereafter,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into shares of Parent Common
Stock pursuant to Section 1.6, cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d), (i) a letter of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall
contain such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.7(d). Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time, payment in
lieu of fractional shares which such holders have the right to receive pursuant
to Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, subject to Section 1.7(d) as to the
payment of dividends, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and
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the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6(f) and any dividends or distributions
payable pursuant to Section 1.7(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to Section
1.6(f) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing
shares of Parent Common Stock are to be issued in a name other than that in
which the Certificates surrendered in exchange therefor are registered, it will
be a condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of certificates representing shares of Parent Common Stock in any name other
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If
after the
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Effective Time Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6, cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.7(d);
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code, and
each of the parties hereto will use its commercially reasonable efforts to cause
the Merger to be treated as such a reorganization. The parties hereto adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall
qualify for accounting treatment as a pooling of interests.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action. Parent shall
cause Merger Sub to perform all of its obligations relating to this Agreement
and the transactions contemplated thereby.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to
the exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific representation supplied by Company to Parent dated as of
the date hereof and certified by a duly authorized officer of Company (the
"COMPANY SCHEDULES"), as follows:
2.1 Organization of Company.
(a) Company and each of its material subsidiaries (i) is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized; (ii) has
the corporate or other power and authority to own, lease and operate its assets
and property and to carry on its business as now being conducted; and (iii),
except as would not be material to Company, is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
(b) Company has delivered to Parent a true and complete list
of all of Company's subsidiaries as of the date of this Agreement, indicating
the jurisdiction of organization of each subsidiary and Company's equity
interest therein.
(c) Company has delivered or made available to Parent a true
and correct copy of the Certificate of Incorporation and Bylaws of Company and
similar governing instruments of each of its material subsidiaries, each as
amended to date, and each such instrument is in full force and effect. Neither
Company nor any of its material subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent governing
instruments.
2.2 Company Capital Structure. The authorized capital stock of Company
consists of 100,000,000 shares of Common Stock, $0.01 par value per share, of
which there were 42,461,275 shares issued and outstanding as of October 10, 1997
(excluding shares held in treasury of which there are none), and 2,000,000
shares of Preferred Stock, $0.01 par value per share, of which no shares are
issued or outstanding. All outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of Company or any agreement or document to which Company is a party or by which
it is bound. As of October 10, 1997, Company had reserved an aggregate of
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<PAGE> 9
11,300,548 shares of Company Common Stock, net of exercises, for issuance
pursuant to the Company Stock Option Plans. As of October 10, 1997, there were
options outstanding to purchase an aggregate of 2,699,996 shares of Company
Common Stock pursuant to the Company Stock Option Plans. As of October 10, 1997,
Company had reserved an aggregate of 2,000,000 shares of Company Common Stock
for issuance pursuant to the ESPP. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, would be duly authorized,
validly issued, fully paid and nonassessable. The Company Schedules list each
person who holds options to acquire shares of Company Common Stock of which the
exercisability will be accelerated in any way by the transactions contemplated
by this Agreement as well as the number of shares subject to such options and
the extent of such acceleration.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Company, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities Company owns free and clear of all claims and
encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of Company that are owned by certain nominee equity holders
as required by the applicable law of the jurisdiction of organization of such
subsidiaries, as of the date of this Agreement, there are no equity securities,
partnership interests or similar ownership interests of any class of any
material subsidiary of Company, or any security exchangeable or convertible into
or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.2, there are no options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its material subsidiaries is a party or by which it is bound
obligating Company or any of its material subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
Company or any of its material subsidiaries or obligating Company or any of its
material subsidiaries to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
As of the date of this Agreement, except as contemplated by this Agreement, the
Company Voting Agreement and the Company Affiliate Agreement (as defined in
Section 5.12), there are no registration rights and, to the knowledge of
Company, there are no voting trusts, proxies or other agreements or
understandings to which
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Company is a party or by which it is bound with respect to any equity security
of any class of Company or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its material
subsidiaries. Stockholders of Company will not be entitled to dissenters rights
under applicable state law in connection with the Merger.
2.4 Authority.
(a) Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, subject only to the approval of the Merger and the approval and adoption
of this Agreement by the stockholders of Company. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Company,
subject only to the approval and adoption of this Agreement and the approval of
the Merger by Company's stockholders and the filing of the Certificate of Merger
pursuant to Delaware Law. A vote of the holders of a majority of the outstanding
shares of the Company Common Stock is sufficient for Company's stockholders to
approve and adopt this Agreement and approve the Merger. This Agreement has been
duly executed and delivered by Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity. The execution and delivery of this Agreement by
Company do not, and the performance of this Agreement by Company will not, (i)
conflict with or violate the Certificate of Incorporation or Bylaws of Company
or the equivalent organizational documents of any of its material subsidiaries,
(ii) subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by Company's stockholders as contemplated in Section 5.2
and compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Company or any of its material subsidiaries or by which Company or any of its
material subsidiaries or any of their respective properties is bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or materially impair Company's material rights or alter
the material rights or material obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material lien or encumbrance on any of the material
properties or assets of Company or any of its subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company or any of
its material subsidiaries is a party or by which Company or any of its material
subsidiaries or its
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or any of their respective properties are bound or affected. The Company
Schedules list all consents, waivers and approvals under any of Company's or any
of its material subsidiaries' agreements, contracts, licenses or leases required
to be obtained in connection with the consummation of the transactions
contemplated hereby, which, if individually or in the aggregate not obtained,
would result in a material loss of benefits to Company, Parent or the Surviving
Corporation as a result of the Merger.
(b) 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, foreign or
domestic ("GOVERNMENTAL ENTITY"), is required to be obtained or made by Company
or any of its material subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the Merger, except for (i) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware, (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 2.18) with the Securities and Exchange Commission ("SEC") in accordance
with the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iii)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal, foreign and state
securities (or related) laws and the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR ACT"), and the securities or antitrust laws of
any foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to Company or have a material adverse effect on the ability of Company to
consummate the Merger.
2.5 SEC Filings; Company Financial Statements.
(a) Company has filed all forms, reports and documents
required to be filed by Company with the SEC since September 1, 1994 and has
made available to Parent such forms, reports and documents in the form filed
with the SEC. All such required forms, reports and documents (including those
that Company may file subsequent to the date hereof) are referred to herein as
the "COMPANY SEC REPORTS." As of their respective dates, the Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated
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therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company SEC Reports
(the "COMPANY FINANCIALS"), including each Company SEC Report filed after the
date hereof until the Closing, (i) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (ii)
was prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Company and its subsidiaries as at the respective dates
thereof and the consolidated results of Company's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to customary year-end
adjustments which will not have a Material Adverse Effect (as defined in Section
8.3(c)) on Company. The balance sheet of Company contained in Company SEC
Reports as of June 30, 1997 is hereinafter referred to as the "COMPANY BALANCE
SHEET." Except as disclosed in the Company Financials, since the date of the
Company Balance Sheet neither Company nor any of its subsidiaries has any
liabilities required under GAAP to be set forth on a balance sheet (absolute,
accrued, contingent or otherwise) which are, individually or in the aggregate,
material to the business, results of operations or financial condition of
Company and its subsidiaries taken as a whole, except for liabilities incurred
since the date of the Company Balance Sheet in the ordinary course of business
consistent with past practices.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet there has not been: (i) any Material Adverse Effect on Company,
(ii) any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of
Company's or any of its material subsidiaries' capital stock, or any purchase,
redemption or other acquisition by Company of any of Company's capital stock or
any other securities of Company or its material subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of Company's or any of its material
subsidiaries' capital stock, (iv) any granting by Company or any of its
subsidiaries of any increase in compensation or fringe benefits, except for
normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by Company or any of its
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subsidiaries of any bonus, except for bonuses made in the ordinary course of
business consistent with past practice, or any granting by Company or any of its
subsidiaries of any increase in severance or termination pay or any entry by
Company or any of its subsidiaries into any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent or the terms of which are materially altered
upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
licensing or other agreement with regard to the acquisition or disposition of
any material Intellectual Property (as defined in Section 2.9) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any material revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or "TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Company and each of its subsidiaries have timely filed
all federal, state, local and foreign returns, estimates, information statements
and reports ("RETURNS") relating to Taxes required to be filed by Company and
each of its subsidiaries with any Tax authority, except such Returns which are
not material to Company, and have paid all Taxes shown to be due on such
Returns.
(ii) Company and each of its material subsidiaries as of
the Effective Time will have withheld with respect to its employees all federal
and state income taxes, Taxes pursuant to the Federal Insurance Contribution Act
("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and other
Taxes required to be withheld.
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(iii) Neither Company nor any of its material subsidiaries
has been delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against Company or any of its material
subsidiaries, nor has Company or any of its material subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of
Company or any of its material subsidiaries by any Tax authority is presently in
progress, nor has Company or any of its material subsidiaries been notified of
any request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by
Company or any of its material subsidiaries has been proposed in writing
formally or informally by any Tax authority to Company or any of its material
subsidiaries or any representative thereof.
(vi) Neither Company nor any of its subsidiaries has
any liability for unpaid Taxes which has not been accrued for or reserved on the
Company Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Company, other than any liability for unpaid Taxes that may
have accrued since the date of the Company Balance Sheet in connection with the
operation of the business of Company and its subsidiaries in the ordinary
course.
(vii) There is no contract, agreement, plan or
arrangement to which Company is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Company or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(viii) Neither Company nor any of its subsidiaries
has filed any consent agreement under Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by Company.
(ix) Neither Company nor any of its material
subsidiaries is party to or has any obligation under any tax-sharing, tax
indemnity or tax allocation agreement or arrangement.
(x) Except as may be required as a result of the Merger,
Company and its material subsidiaries have not been and will not be required to
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include any adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or Section 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(xi) None of Company's or its subsidiaries' assets
are tax exempt use property within the meaning of Section 168(h) of the Code.
2.8 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company Schedules list the real property interests
owned by Company as of the date of this Agreement. The Company Schedules list
all real property leases to which Company is a party as of the date of this
Agreement and which provide for the lease, in each case, of not less than 10,000
square feet ("MATERIAL REAL PROPERTY LEASES"), and each amendment thereto that
is in effect as of the date of this Agreement. All such Material Real Property
Leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that would give rise to a claim in an amount
greater than $100,000.
(b) Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS"), except as reflected in
the Company Financials and except for liens for taxes not yet due and payable
and such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
and all rights in, arising out of, or associated therewith:
(i) all United States, international and foreign patents and
applications therefor and all reissues, divisions, renewals,
extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation
relating to any of the foregoing;
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(iii) all copyrights, copyright registrations and
applications therefor, and all other rights corresponding
thereto throughout the world; (iv) all industrial designs and
any registrations and applications therefor throughout the
world; (v) all trade names, logos, common law trademarks and
service marks, trademark and service mark registrations and
applications therefor throughout the world; (vi) all
databases and data collections and all rights therein
throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the
world, and (viii) any similar or equivalent rights to any of
the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, Company
or any of its material subsidiaries.
"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered
trademarks, applications to register trademarks, intent-to-use
applications, or other registrations or applications related
to trademarks; (iii) registered copyrights and applications
for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or
recorded by any state, government or other public legal
authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the
name of, Company.
(a) No material Company Intellectual Property or product or
service of Company is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation restricting in any manner the use, transfer,
or licensing thereof by Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(b) Each material item of Company Registered Intellectual
Property is valid and subsisting, all necessary registration, maintenance and
renewal fees currently due in connection with such Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Registered Intellectual Property have been
filed with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions,
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as the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(c) Company owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to, each material item of Company Intellectual
Property free and clear of any lien or encumbrance (excluding licenses and
related restrictions); and Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Company, including the sale of any products or the provision of any services by
Company.
(d) Company owns exclusively, and has good title to, all
copyrighted works that are Company products or which Company otherwise expressly
purports to own.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for Company, Company has a written
agreement with such third party with respect thereto and Company thereby either
(i) has obtained ownership of, and is the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such Intellectual Property by operation of law or by
valid assignment.
(f) Company has not transferred ownership of, or granted any
exclusive license with respect to, any Intellectual Property that is or was
material Company Intellectual Property, to any third party.
(g) The Company Schedules list all material contracts,
licenses and agreements to which Company is a party (i) with respect to Company
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to Company.
(h) All material contracts, licenses and agreements relating
to the Company Intellectual Property are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of such contracts, licenses and agreements. Company is in material
compliance with, and has not materially breached any term any of such contracts,
licenses and agreements and, to the knowledge of Company, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving
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<PAGE> 19
Corporation will be permitted to exercise all of Company's rights under such
contracts, licenses and agreements to the same extent Company would have been
able to had the transactions contemplated by this Agreement not occurred and
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which Company would otherwise be required to
pay.
(i) The operation of the business of Company as such business
currently is conducted, including Company's design, development, manufacture,
marketing and sale of the products or services of Company (including with
respect to products currently under development) has not, does not and will not
infringe or misappropriate the Intellectual Property of any third party
(provided that with respect to patent rights, such representation is limited to
Company's knowledge) or, to its knowledge, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(j) Company has not received notice from any third party that
the operation of the business of Company or any act, product or service of
Company, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(k) To the knowledge of Company, no Person has or is
infringing or misappropriating any Company Intellectual Property.
(l) Company has taken reasonable steps to protect Company's
rights in Company's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Company, and, without limiting the foregoing, Company has and
enforces a policy requiring each employee and contractor to execute a
proprietary information/confidentiality agreement substantially in the form
provided to Parent and all current and former employees and contractors of
Company have executed such an agreement, except where the failure to do so is
not reasonably expected to be material to Company.
2.10 Compliance; Permits; Restrictions.
(a) Neither Company nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or in violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Company or any of
its subsidiaries or by which Company or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Company or any of its subsidiaries is a
party or by which Company or any of its
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subsidiaries or its or any of their respective properties is bound or affected,
except for conflicts, violations and defaults that (individually or in the
aggregate) would not cause Company to lose any material benefit or incur any
material liability. No investigation or review by any Governmental Entity is
pending or, to Company's knowledge, has been threatened in a writing delivered
to Company against Company or any of its subsidiaries, nor, to Company's
knowledge, has any Governmental Entity indicated an intention to conduct an
investigation of Company or any of its subsidiaries. There is no material
agreement, judgment, injunction, order or decree binding upon Company or any of
its material subsidiaries which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of Company
or any of its material subsidiaries, any acquisition of material property by
Company or any of its subsidiaries or the conduct of business by Company as
currently conducted.
(b) Company and its subsidiaries hold, to the extent legally
required, all permits, licenses, variances, exemptions, orders and approvals
from governmental authorities that are material to and required for the
operation of the business of Company as currently conducted (collectively, the
"COMPANY PERMITS"). Company and its subsidiaries are in compliance in all
material respects with the terms of the Company Permits, except where the
failure to obtain any Company Permits or to be in compliance with the terms of
the Company Permits would not be material to Company.
2.11 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, and to Company's knowledge, no person has
threatened in a writing delivered to Company to commence any action, suit,
proceeding, claim, arbitration or investigation against Company or any of its
subsidiaries which would be likely to be material to Company. No Governmental
Entity has at any time challenged or questioned in a writing delivered to
Company the legal right of Company to design, manufacture, offer or sell any of
its products in the present manner or style thereof.
2.12 Brokers' and Finders' Fees. Except for fees payable to Hambrecht &
Quist LLC pursuant to an engagement letter dated September 22, 1997, a copy of
which has been provided to Parent, Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
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2.13 Employment Matters.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.13(a)(i) below (which definition shall apply
only to this Section 2.13), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "COMPANY EMPLOYEE PLAN" shall mean (x) all
employee benefit plans (as defined in Section 3(3) of ERISA), (y) all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and (z) all
unexpired severance agreements and arrangements, written or otherwise, for the
benefit of, or relating to, any current or former employee of Company or any
trade or business (whether or not incorporated) which is an Affiliate or any
subsidiary of Company;
(iii) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between Company or any
Affiliate and any individual entitled to receive annual compensation from
Company or any Affiliate with value equal to or greater than $75,000;
(vii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act
of 1993, as amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each
Company Employee Plan that has been adopted or maintained by Company, whether
informally or formally, for the benefit of Employees outside the United States;
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(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiii) "PENSION PLAN" shall mean each Company
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. The Company Schedules contain an accurate and
complete list of each Company Employee Plan and each material Employee
Agreement. Company does not have any plan or commitment to establish any new
Company Employee Plan, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or material Employee
Agreement, nor does it have any intention or commitment to do any of the
foregoing.
(c) Documents. Company has provided to Parent: (i) correct and
complete copies of each Company Employee Plan and each Employee Agreement
including all amendments thereto; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if the Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the summary of material modifications thereto, if any, required
under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination, opinion, notification and advisory letters, and rulings relating
to Company Employee Plans and copies of all applications and correspondence to
or from the IRS or the DOL with respect to any Company Employee Plan (and to the
extent not delivered are not material); (vii) all material written agreements
and contracts relating to each Company Employee Plan, including, but not limited
to, administrative service agreements, group annuity contracts and group
insurance contracts; (viii) forms of all COBRA forms and related
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notices; and (ix) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) Company has performed in all
material respects all obligations required to be performed by it under, is not
in default or violation of, and has no knowledge of any default or violation by
any other party to each Company Employee Plan, and each Company Employee Plan
has been established and maintained in all material respects in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code has either
received a favorable determination letter from the IRS with respect to each such
Plan as to its qualified status under the Code, including all amendments to the
Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination; (iii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the knowledge of Company, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without material (in each case
relative to the liabilities under such Plan) liability to Parent, Company or any
of its Affiliates (other than ordinary administration expenses typically
incurred in a termination event); (vi) there are no audits, inquiries or
proceedings pending or, to the knowledge of Company or any Affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and
(vii) neither Company nor any Affiliate is subject to any penalty or tax with
respect to any Company Employee Plan under Section 502(i) of ERISA or Sections
4975 through 4980 of the Code.
(e) Pension Plans. Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has Company contributed to
or been requested to contribute to any Multiemployer Plan.
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(g) No Post-Employment Obligations. No Company Employee Plan
provides, or has any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and Company has
never represented, promised or contracted (whether in oral or written form) to
any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) Neither Company nor any Affiliate has, prior to the
Effective Time, and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of FMLA or any similar
provisions of state law applicable to its Employees.
(i) Effect of Transaction
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under anyCompany Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made
by Company or its Affiliates with respect to any Employee as a result of the
transactions contemplated by this Agreement will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. Company and each of its material
subsidiaries: (i) is in compliance in all material respects with the applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices and wages and hours, in each case, in each
location in which Company or any of its material subsidiaries employs persons;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries and other payments to Employees; (iii) is not liable
for any material arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any material
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past
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practice). There are no pending, threatened or reasonably anticipated claims or
actions for benefits under Company's worker's compensation policy or long-term
disability policy that would not be covered by such policy. To Company's
knowledge, no employee of Company has violated any employment contract,
nondisclosure agreement or noncompetition agreement by which such employee is
bound due to such employee being employed by Company and disclosing to Company
or using trade secrets or proprietary information of any other person or entity.
(k) Labor. No work stoppage or labor strike against Company is
pending, threatened or reasonably anticipated. Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to Company. Neither Company nor any
of its subsidiaries has engaged in any unfair labor practices within the meaning
of the National Labor Relations Act. Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by Company.
(l) International Employee Plan. Each International Employee
Plan has been established, maintained and administered in material compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities, that as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
Company or Parent from terminating or amending any International Employee Plan
at any time for any reason.
2.14 Environmental Matters.
(a) Hazardous Material. Except as reasonably would not be
likely to result in material liability to Company, no underground storage tanks
and no amount of any substance that has been designated by any Governmental
Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the
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United States Resource Conservation and Recovery Act of 1976, as amended, and
the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies, (a "HAZARDOUS MATERIAL") are present, as a result of the
actions of Company or any of its subsidiaries or any affiliate of Company, or,
to Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that Company or any of its
subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would
not be likely to result in a material liability to Company (in any individual
case or in the aggregate) (i) neither Company nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, and (ii) neither Company nor any of its subsidiaries
has disposed of, transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material
(collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. Company and its subsidiaries currently hold all
material environmental approvals, permits, licenses, clearances and consents
(the "COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of Company's and
its subsidiaries' Hazardous Material Activities and other businesses of Company
and its material subsidiaries as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ or injunction is pending, and
to Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against Company or any of its subsidiaries in a writing delivered to Company
concerning any Company Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of Company or any of its subsidiaries. Company is not aware
of any fact or circumstance which could involve Company or any of its
subsidiaries in any environmental litigation or impose upon Company any material
environmental liability.
2.15 Agreements, Contracts and Commitments. Neither Company nor any
of its material subsidiaries is a party to or is bound by:
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(a) any employment or consulting agreement, contract or
commitment with any officer or director or higher level employee or member of
Company's Board of Directors, other than those that are terminable by Company or
any of its subsidiaries on no more than thirty days notice without liability or
financial obligation, except to the extent general principles of wrongful
termination law may limit Company's or any of its subsidiaries' ability to
terminate employees at will;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any agreement of indemnification or any guaranty other
than any agreement of indemnification entered into in connection with the sale
or license of software products in the ordinary course of business;
(d) any agreement, contract or commitment containing any
covenant limiting in any material respect the right of Company or any of its
material subsidiaries to engage in any line of business or to compete with any
person or granting any exclusive distribution rights;
(e) any material agreement, contract or commitment currently
in force relating to the disposition or acquisition by Company or any of its
subsidiaries after the date of this Agreement of a material amount of assets not
in the ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any material joint marketing or development agreement
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of 90 days or
less, or any material agreement pursuant to which Company or any of its
subsidiaries have continuing material obligations to jointly develop any
intellectual property that will not be owned, in whole or in part, by Company or
any of its subsidiaries and which may not be canceled without penalty upon
notice of 90 days or less;
(g) any agreement, contract or commitment currently in force
to provide source code to any third party for any product or technology that is
material to Company and its subsidiaries taken as a whole; or
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(h) any agreement, contract or commitment currently in force
to license any third party to manufacture or reproduce any Company product,
service or technology except as a distributor in the normal course of business.
Neither Company nor any of its material subsidiaries, nor to Company's
knowledge any other party to a Company Contract (as defined below), is in
breach, violation or default under, and neither Company nor any of its
subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which Company or any of its subsidiaries
is a party or by which it is bound that are required to be disclosed in the
Company Schedules pursuant to clauses (a) through (h) above or pursuant to
Section 2.9 hereof (any such agreement, contract or commitment, a "COMPANY
CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate).
2.16 Pooling of Interests. To the knowledge of Company, based on
consultation with its independent accountants, neither Company nor any of its
directors, officers, affiliates or stockholders has taken any action which would
preclude Parent's ability to account for the Merger as a pooling of interests.
2.17 Certain Payments. The Company Schedules set forth each plan or
agreement pursuant to which any amounts may become payable (whether currently or
in the future) to current or former officers and directors of Company as a
result of or in connection with the Merger.
2.18 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by Company for inclusion in the Registration Statement (as
defined in Section 3.4(b)) shall not at the time the Registration Statement is
filed with the SEC and at the time it becomes effective under the Securities Act
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information supplied by Company for inclusion in the joint proxy
statement/prospectus to be sent to (a) the stockholders of Company in connection
with the meeting of Company's stockholders to consider the approval and adoption
of this Agreement and the approval of the Merger (the "COMPANY STOCKHOLDERS'
MEETING") and (b) the stockholders of Parent in connection with the meeting of
Parent's stockholders to consider the approval of the issuance of shares of
Parent Common Stock pursuant to the Merger (the "PARENT STOCKHOLDERS' MEETING")
(such joint proxy statement/prospectus as amended or supplemented is referred to
herein as the "JOINT PROXY STATEMENT/PROSPECTUS") shall
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not, on the date the Joint Proxy Statement/Prospectus is first mailed to
Company's stockholders and Parent's stockholders or at the time of the Company
Stockholders' Meeting or the Parent Stockholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders' Meeting or the Parent Stockholders' Meeting which has become false
or misleading. If at any time prior to the Effective Time any event relating to
Company or any of its affiliates, officers or directors should be discovered by
Company which is required to be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/Prospectus, Company shall
promptly inform Parent. Notwithstanding the foregoing, Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
2.19 Board Approval. The Board of Directors of Company has, as of the
date of this Agreement, determined (i) that the Merger is fair to, and in the
best interests of Company and its stockholders, and, (ii) subject to the terms
and conditions set forth in this Agreement, to recommend that the stockholders
of Company approve and adopt this Agreement and approve the Merger.
2.20 Fairness Opinion. Company's Board of Directors has received an
opinion from Hambrecht & Quist LLC dated as of the date hereof, to the effect
that as of the date hereof, the Merger and the Exchange Ratio are fair to
Company's stockholders from a financial point of view and has delivered or will
promptly deliver to Parent a copy of such opinion.
2.21 Section 203 of the Delaware General Corporation Law Not
Applicable; Company Rights Plan. The Board of Directors of Company has taken all
actions so that (a) the restrictions contained in Section 203 of the Delaware
General Corporation Law applicable to a "business combination" (as defined in
such Section 203) will not apply to the execution, delivery or performance of
this Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement and (b) the execution, delivery and performance
of this Agreement and the consummation of the Merger will not cause any change,
effect or result under the Company Rights Plan which is adverse to the interests
of Parent. Without limiting the generality of the foregoing, if necessary to
accomplish the foregoing, the Company Rights Plan has been amended to (i) render
the Company Rights Plan inapplicable to the Merger and the other transactions
contemplated by this Agreement, (ii) ensure that (x) none of Parent or its
subsidiaries
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is an Acquiring Person (as defined in the Company Rights Plan) pursuant to the
Company Rights Plan by virtue of the execution of this Agreement or the
consummation of the Merger or the other transactions contemplated hereby and (y)
a Distribution Date, Flip-In Event, Triggering Event or Flip-Over Event (as such
terms are defined in the Company Rights Plan) does not occur by reason of the
execution of this Agreement, the consummation of the Merger, or the consummation
of the transactions contemplated hereby, and such amendment may not be further
amended by Company without the prior consent of Parent in its sole discretion.
2.22 Customs. Company has acted with reasonable care to properly value
and classify, in accordance with applicable tariff laws, rules and regulations,
all goods that Company or any of its subsidiaries import into the United States
or into any other country (the "IMPORTED GOODS"). To Company's knowledge, there
are currently no material claims pending against Company by the U.S. Customs
Service (or other foreign customs authorities) relating to the valuation,
classification or marking of the Imported Goods.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company, subject to the
exceptions specifically disclosed in writing in the disclosure letter and
referencing a specific representation supplied by Parent to Company dated as of
the date hereof and certified by a duly authorized officer of Parent (the
"PARENT SCHEDULES"), as follows:
3.1 Organization of Parent.
(a) Each of Parent, Merger Sub and the material subsidiaries
of Parent (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized; (ii) has
the corporate or other power and authority to own, lease and operate its assets
and property and to carry on its business as now being conducted; and (iii),
except as would not be material to Parent, is duly qualified or licensed to do
business in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary.
(b) Parent has delivered or made available to Company a true
and correct copy of the Certificate of Incorporation and Bylaws of Parent, each
as amended to date, and each such instrument is in full force and effect.
Neither Parent
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nor any of its material subsidiaries is in violation of any of the provisions of
its Certificate of Incorporation or Bylaws or equivalent governing instruments.
3.2 Parent and Merger Sub Capital Structure. The authorized capital
stock of Parent consists of 100,000,000 shares of Common Stock, of which there
were 51,259,448 shares issued and outstanding as of September 30, 1997, and
5,000,000 shares of Preferred Stock, of which one share of Series A Preferred
Stock is issued and outstanding. As of September 30, 1997, Parent had reserved
an aggregate of 10,317,588 shares of Parent Common Stock, net of exercises, for
issuance pursuant to Parent's 1997 Stock Incentive Plan, the FSA Stock Option
Plan, Parent's Outside Director Stock Option Plan, the SA93 Stock Option Plan,
the SAII Stock Option Plan, Parent's Non-Officer Stock Option Plan and Parent's
1992 Stock Option Plan. As of September 30, 1997, there were options outstanding
to purchase an aggregate of 8,016,938 shares of Parent Common Stock pursuant to
such plans. As of September 30, 1997, Parent had reserved an aggregate of
354,181 shares of Parent Common Stock, net of purchases, for issuance pursuant
to Parent's Employee Stock Purchase Plan. All outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of Parent or any agreement or document to which Parent
is a party or by which it is bound. The authorized capital stock of Merger Sub
consists of 1000 shares of Common Stock, $0.001 par value, all of which, as of
the date hereof, are issued and outstanding and are held by Parent. Merger Sub
was formed on or about October 10, 1997, for the purpose of consummating the
Merger and has no material assets or liabilities except as necessary for such
purpose.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
Section 3.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Parent, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities Parent owns free and clear of all claims and
encumbrances, directly or indirectly through one or more subsidiaries, and
except for shares of capital stock or other similar ownership interests of
certain subsidiaries of Parent that are owned by certain nominee equity holders
as required by the applicable law of the jurisdiction of organization of such
subsidiaries, as of the date of this Agreement, there are no equity securities,
partnership interests or similar ownership interests of any class of any
material subsidiary of Parent, or any security exchangeable or convertible into
or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 3.2, there are no options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments
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or agreements of any character to which Parent is a party or by which it is
bound obligating Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or obligating
Company to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement. As of
the date of this Agreement, except as contemplated by this Agreement, the Parent
Voting Agreement and the Parent Affiliate Agreement, there are no voting trusts,
proxies or other agreements or understandings to which Parent is a party or by
which it is bound with respect to any equity security of any class of Parent or
with respect to any equity security, partnership interest or similar ownership
interest of any class of any of its material subsidiaries.
3.4 Authority.
(a) Each of Parent and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject only to the approval of the issuance
of Parent Common Stock pursuant to the Merger by Parent's stockholders. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub, subject only to the
approval of the issuance of Parent Common Stock pursuant to the Merger by
Parent's stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. Approval by the stockholders of Parent of the issuance of Parent
Common Stock pursuant to the Merger may be obtained by the vote of a majority of
the total votes cast regarding such proposal at a duly called and noticed
meeting of Parent's stockholders at which a quorum is present. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery by Company, constitutes
the valid and binding obligation of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms, except as enforceability may
be limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by each of Parent and
Merger Sub does not, and the performance of this Agreement by each of Parent and
Merger Sub will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Parent or Merger Sub, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to Parent or
Merger Sub or by which any of their respective properties is bound or affected
or (iii) result in any material breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or materially impair Parent's material rights or alter the
material rights or material obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the
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creation of a material lien or encumbrance on any of the material properties or
assets of Parent or Merger Sub pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or Merger Sub is a party or by which
Parent or Merger Sub or any of their respective properties are bound or
affected. The Parent Schedules list all consents, waivers and approvals under
any of Parent's or any of its material subsidiaries' agreements, contracts,
licenses or leases required to be obtained in connection with the consummation
of the transactions contemplated hereby, which, if individually or in the
aggregate not obtained, would result in a material loss of benefits to Parent as
a result of the Merger.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required to
be obtained or made by Parent, Merger Sub, or any material subsidiary of Parent
in connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of a Form S-4 (or any
similar successor form thereto) Registration Statement (the "REGISTRATION
STATEMENT") with the SEC in accordance with the Securities Act, (ii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware, (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal, foreign
and state securities (or related) laws and the HSR Act and the securities or
antitrust laws of any foreign country, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to Parent or have a material adverse effect on the
ability of Parent or Merger Sub to consummate the Merger.
(c) The Board of Directors of Parent has all requisite
corporate power and authority to take the actions described in Section 5.14
hereof.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required
to be filed by Parent with the SEC since September 1, 1994, and has made
available to Company such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents (including those that
Parent may file subsequent to the date hereof) are referred to herein as the
"PARENT SEC REPORTS." As of their respective dates, the Parent SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be
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stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any forms, reports or other documents
with the SEC.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports
(the "PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of Parent's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring
year-end adjustments. The balance sheet of Parent contained in Parent SEC
Reports as of June 30, 1997 is hereinafter referred to as the "PARENT BALANCE
SHEET." Except as disclosed in the Parent Financials, since the date of the
Parent Balance Sheet neither Parent nor any of its subsidiaries has any
liabilities required under GAAP to be set forth on a balance sheet (absolute,
accrued, contingent or otherwise) which are, individually or in the aggregate,
material to the business, results of operations or financial condition of Parent
and its subsidiaries taken as a whole, except for liabilities incurred since the
date of the Parent Balance Sheet in the ordinary course of business consistent
with past practices.
3.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet there has not been: (i) any Material Adverse Effect on Parent,
(ii) any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of Parent's
capital stock, or any purchase, redemption or other acquisition by Parent of any
of Parent's capital stock or any other securities of Parent or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of Parent's capital stock, (iv) entry by
Parent or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any material Intellectual Property
other than licenses in the ordinary course of business consistent with past
practice or any amendment or consent with respect to any licensing agreement
filed or required to be filed by Parent with the SEC, (v) any material change by
Parent in its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (vi) any material revaluation by Parent of any of
its assets,
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including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
3.7 Taxes.
(a) Parent and each of its subsidiaries have timely filed all
Returns relating to Taxes required to be filed by Parent and each of its
subsidiaries with any Tax authority, except such Returns which are not material
to Parent, and have paid all Taxes shown to be due on such Returns.
(b) Neither Parent nor any of its material subsidiaries has
been delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against Parent or any of its material
subsidiaries, nor has Parent or any of its material subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(c) Neither Parent nor any of its subsidiaries has any
liability for unpaid Taxes which has not been accrued for or reserved on the
Parent Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to Parent, other than any liability for unpaid Taxes that may
have accrued since the date of the Parent Balance Sheet in connection with the
operation of the business of Parent and its subsidiaries in the ordinary course.
3.8 Title to Properties; Absence of Liens and Encumbrances. Parent has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
Liens, except as reflected in the Parent Financials and except for liens for
taxes not yet due and payable and such Liens or other imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
3.9 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"PARENT INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, Parent
or any of its material subsidiaries.
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"PARENT REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the
name of, Parent.
(a) No material Parent Intellectual Property or product or
service of Parent is subject to any proceeding or outstanding decree, order,
judgment, agreement, or stipulation restricting in any manner the use, transfer,
or licensing thereof by Parent, or which may affect the validity, use or
enforceability of such Parent Intellectual Property.
(b) Each material item of Parent Registered Intellectual
Property is valid and subsisting, all necessary registration, maintenance and
renewal fees currently due in connection with such Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Registered Intellectual Property have been
filed with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property.
(c) Parent owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to, each material item of Parent Intellectual
Property free and clear of any lien or encumbrance (excluding licenses and
related restrictions); and Parent is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Parent, including the sale of any products or the provision of any services by
Parent.
(d) Parent owns exclusively, and has good title to, all
copyrighted works that are Parent products or which Parent otherwise expressly
purports to own.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for Parent, Parent has a written
agreement with such third party with respect thereto and Parent thereby either
(i) has obtained ownership of, and is the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such Intellectual Property by operation of law or by
valid assignment.
(f) All material contracts, licenses and agreements relating
to the Parent Intellectual Property are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of such contracts, licenses and agreements. Parent is in material
compliance with, and has not materially breached any term any of such contracts,
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licenses and agreements and, to the knowledge of Parent, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
(g) The operation of the business of Parent as such business
currently is conducted, including Parent's design, development, manufacture,
marketing and sale of the products or services of Parent (including with respect
to products currently under development) has not, does not and will not infringe
or misappropriate the Intellectual Property of any third party (provided that
with respect to patent rights, such representation is limited to Parent's
knowledge) or, to its knowledge, constitute unfair competition or trade
practices under the laws of any jurisdiction.
(h) Parent has not received notice from any third party that
the operation of the business of Parent or any act, product or service of
Parent, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction.
(i) To the knowledge of Parent, no Person has or is infringing
or misappropriating any Parent Intellectual Property.
(j) Parent has taken reasonable steps to protect Parent's
rights in Parent's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Parent, and, without limiting the foregoing, Parent has and enforces
a policy requiring each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent and all current and former employees and contractors of Parent have
executed such an agreement, except where the failure to do so is not reasonably
expected to be material to Parent.
3.10 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or in violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for conflicts, violations
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and defaults that (individually or in the aggregate) would not cause Parent to
lose any material benefit or incur any material liability. No investigation or
review by any Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity indicated
an intention to conduct an investigation of Parent or any of its subsidiaries.
There is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent, any acquisition of material property by Parent or the conduct of
business by Parent as currently conducted.
(b) Parent and its subsidiaries hold, to the extent legally
required, all permits, licenses, variances, exemptions, orders and approvals
from governmental authorities that are material to and required for the
operation of the business of Parent as currently conducted (collectively, the
"PARENT PERMITS"). Parent and its subsidiaries are in compliance in all material
respects with the terms of the Parent Permits, except where the failure to be in
compliance with the terms of the Parent Permits would not be material to Parent.
3.11 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, and to Parent's knowledge, no person has
threatened in a writing delivered to Parent to commence any action, suit,
proceeding, claim, arbitration or investigation against Parent or any of its
subsidiaries which would be likely to be material to Parent. No Governmental
Entity has at any time challenged or questioned in a writing delivered to Parent
the legal right of Parent to design, manufacture, offer or sell any of its
products in the present manner or style thereof.
3.12 Brokers' and Finders' Fees. Except for fees payable to Morgan
Stanley & Co. pursuant to an engagement letter dated September 9, 1997, a copy
of which has been made available to Company, Parent has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated thereby.
3.13 Statements; Joint Proxy Statement/Prospectus. The information
supplied by Parent for inclusion in the Registration Statement shall not at the
time the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The information supplied by Parent
for inclusion in the Joint Proxy Statement/Prospectus shall not, on the date the
Joint Proxy Statement/Prospectus is
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first mailed to Company's stockholders or Parent's stockholders or at the time
of the Company Stockholders' Meeting or the Parent Stockholders' Meeting contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading. If at any time prior to the
Effective Time, any event relating to Parent or any of its affiliates, officers
or directors should be discovered by Parent which is required to be set forth in
an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Parent shall promptly inform Company. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by Company which is contained in any of the foregoing
documents.
3.14 Valid Issuance. The Parent Common Stock to be issued in the
Merger, when issued in accordance with the provisions of this Agreement: (a)
will be validly issued, fully paid and nonassessable; and (b) will not be
subject to any restrictions on resale under the Securities Act, other than
restrictions imposed by Rule 145 promulgated under the Securities Act.
3.15 No Ownership of Company Common Stock. Parent does not own,
beneficially or of record, any shares of Company Common Stock.
3.16 Pooling of Interests. To the knowledge of Parent, based on
consultation with its independent accountants, neither Parent nor any of its
directors, officers, affiliates or stockholders has taken any action which would
preclude Parent's ability to account for the Merger as a pooling of interests.
3.17 Board Approval. The Board of Directors of Parent has, as of the
date of this Agreement, determined (i) that the Merger is fair to, and in the
best interests of Parent and its stockholders, and, (ii) subject to the terms
and conditions set forth in this Agreement, to recommend that the stockholders
of Parent approve the issuance of shares of Parent Common Stock pursuant to the
Merger.
3.18 Fairness Opinion. Parent's Board of Directors has received an
opinion from Morgan Stanley & Co. dated as of on or about the date hereof, to
the effect that as of the date hereof, the Merger and the Exchange Ratio are
fair to Parent's stockholders from a financial point of view and has delivered
or will promptly deliver to Company a copy of such opinion.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in all material respects, in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance in all material respects with all applicable laws and
regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due,
and use its commercially reasonable efforts consistent with past practices and
policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In addition, Company will
promptly notify Parent of any material event involving its business or
operations.
In addition, except as permitted by the terms of this Agreement, and
except as provided in Article 4 of the Company Schedules, without the prior
written consent of Parent, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or
change the period of exercisability of options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or made
available to Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to the Company
Intellectual Property, or enter into grants to future patent rights, other than
non-exclusive licenses in the ordinary course of business and consistent with
past practice;
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(d) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination of the
employment relationship with any employee, consultant or director pursuant to
stock option or purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise
encumber or propose any of the foregoing of, any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions, rights,
warrants or options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other agreements or
commitments of any character obligating it to issue any such shares or
convertible securities, other than the issuance delivery and/or sale of (i)
options pursuant to any of the Company Stock Option Plans with strike prices
equal to fair market value at the time of grant or options pursuant to the ESPP,
in each case, in the ordinary course of business, consistent with past practice,
and subject to and in compliance with the restrictions of Section 4.1(p), (ii)
shares of Company Common Stock pursuant to the exercise of stock options
therefor outstanding as of the date of this Agreement and (iii) shares of
Company Common Stock issuable to participants in the ESPP consistent with the
terms thereof;
(g) Cause, permit or propose any amendments to its Certificate
of Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its material subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Company or enter into any material joint
ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate, to
the business of Company, except sales of product and inventory in the ordinary
course of business consistent with past practice;
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(j) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing other than (i) in connection with the financing of ordinary
course trade payables consistent with past practice or (ii) pursuant to existing
credit facilities in the ordinary course of business;
(k) Adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment contract or
collective bargaining agreement (other than offer letters and letter agreements
entered into in the ordinary course of business consistent with past practice
with employees who are terminable "at will,"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants other than in the ordinary course
of business, consistent with past practice, or change in any material respect
any management policies or procedures;
(l) Make any payments outside of the ordinary course of
business in excess of $1 million;
(m) except in the ordinary course of business, modify, amend
or terminate any material contract or agreement to which Company or any
subsidiary thereof is a party or waive, release or assign any material rights or
claims thereunder;
(n) enter into any contracts, agreements, or obligations
relating to the distribution, sale, license or marketing by third parties of
Company's products or products licensed by Company other than in the ordinary
course of business consistent with past practice;
(o) revalue any of its material assets or, except as required
by GAAP, make any change in accounting methods, principles or practices;
(p) Take any action that would be reasonably likely to
interfere with Parent's ability to account for the Merger as a pooling of
interests whether or not otherwise permitted by the provisions of this Article
IV; or
(q) Agree in writing or otherwise to take any of the actions
described in Section 4.1(a) through (p) above.
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4.2 Conduct of Business by Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, (i) Parent shall consult
with Company prior to taking any material action outside of the ordinary course
of business and (ii) Parent shall consult with and seek the advice of Leslie G.
Denend, Gregory M. Gallo, Laurence R. Hootnick and Harry J. Saal (to the extent
such persons continue as directors of Company and are reasonably available for
such consultation), regarding its intention to effect any material acquisition
described in Section 4.2(c) (and will share the material terms of such
acquisition with such persons) prior to the earlier of the public announcement
of such acquisition, the consummation thereof or the execution by Parent of a
definitive written agreement obligating Parent (subject to customary conditions)
to consummate such acquisition. In addition, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, except as permitted by
the terms of this Agreement and except as provided in Section 4.2 of the Parent
Schedules, without the prior written consent of Company, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Effective Time, Parent shall not
do any of the following:
(a) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(b) Take any action that would be reasonably likely to
interfere with Parent's ability to account for the Merger as a pooling of
interests; or
(c) Acquire or enter into any agreement to acquire a majority
of the voting securities or all or substantially all of the assets of any
corporation or other business entity (other than Company), whether by merger,
consolidation, stock tender or otherwise, unless the Board of Directors of
Parent determines in good faith that consummation of such transaction and
subsequent integration of the business proposed to be acquired, when considered
in light of the integration of operations of Parent and Company following the
Merger, would be in the best interests of Parent and the stockholders of Parent
following the Merger;
(d) Cause, permit or propose any amendments to its Certificate
of Incorporation, Bylaws or other charter documents; or
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(e) Agree in writing or otherwise to take any of the actions
described in Section 4.1(a) through (d) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations.
(a) As promptly as practicable after the execution of this
Agreement, Company and Parent will prepare, and file with the SEC, the Joint
Proxy Statement/Prospectus and Parent will prepare and file with the SEC the
Registration Statement in which the Joint Proxy Statement/Prospectus will be
included as a prospectus. Each of Company and Parent will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and each of Company and Parent will
cause the Joint Proxy Statement/Prospectus to be mailed to its stockholders at
the earliest practicable time after the Registration Statement is declared
effective by the SEC. As promptly as practicable after the date of this
Agreement, each of Company and Parent will prepare and file any other filings
required to be filed by it under the Exchange Act, the Securities Act or any
other Federal, foreign or Blue Sky or related laws relating to the Merger and
the transactions contemplated by this Agreement (the "OTHER FILINGS"). Each of
Company and Parent will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for amendments
or supplements to the Registration Statement, the Joint Proxy
Statement/Prospectus or any Other Filing or for additional information and will
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement/Prospectus, the Merger or any Other Filing.
Each of Company and Parent will cause all documents that it is responsible for
filing with the SEC or other regulatory authorities under this Section 5.1(a) to
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Joint Proxy
Statement/Prospectus, the Registration Statement or any Other Filing, Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of Company, such amendment or
supplement.
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(b) The Joint Proxy Statement/Prospectus will include the
recommendation of the Board of Directors of Company in favor of adoption and
approval of this Agreement and approval of the Merger, except to the extent that
the Board of Directors of Company shall have withdrawn or modified its approval
of this Agreement or the Merger in accordance with Section 5.4(a)(ii).
(c) The Joint Proxy Statement/Prospectus will include the
recommendation of the Board of Directors of Parent in favor of approval of
issuance of shares of Parent Common Stock pursuant to the Merger, except that
the Board of Directors of Parent may withdraw, modify or refrain from making
such recommendation to the extent that such Board determines, in good faith,
after consultation with outside legal counsel, that compliance with the Board's
fiduciary duties would require it to do so.
5.2 Meetings of Stockholders. Promptly after the date hereof, each of
Company and Parent will take all action necessary in accordance with the
Delaware Law and its Certificate of Incorporation and Bylaws to convene the
Company Stockholders' Meeting or the Parent Stockholders' Meeting, respectively,
to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon this
Agreement and the Merger or the issuance of shares of Parent Common Stock
pursuant to the Merger, respectively. Company will use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger and will
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by the rules of Nasdaq or Delaware Law to obtain such
approvals, except to the extent that the Board of Directors of Company shall
have withdrawn or modified its approval of this Agreement or the Merger in
accordance with Section 5.4(a)(ii). Parent will use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of approval of
issuance of shares of Parent Common Stock pursuant to the Merger and will take
all other action necessary or advisable to secure the vote or consent of its
stockholders required by the rules of Nasdaq or Delaware Law to obtain such
approvals, except to the extent that the Board of Directors of Parent shall have
withdrawn or modified its approval of such matters in accordance with Section
5.1(c). Company will consult with Parent and use its commercially reasonable
efforts to hold the Company Stockholders' Meeting on the same day and at the
same time as the Parent Stockholders' Meeting.
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5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have
previously executed a Confidentiality Agreement], dated as of on or about
September 12, 1997 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
(b) Access to Information. Each of Company and Parent will
afford the other and the other's accountants, counsel and other representatives
reasonable access during normal business hours to its properties, books, records
and personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of product development
efforts, properties, results of operations and personnel, as such other party
may reasonably request. No information or knowledge obtained by any party hereto
in any investigation pursuant to this Section 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 No Solicitation.
(a) Obligations of Company.
(i) From and after the date of this Agreement until
the earlier of the Effective Time or termination of this Agreement pursuant to
its terms Company and its subsidiaries will not, nor will they authorize or
permit any of their respective officers, directors or employees or any
investment banker, attorney or other advisor or representative retained by any
of them to, directly or indirectly, (x) solicit, initiate or encourage the
submission of any Alternative Proposal (as hereinafter defined) or (y)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to, any Alternative Proposal; provided, however,
that if, at any time prior to obtaining the approval of the stockholders of
Company of this Agreement and the Merger by the requisite vote under applicable
law (the "STOCKHOLDER APPROVAL") the Board of Directors of Company determines in
good faith, after consultation with outside legal counsel, that it is necessary
to do so in order to comply with its fiduciary duties to Company's stockholders
under applicable law, Company may, in response to an Alternative Proposal that
was unsolicited or that did not otherwise result from a breach of this Section
5.4(a), and subject to compliance with Section 5.4(a)(iii) and Section
5.4(a)(v), furnish information with respect to Company and participate in
negotiations regarding such Alternative Proposal. Company and its subsidiaries
will immediately cease any and
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all existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Alternative Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer, director or employee of Company or
any of its subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.4(a) by Company. For purposes of this Agreement,
"ALTERNATIVE PROPOSAL" means any inquiry, proposal or offer from any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) relating to any direct or indirect acquisition or
purchase of a substantial amount of assets of Company or any of its subsidiaries
(other than the purchase of Company's products in the ordinary course of
business) or more than a 10% interest in the total outstanding voting securities
of Company or any of its subsidiaries or any tender offer or exchange offer that
if consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) beneficially
owning 10% or more of the total outstanding voting securities of Company or any
of its subsidiaries or any merger, consolidation, business combination, sale of
substantially all the assets, recapitalization, liquidation, dissolution or
similar transaction involving Company or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(ii) Neither the Board of Directors of Company nor
any committee thereof shall (x) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Parent or Merger Sub, the approval or
recommendation by such Board of Directors or any such committee of this
Agreement or the Merger or (y) cause Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (an
"ACQUISITION AGREEMENT") with respect to any Alternative Proposal. In addition,
subject to the other provisions of this Section 5.4(a), from and after the date
of this Agreement until the earlier of the Effective Time and termination of
this Agreement pursuant to its terms, Company and its subsidiaries will not, nor
will they authorize or permit any of their respective officers, directors or
employees or any investment banker, attorney or other advisor or representative
retained by any of them to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Alternative
Proposal. Notwithstanding the foregoing or anything else contained in this
Agreement, prior to obtaining the Stockholder Approval, the Board of Directors
of Company, to the extent it determines in good faith, after consultation with
outside legal counsel, that it is necessary to do so in order to comply with its
fiduciary duties to Company's stockholders under applicable law, may withdraw or
modify its approval or recommendation of this Agreement or the Merger (and, to
the extent it does so, Company may refrain from soliciting proxies to secure the
vote of its stockholders as may otherwise be required by Section
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5.2) or approve or recommend any Superior Proposal (as hereinafter defined), in
each case at any time after the third business day following Parent's receipt of
bona fide written notice (a "NOTICE OF SUPERIOR PROPOSAL") advising Parent that
the Board of Directors of Company has received a Superior Proposal, specifying
the material terms and conditions of the Superior Proposal and identifying the
person making such Superior Proposal (it being understood that any amendment to
the price or material terms of a Superior Proposal shall require an additional
Notice of Superior Proposal and an additional three business day period
thereafter to the extent permitted under applicable law); provided, that unless
this Agreement is terminated pursuant to Section 7.1, nothing contained in this
Section shall limit Company's obligation to hold and convene the Company
Stockholders' Meeting (regardless of whether the recommendation of the Board of
Directors of Company shall have been withdrawn, modified or not yet made) or to
provide Company stockholders with material information relating to such meeting.
For purposes of this Agreement, a "SUPERIOR PROPOSAL" means any bona fide
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, more than 50% of the
voting power of Company Common Stock or all or substantially all the assets of
Company and otherwise on terms which the Board of Directors of Company
determines in its good faith judgment (after consultation with a financial
advisor of nationally recognized reputation) to be more favorable to Company's
stockholders than the Merger and for which financing, to the extent required, is
then committed or which, in the good faith judgment of the Board of Directors of
Company, is capable of being obtained by such third party.
(iii) In addition to the obligations of Company set
forth in paragraphs (i) and (ii) of this Section 5.4(a), Company as promptly as
practicable shall advise Parent orally and in writing of any request for
non-public information which Company reasonably believes would lead to an
Alternative Proposal or of any Alternative Proposal, the material terms and
conditions of such request or Alternative Proposal, and the identity of the
person making any such request, Alternative Proposal or inquiry. Company will
keep Parent informed in all material respects of the status and details
(including material amendments) of any such request or Alternative Proposal.
(iv) Nothing contained in this Section 5.4(a) or
elsewhere in this Agreement shall prohibit Company from (x) taking and
disclosing to its stockholders a position contemplated by Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act or (y) making any disclosure to
Company's stockholders if, in the good faith judgment of the majority of the
members of the Board of Directors of Company, after consultation with
independent legal counsel, failure to so disclose
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would be inconsistent with applicable laws; provided that none of Company nor
its Board of Directors nor any committee thereof shall, except in accordance
with the provisions of Section 5.4(a)(ii), withdraw or modify, or publicly
propose to withdraw or modify, its position with respect to this Agreement or
the Merger or approve or recommend, or propose to approve or recommend, an
Alternative Proposal.
(v) Notwithstanding anything to the contrary in this
Section 5.4(a), Company will not provide any non-public information to a third
party unless: (x) Company provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement; and (y) such non-public information has been previously or is
contemporaneously delivered to Parent.
(b) Obligations of Parent. From and after the date of this
Agreement until the earlier of the Effective Time or termination of this
Agreement pursuant to its terms, Parent and its subsidiaries will not, nor will
they authorize or permit any of their respective officers, directors or
employees or any investment banker, attorney or other advisor or representative
retained by any of them to, directly or indirectly, (x) solicit, initiate or
encourage the submission of any Parent Proposal (as hereinafter defined) or (y)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or would
reasonably be expected to lead to, any Parent Proposal; provided, however, that
if the Board of Directors of Parent determines in good faith, after consultation
with outside legal counsel, that it is necessary to do so in order to comply
with its fiduciary duties to Parent's stockholders under applicable law, Parent
may, in response to a Parent Proposal that was unsolicited or that did not
otherwise result from a breach of this Section 5.4(b), furnish information with
respect to Parent and participate in negotiations regarding such Parent
Proposal. Parent and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Parent Proposal. In addition, nothing contained
in this Section 5.4(b) or elsewhere in this Agreement shall prohibit Parent from
(x) taking and disclosing to its stockholders a position contemplated by Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act or (y) making any
disclosure to Parent's stockholders if, in the good faith judgment of the
majority of the members of the Board of Directors of Parent, after consultation
with independent legal counsel, failure to so disclose would be inconsistent
with applicable laws. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first two sentences of this
Section 5.4(b) by any officer, director or employee of Parent or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of Parent or any of its
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subsidiaries shall be deemed to be a breach of this Section 5.4(b) by Parent.
For purposes of this Agreement, "PARENT PROPOSAL" means any proposal made by a
third party to consummate any of the following transactions or series of related
transactions (other than the Merger): (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Parent pursuant to which the stockholders of Parent immediately
preceding such transaction or series of related transactions hold less than 60%
of the equity interests in the surviving or resulting entity of such transaction
or transactions (without respect to any overlap in the companies' stockholder
bases); (ii) a sale or other disposition by Parent of assets (excluding
inventory and used equipment sold in the ordinary course of business)
representing in excess of 40% of the fair market value of Parent's business
immediately prior to such sale; or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by Parent),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of 40% or more of the then outstanding shares of capital stock of
Parent.
5.5 Public Disclosure. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Alternative Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use reasonable efforts to take, or
cause to be taken, such actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, such things as are necessary,
proper or advisable to consummate and make effective, as expeditiously as
reasonably practicable, the Merger and the other transactions contemplated by
this Agreement, including using reasonable efforts to accomplish the following:
(i) the taking of such reasonable acts as are necessary to cause the conditions
precedent set forth in Article VI to be satisfied, (ii) the obtaining of all
necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of such
reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all necessary consents, approvals or waivers from third parties, (iv) the
defending of any suits, claims, actions, investigations or proceedings, whether
judicial or administrative,
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challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, Company and
its Board of Directors shall, if any state takeover statute or similar statute
or regulation is or becomes applicable to the Merger, this Agreement or any of
the transactions contemplated by this Agreement, use reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or Company or any subsidiary or affiliate thereof to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
(b) Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied, provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
(c) Parent shall give prompt notice to Company of any
representation or warranty made by it or Merger Sub contained in this Agreement
becoming untrue or inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied, provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.7 Third Party Consents. As soon as reasonably practicable following
the date hereof, Parent and Company will each use its commercially reasonable
efforts to obtain any material consents, waivers and approvals under any of its
or its subsidiaries' respective agreements, contracts, licenses or leases
required to be
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obtained in connection with the consummation of the transactions contemplated
hereby.
5.8 Stock Options and Employee Benefits.
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "COMPANY STOCK OPTION") under the Company
Stock Option Plans, whether or not exercisable, will be assumed by Parent. Each
Company Stock Option so assumed by Parent under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable Company Stock Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights or vesting provisions),
except that (i) each Company Stock Option will be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Stock Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b) It is intended that Company Stock Options assumed by
Parent shall qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent Company Stock Options qualified
as incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.8 shall be applied consistent with such intent.
(c) Rights outstanding under the ESPP shall be treated in a
manner reasonably acceptable to Parent and Company, provided that in no event
shall any such treatment interfere with Parent's ability to account for the
Merger as a pooling of interests.
(d) Parent will reserve sufficient shares of Parent Common
Stock for issuance under Section 5.8 and under Section 1.6(c) hereof.
5.9 Form S-8. Parent agrees to file a registration statement on Form
S-8 for the shares of Parent Common Stock issuable with respect to assumed
Company Stock Options within five days after the Effective Time and shall use
its commercially reasonable efforts to maintain the effectiveness of such
registration
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statement thereafter for as long as any of such options or other rights remain
outstanding.
5.10 Indemnification.
(a) From and after the Effective Time, Parent will fulfill and
honor and will cause the Surviving Corporation to fulfill and honor in all
respects the obligations of Company pursuant to any indemnification agreements
between Company and its directors and officers as of the Effective Time (the
"INDEMNIFIED PARTIES") and any indemnification provisions under Company's
Certificate of Incorporation or Bylaws as in effect on the date hereof. The
Certificate of Incorporation and By-laws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of Company as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of Company, unless
such modification is required by law.
(b) For a period of six years after the Effective Time, Parent
will maintain or cause the Surviving Corporation to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by Company's directors' and officers' liability
insurance policy on terms comparable to those applicable to the current
directors and officers of Company; provided, however, that in no event will
Parent or the Surviving Corporation be required to expend in excess of 150% of
the annual premium currently paid by Company for such coverage (or such coverage
as is available for such 150% of such annual premium).
5.11 Nasdaq Listing. Parent agrees to use its commercially reasonable
efforts to cause to be authorized for listing on Nasdaq prior to the Effective
Time the shares of Parent Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice of
issuance.
5.12 Affiliate Agreements.
(a) Set forth on the Company Schedules is a list of those
persons who may be deemed to be, in Company's reasonable judgment, affiliates of
Company within the meaning of Rule 145 promulgated under the Securities Act
(each a "COMPANY AFFILIATE"). Company will provide Parent with such information
and documents as Parent reasonably requests for purposes of reviewing such list.
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Company will use its commercially reasonable efforts to deliver or cause to be
delivered to Parent, as promptly as practicable on or following the date hereof,
from each Company Affiliate an executed affiliate agreement in substantially the
form attached hereto as Exhibit B-1 (the "COMPANY AFFILIATE AGREEMENT"), each of
which will be in full force and effect as of the Effective Time. Parent will be
entitled to place appropriate legends on the certificates evidencing any Parent
Common Stock to be received by a Company Affiliate pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for the Parent Common Stock, consistent with the terms of the Company
Affiliate Agreement.
(b) Set forth on the Parent Schedules is a list of those
persons who may be deemed to be, in Parent's reasonable judgment, affiliates of
Parent (each a "PARENT AFFILIATE"). Parent will provide Company with such
information and documents as Parent reasonably requests for purposes of
reviewing such list. Parent will use its commercially reasonable efforts to
deliver or cause to be delivered to Company, as promptly as practicable on or
following the date hereof, from each Parent Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit B-2 (the "PARENT
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be
reasonably practicable, Company and Parent each shall file with the United
States Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice ("DOJ") Notification and Report Forms
relating to the transactions contemplated herein as required by the HSR Act, as
well as comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any applicable jurisdiction, as
reasonably agreed to by the parties. Company and Parent each shall promptly (a)
supply the other with any information which may be required in order to
effectuate such filings and (b) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
control authorities of any other jurisdiction and which the parties may
reasonably deem appropriate.
5.14 Board of Directors of Parent Following the Merger. The Board of
Directors of Parent will take all actions within its power to cause the Board of
Directors of Parent, effective no later than one day following the Effective
Time, to consist of five persons, one of whom shall be Leslie G. Denend (who
shall retain his present position as a Class II director), one of whom will be
Harry J. Saal (who shall be offered a position as a Class II director) and the
remaining three of whom shall have served on the Board of Directors of Parent
immediately prior to the Effective Time. If, prior to the Effective Time, any of
the foregoing designees shall decline or be unable to serve as a director,
Company (if such person is Leslie Denend or Harry
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Saal) or Parent (in all other cases) shall designate another person to serve in
such person's stead, which person shall be reasonably acceptable to the other
party.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of Company.
(b) Parent Stockholder Approval. The issuance of shares of
Parent Common Stock pursuant to the Merger shall have been duly approved by the
requisite vote under applicable law by the stockholders of Parent.
(c) Registration Statement Effective; Proxy Statement. The SEC
shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Joint Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC.
(d) No Order; HSR Act. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Merger in
connection with the transactions contemplated hereby shall have been obtained.
(e) Tax Opinions. Parent and Company shall each have received
written opinions from their respective tax counsel (Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Gray Cary Ware & Freidenrich, a
Professional Corporation, respectively), in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn;
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provided, however, that if the counsel to either Parent or Company does not
render such opinion, this condition shall nonetheless be deemed to be satisfied
with respect to such party if counsel to the other party renders such opinion to
such party. The parties to this Agreement agree to make and use their
commercially reasonable efforts to cause their shareholders to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(f) Opinion of Accountants. Each of Parent and Company shall
have received letters from each of Coopers & Lybrand L.L.P. and Arthur Andersen
LLP, respectively, dated within two (2) business days prior to the Effective
Time, regarding that firm's concurrence with Parent's management's and Company's
management's conclusions as to the appropriateness of pooling of interest
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
the Merger is consummated in accordance with this Agreement.
(g) Nasdaq Listing. The shares of Parent Common Stock to be
issued to Company stockholders pursuant to the Merger shall have been approved
for listing on Nasdaq upon notice of issuance.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement (i) shall have
been true and correct in all material respects as of the date of this Agreement
and (ii) shall be true and correct in all material respects on and as of the
Closing Date except for changes contemplated by this Agreement and except for
those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such particular
date), with the same force and effect as if made on and as of the Closing Date,
except, with regard to the foregoing clauses (i) and (ii), in such cases (other
than the representations in Sections 3.2, 3.3, 3.16 and 3.18) where the failure
to be so true and correct would not have or be reasonably likely to have a
Material Adverse Effect on Parent. Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to
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the Closing Date, and Company shall have received a certificate to such
effect signed on behalf of Parent by an authorized officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with
respect to Parent shall have occurred since the date of this Agreement or be
reasonably likely to occur.
(d) Affiliate Agreements. Each of the Parent Affiliates shall
have entered into the Parent Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
(e) Certain Actions. The Board of Directors of Parent shall
have complied in all material respects with the provisions of Section 5.14
hereof.
(f) Consents. Parent shall have obtained all consents, waivers
and approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses or
leases set forth on Section 6.2 of the Company Schedules.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and
warranties of Company contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii) shall
be true and correct in all material respects on and as of the Closing Date
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such particular date), with
the same force and effect as if made on and as of the Closing Date, except, with
regard to the foregoing clauses (i) and (ii), in such cases (other than the
representations in Sections 2.2, 2.3, 2.20 and 2.21) where the failure to be so
true and correct would not have or be reasonably likely to have a Material
Adverse Effect on Company. Parent shall have received a certificate with respect
to the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) Agreements and Covenants. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of
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Company by the Chief Executive Officer and the Chief Financial Officer of
Company.
(c) Material Adverse Effect. No Material Adverse Effect with
respect to Company shall have occurred since the date of this Agreement or be
reasonably likely to occur.
(d) Affiliate Agreements. Each of the Company Affiliates shall
have entered into the Company Affiliate Agreement and each of such agreements
will be in full force and effect as of the Effective Time.
(e) Consents. Company shall have obtained all consents,
waivers and approvals required in connection with the consummation of the
transactions contemplated hereby in connection with the agreements, contracts,
licenses or leases set forth on Section 6.3(e) of the Parent Schedules.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the requisite approvals of the
stockholders of Company or Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have
been consummated by March 31, 1998 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
(d) by either Company or Parent if the required approvals of
the stockholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Company
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stockholders duly convened therefor or at any adjournment thereof (provided that
the right to terminate this Agreement under this Section 7.1(d) shall not be
available to Company where the failure to obtain Company stockholder approval
shall have been caused by the action or failure to act of Company and such
action or failure to act constitutes a breach by Company of this Agreement);
(e) by either Company or Parent if the required approval of
the stockholders of Parent contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a meeting of
Parent stockholders duly convened therefor or at any adjournment thereof
(provided that the right to terminate this Agreement under this Section 7.1(e)
shall not be available to Parent where the failure to obtain Parent stockholder
approval shall have been caused by the action or failure to act of Parent and
such action or failure to act constitutes a material breach by Parent of this
Agreement);
(f) by Parent if (i) the Board of Directors of Company or any
committee thereof shall have withdrawn or modified in a manner adverse to Parent
its approval or recommendation of the Merger or this Agreement, (ii) Company
shall have failed to include in the Joint/Proxy Statement/Prospectus the
recommendation of the Board of Directors of Company in favor of approval of the
Merger and this Agreement, (iii) the Board of Directors of Company shall have
failed to reconfirm such recommendation within ten business days after a written
request to do so at any time following the public announcement or disclosure of
an Alternative Proposal (iv) the Board of Directors of Company or any committee
thereof shall have recommended any Alternative Proposal or (v) the Board of
Directors of Company or any committee thereof shall have resolved to do any of
the foregoing;
(g) by Company if (i) the Board of Directors of Parent or any
committee thereof shall have withdrawn or modified in a manner adverse to
Company its recommendation of approval of the issuance of shares of Parent
Common Stock pursuant to the Merger, (ii) Parent shall have failed to include in
the Joint/Proxy Statement/Prospectus the recommendation of the Board of
Directors of Parent in favor of approval of the issuance of shares of Parent
Common Stock pursuant to the Merger, (iii) the Board of Directors of Parent
shall have failed to reconfirm such recommendation within ten business days
after a written request to do so at any time following the public announcement
or disclosure of a Parent Contingent Proposal (as defined in Section 7.3(d)) or
(iv) the Board of Directors of Parent or any committee thereof shall have
resolved to do any of the foregoing;
(h) by Company at any time prior to the approval of the Merger
by Company's stockholders and following the earlier of (i) three days following
the date the Registration Statement is declared effective pursuant to the
Securities Act
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by the SEC or (ii) sixty days following the date hereof, if the Board of
Directors of Company recommends a Superior Proposal to the stockholders of
Company;
(i) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that Company may
not terminate this Agreement under this Section 7.1(i) if such inaccuracy in
Parent's representations and warranties or breach by Parent is curable by Parent
through the exercise of its commercially reasonable efforts prior to March 31,
1998, provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that Company may not terminate this
Agreement pursuant to this paragraph (i) if it shall have materially breached
this Agreement or if such breach by Parent is cured prior to March 31, 1998); or
(j) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that Parent may
not terminate this Agreement under this Section 7.1(j) if such inaccuracy in
Company's representations and warranties or breach by Company is curable by
Company through the exercise of its commercially reasonable efforts prior to
March 31, 1998, provided Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Parent may not terminate
this Agreement pursuant to this paragraph (j) if it shall have materially
breached this Agreement or if such breach by Company is cured prior to March 31,
1998).
7.2 Notice of Termination; Effect of Termination. Any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
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7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; provided, however, that Parent and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to the printing and filing (with the
SEC) of the Joint Proxy Statement/Prospectus (including any preliminary
materials related thereto) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements thereto.
(b) Company Payments. In the event that this Agreement is
terminated by Parent pursuant to Section 7.1(f) or Company pursuant to Section
7.1(h), Company shall promptly, but in no event later than two days after the
date of such termination, pay Parent a fee equal to $30 million in immediately
available funds (the "COMPANY TERMINATION FEE"). If this Agreement shall be
terminated by any party hereto pursuant to Section 7.1(d) and prior to such
termination an Alternative Proposal shall have been publicly announced or
otherwise publicly disclosed, and prior to the date 12 months following the date
of the termination of this Agreement either (i) a Company Acquisition (as
hereinafter defined) shall be consummated or (ii) Company shall enter into an
Acquisition Agreement providing for a Company Acquisition, then Company shall
pay to Parent the Company Termination Fee in immediately available funds in the
case of clause (i) concurrently with the consummation of such Company
Acquisition or in the case of clause (ii) one half of the Company Termination
Fee concurrently with the execution of such Acquisition Agreement and the
remaining half of the Company Termination Fee upon the consummation of any
Company Acquisition occurring with twelve months following such execution.
Company acknowledges that the agreements contained in this Section 7.3(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if Company fails promptly to pay the amounts due pursuant to this
Section 7.3(b) , and, in order to obtain such payment, Parent commences a suit
which results in a judgment against Company for the amounts set forth in this
Section 7.3(b) and such judgment is not set aside or reversed, Company shall pay
to Parent its reasonable costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 7.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. "COMPANY
ACQUISITION" shall mean any of the following transactions or series of related
transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Company pursuant to which the stockholders of
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Company immediately preceding such transaction or series of related transactions
hold less than 60% of the equity interests in the surviving or resulting entity
of such transaction or transactions (without respect to any overlap in the
companies' stockholder bases) (other than the transactions contemplated by this
Agreement); (ii) a sale or other disposition by Company of assets (excluding
inventory and used equipment sold in the ordinary course of business)
representing in excess of 40% of the fair market value of Company's business
immediately prior to such sale; or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of 40% or more of the then outstanding shares of capital
stock of Company.
(c) Payment of the fees described in Section 7.3(b) above
shall not be in lieu of damages incurred in the event of material and willful
breach of this Agreement.
(d) Parent Payments. In the event that this Agreement is
terminated by Company pursuant to Section 7.1(g), Parent shall promptly, but in
no event later than two days after the date of such termination, pay Company a
fee equal to $30 million in immediately available funds (the "PARENT TERMINATION
FEE"). If this Agreement shall be terminated by any party hereto pursuant to
Section 7.1(e) and prior to the time of the occurrence of the event entitling
such party to terminate this Agreement pursuant to such provision a Parent
Contingent Proposal shall have been publicly announced or otherwise publicly
disclosed, and prior to the date 12 months following the date of the termination
of this Agreement either (i) the transaction contemplated by such Parent
Contingent Proposal shall be consummated or (ii) Parent shall enter into a
written agreement providing for the consummation of the transaction contemplated
by such Parent Contingent Proposal, then Parent shall pay to Company the Parent
Termination Fee in immediately available funds, in the case of clause (i)
concurrently with the consummation of the transaction contemplated by such
Parent Contingent Proposal and in the case of clause (ii) one half of the Parent
Termination Fee concurrently with the execution of such agreement and the
remaining half of the Parent Termination Fee upon the consummation of the
transaction contemplated by such agreement. Parent acknowledges that the
agreements contained in this Section 7.3(d) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Company would not enter into this Agreement; accordingly, if Parent fails
promptly to pay the amounts due pursuant to this Section 7.3(d), and, in order
to obtain such payment, Company commences a suit which results in a judgment
against Parent for the amounts set forth in this Section 7.3(d) and such
judgment is not set aside or reversed, Parent shall pay to Company its
reasonable costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on
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the amounts set forth in this Section 7.3(d) at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
Payment of the fees described in this Section 7.3(d) shall not be in lieu of
damages incurred in the event of material and willful breach of this Agreement.
"PARENT CONTINGENT PROPOSAL" shall mean a Parent Proposal, which proposal is and
is publicly disclosed to be contingent upon the issuance of shares of Parent
Common Stock pursuant to the Merger not being approved by the stockholders of
Parent or the Merger otherwise not being consummated.
7.4 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto 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 made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time (such as those set forth in Section 5.10) shall
survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
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(a) if to Parent or Merger Sub, to:
McAfee Associates, Inc.
2710 Walsh Avenue
Santa Clara, California 95051-0963
Attention: President
Telephone No.: (408) 988-3832
Telecopy No.: (408) 988-6054
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeff Saper, Esq.
Marty Korman, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to Company, to:
Network General Corporation
4200 Bohannon Drive
Menlo Park, California 94025
Attention: President
Telephone No.: (650) 473-2000
Telecopy No.: (650) 321-0878
with a copy to:
Gray Cary Ware & Freidenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attention: Rod Howard, Esq.
Telephone No.: (650) 328-6561
Telecopy No.: (650) 327-3699
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8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise indicated.
The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein shall be deemed
in each case to be followed by the words "without limitation." 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. When reference is made herein to "THE BUSINESS OF" an entity, such
reference shall be deemed to include the business of all direct and indirect
subsidiaries of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "KNOWLEDGE" means
with respect to a party hereto, with respect to any matter in question, that any
of the Chief Executive Officer, Chief Financial Officer, General Counsel,
Director of Legal Affairs or Controller of such party, has actual knowledge of
such matter.
(c) For purposes of this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used in connection with an entity means any change, event or effect
that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of such entity and its
subsidiaries taken as a whole, except for those changes, events and effects that
(i) are directly and primarily caused by conditions affecting the United States
economy as a whole or affecting the industry in which such entity competes as a
whole, which conditions do not affect such entity in a disproportionate manner,
or (ii) are directly and primarily related to or result from announcement or
pendency of the Merger.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it
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being understood that the Confidentiality Agreement shall continue in full force
and effect until the Closing and shall survive any termination of this
Agreement; and (b) are not intended to confer upon any other person any rights
or remedies hereunder, except as specifically provided in Section 5.10.
8.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the jurisdiction of any state
or federal court within the Northern District of California or the State of
Delaware, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California or the
State of Delaware, as is appropriate, for such persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
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construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
*****
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
McAFEE ASSOCIATES, INC.
By: /s/ William L. Larson
------------------------------------
Name: William L. Larson
------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
MYSTERY ACQUISITION CORP.
By: /s/ Prabhat K. Goyal
------------------------------------
Name: Prabhat K. Goyal
------------------------------------
Title: President
------------------------------------
NETWORK GENERAL CORPORATION
By: /s/ Laurence R. Hootnick
------------------------------------
Name: Laurence R. Hootnick
------------------------------------
Title: Director
------------------------------------
**** REORGANIZATION AGREEMENT ****
<PAGE> 69
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
McAFEE ASSOCIATES, INC.
MYSTERY ACQUISITION CORP.
AND
NETWORK GENERAL CORPORATION
DATED AS OF OCTOBER 13, 1997
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I THE MERGER...........................................................2
1.1 The Merger...................................................2
1.2 Effective Time; Closing......................................2
1.3 Effect of the Merger.........................................2
1.4 Certificate of Incorporation; Bylaws.........................3
1.5 Directors and Officers.......................................3
1.6 Effect on Capital Stock......................................3
1.7 Surrender of Certificates....................................5
1.8 No Further Ownership Rights in Company Common Stock..........6
1.9 Lost, Stolen or Destroyed Certificates.......................7
1.10 Tax and Accounting Consequences..............................7
1.11 Taking of Necessary Action; Further Action...................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY...........................7
2.1 Organization of Company......................................8
2.2 Company Capital Structure....................................8
2.3 Obligations With Respect to Capital Stock....................9
2.4 Authority....................................................9
2.5 SEC Filings; Company Financial Statements...................11
2.6 Absence of Certain Changes or Events........................12
2.7 Tax.........................................................13
2.8 Title to Properties; Absence of Liens and Encumbrances......14
2.9 Intellectual Property.......................................15
2.10 Compliance; Permits; Restrictions...........................18
2.11 Litigation..................................................19
2.12 Brokers' and Finders' Fees..................................19
2.13 Employment Matters..........................................19
2.14 Environmental Matters.......................................24
2.15 Agreements, Contracts and Commitments.......................25
2.16 Pooling of Interests........................................26
2.17 Certain Payments............................................26
2.18 Registration Statement; Joint Proxy Statement/Prospectus....26
2.19 Board Approval..............................................27
2.20 Fairness Opinion............................................27
2.21 Section 203 of the Delaware General Corporation Law Not
Applicable; Company Rights Plan.............................27
2.22 Customs.....................................................28
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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<S> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB...........................................................28
3.1 Organization of Parent.........................................28
3.2 Parent and Merger Sub Capital Structure........................29
3.3 Obligations With Respect to Capital Stock......................29
3.4 Authority......................................................30
3.5 SEC Filings; Parent Financial Statements.......................31
3.6 Absence of Certain Changes or Events...........................32
3.7 Tax............................................................33
3.8 Title to Properties; Absence of Liens and Encumbrances ........33
3.9 Intellectual Property..........................................33
3.10 Compliance; Permits; Restrictions..............................35
3.11 Litigation.....................................................36
3.12 Brokers' and Finders' Fees.....................................36
3.13 Statements; Joint Proxy Statement/Prospectus...................36
3.14 Valid Issuance.................................................37
3.15 No Ownership of Company Common Stock...........................37
3.16 Pooling of Interests...........................................37
3.17 Board Approval.................................................37
3.18 Fairness Opinion...............................................37
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................37
4.1 Conduct of Business by Company..................................37
4.2 Conduct of Business by Parent...................................40
ARTICLE V ADDITIONAL AGREEMENTS...............................................41
5.1 Joint Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations..................................41
5.2 Meetings of Stockholders........................................43
5.3 Confidentiality; Access to Information..........................43
5.4 No Solicitation.................................................44
5.5 Public Disclosure...............................................47
5.6 Reasonable Efforts; Notification................................48
5.7 Third Party Consents............................................49
5.8 Stock Options and Employee Benefits.............................49
5.9 Form S-8........................................................50
5.10 Indemnification.................................................50
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
5.11 Nasdaq Listing..............................................51
5.12 Affiliate Agreements........................................51
5.13 Regulatory Filings; Reasonable Efforts......................51
5.14 Board of Directors of Parent Following the Merger...........52
ARTICLE VI CONDITIONS TO THE MERGER...........................................52
6.1 Conditions to Obligations of Each Party to Effect the Merger52
6.2 Additional Conditions to Obligations of Company.............53
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub..................................................54
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................55
7.1 Termination.................................................55
7.2 Notice of Termination; Effect of Termination................57
7.3 Fees and Expenses...........................................58
7.4 Amendment...................................................60
7.5 Extension; Waiver...........................................60
ARTICLE VIII GENERAL PROVISIONS...............................................60
8.1 Non-Survival of Representations and Warranties..............60
8.2 Notices.....................................................60
8.3 Interpretation; Knowledge...................................62
8.4 Counterparts................................................62
8.5 Entire Agreement; Third Party Beneficiaries.................62
8.6 Severability................................................63
8.7 Other Remedies; Specific Performance........................63
8.8 Governing Law...............................................63
8.9 Rules of Construction.......................................63
8.10 Assignment..................................................64
8.11 Waiver of Jury Trial........................................64
</TABLE>
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INDEX OF EXHIBITS
Exhibit A-1 Form of Company Voting Agreement
Exhibit A-2 Form of Parent Voting Agreement
Exhibit B-1 Form of Company Affiliate Agreement
Exhibit B-2 Form of Parent Affiliate Agreement
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<PAGE> 1
EXHIBIT 2.4
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of December 1, 1997 among McAfee Associates, Inc., a Delaware
corporation ("PARENT"), DNA Acquisition Corporation., a Delaware corporation and
a wholly-owned subsidiary of Parent ("MERGER SUB") and Helix Software Company,
Inc., a Georgia corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger all of the issued and outstanding shares of
common stock of the Company (the "COMPANY COMMON STOCK") shall be converted into
the right to receive an aggregate five hundred fifty thousand (550,000) shares
of common stock (the "MERGER CONSIDERATION") of Parent (the "PARENT COMMON
STOCK"). Parent is entering into a Registration Rights Agreement pursuant to
which Parent shall file a registration statement providing for the sale of
Parent Common Stock received pursuant to the Merger and the transactions
hereunder.
C. Fifty-five thousand (55,000) shares of Parent Common Stock otherwise
payable by Parent in connection with the Merger shall be placed into escrow by
Parent, the release of which amount shall be contingent upon certain events and
conditions.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. To facilitate the Merger and the transactions contemplated hereby,
as of the date hereof, the parties to the Stockholders Agreement dated July 21,
1990 and the Company have entered into a Termination of Shareholder Agreement
(the "TERMINATION AGREEMENT").
F. Certain key employees of the Company, as of the date hereof, are
each entering into an Employment Agreement with Parent (collectively, the
"EMPLOYMENT AGREEMENTS").
G. The parties intend, that the transactions contemplated by this
Agreement will qualify as a "Reorganization" within the meaning of Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
<PAGE> 2
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW")
and Georgia Business Corporation Code ("GEORGIA LAW"), Merger Sub shall be
merged with and into the Company, the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. (The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "SURVIVING
CORPORATION.")
1.2 Effective Time. The closing of the Merger (the "CLOSING") is taking
place concurrently with the signing of this Agreement. The date hereof is
referred to as the "CLOSING DATE." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger (or like
instrument) with the Secretaries of State of the States of Delaware and Georgia,
respectively (the "CERTIFICATES OF MERGER"), in accordance with the relevant
provisions of Delaware and Georgia law, respectively (the time of acceptance by
the Secretaries of State of Delaware and Georgia of such filings being referred
to herein as the "EFFECTIVE TIME").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
Georgia Law respectively. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of the Company, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, to hold office in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the Bylaws of the Surviving
Corporation.
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<PAGE> 3
1.6 Effect on Capital Stock.
(a) Certain Definitions.
(i) "OUTSTANDING COMMON" shall mean, immediately
prior to the Effective Time, all issued and outstanding shares of Company Common
Stock, including shares of Company Common Stock issuable upon the exercise of
outstanding Company Options (each as defined below).
(ii) "PROPORTIONATE ESCROW INTEREST" applicable to
each Company Stockholder, shall mean the quotient obtained by dividing (x) the
total number of shares of Company Common Stock held of record by such Company
Stockholder, by (y) the total number of shares of Company Common Stock held of
record by all the Company Stockholders, in each case, as of immediately prior to
the Effective Time.
(iii) "NASDAQ" shall mean the Nasdaq National
Market.
(b) Consideration of Company Common Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger Sub,
the Company or the Company Stockholders, each share of the Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares, as defined in Section 1.7(a) and shares of Company Common
Stock owned by Parent, Merger Sub or held in the treasury of the Company) will
be canceled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such share in the manner
provided in Section 1.8, a number of shares of Parent Common Stock equal to a
fraction the numerator of which is 550,000 and the denominator of which is the
Outstanding Common (the "MERGER CONSIDERATION"). Such conversion shall be made
in accordance with the terms and subject to the conditions set forth below and
throughout this Agreement, including, without limitation, the escrow provisions
set forth in Article IV hereof.
(c) Escrow. Promptly after the Effective Time, from the Merger
Consideration otherwise payable pursuant to Section 1.6(b), Parent shall deposit
fifty-five thousand (55,000) shares of Parent Common Stock (the "ESCROW AMOUNT")
into an escrow account pursuant to Section 1.8 and Article IV.
(d) Capital Stock of Merger Sub. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has exercised
and perfected appraisal rights for such
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<PAGE> 4
shares in accordance with Georgia Law (or other applicable law) and who, as of
the Effective Time, has not effectively withdrawn or lost such appraisal rights
("DISSENTING SHARES"), shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by Georgia Law or other
law, as the case may be.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent and the Company
Stockholder's Agent (as defined in Article IV) (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of Georgia law and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands. To the extent that Parent or the Company makes any payment or payments
in respect of any Dissenting Shares (which payments, after the Effective Time
shall not be made by Parent without the consent of the Company Stockholder
Agent, which consent may not be unreasonably withheld), Parent shall be entitled
to recover under the terms of Article IV hereof the aggregate amount by which
such payment or payments exceed the aggregate Merger Consideration that
otherwise would have been payable in respect of such shares.
1.8 Surrender of Certificates; Payment of Merger Consideration.
(a) Parent to Provide Merger Consideration; Escrow Funding.
Promptly after the Effective Time, Parent shall make available for exchange in
accordance with this Article I, the Parent Common Stock deliverable pursuant to
Section 1.6 in exchange for outstanding shares of Company Common Stock; provided
that Parent shall deposit into the Escrow Fund (as defined in Section 4.2)
pursuant to Article IV the Escrow Amount as contemplated in Section 1.6(c). The
portion of the amounts contributed on behalf of each holder of Company Common
Stock into the Escrow Fund shall be equal to such holder's Proportionate Escrow
Interest.
(b) Exchange Procedures. Upon surrender to Parent or an agent
appointed by it of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") duly endorsed in blank or accomplished by stock powers duly
executed in blank, the holder of record of such Certificate shall be entitled to
receive in exchange therefor the applicable Merger Consideration pursuant to
Section 1.6 (subject to the escrow provisions of Section 1.8 and Article IV) and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock, will be deemed from and after the
Effective Time, to evidence only the
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<PAGE> 5
right to receive the Merger Consideration in respect of each such share (subject
to Section 1.13 and subject to the escrow provisions of Section 1.8 and Article
IV).
(c) Transfers of Ownership. If any payment or delivery is to
be made to a person other than the holder in whose name the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
payment thereof that the Certificate so surrendered will be properly endorsed
and accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid.
(d) Payments With Respect to Unexchanged Shares. No interest
on any Merger Consideration payable at or after the Effective Time shall be
paid.
(e) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) fifty dollars ($50.00).
1.9 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
delivered in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and the Merger Consideration due under Section
1.6 with respect to such Company Common Stock shall be delivered to the person
entitled thereto (subject to the escrow provisions of Article IV).
1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, Parent shall make payment in exchange for such lost, stolen
or destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section 1.6;
provided, however, that Parent may, in its sole discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver an agreement (in form and substance
satisfactory to it) to indemnify Parent against any claim that may be made
against Parent with respect to the certificates alleged to have been lost,
stolen or destroyed.
1.11 Tax and Accounting Treatment. The Merger shall constitute a tax
free reorganization under the Internal Revenue Code of 1986, as amended (the
"CODE"), and will be treated as a pooling of interest for financial accounting
purposes.
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<PAGE> 6
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub or to vest Parent with a 100%
ownership interest in the Surviving Corporation or to vest the Company
Stockholders with the Parent Common Stock to which they are entitled hereunder
and for other actions required under this Agreement, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary and/or desirable action.
1.13 Purchase Price Adjustment. The Merger Consideration will be
subject to adjustment as follows:
(a) Tangible Net Worth Adjustment.
(i) Closing Balance Sheet. As soon as practicable
(but in no event later than 45 days) following the Closing Date, the Company
will, at the expense of the Surviving Corporation, prepare and cause to be
audited by Coopers & Lybrand LLP, independent accountants, and the Company will
deliver to Parent and the Company Stockholders' Agent (as defined in Article
IV), a balance sheet of the Company as of the Closing Date (the "CLOSING BALANCE
SHEET"). The Closing Balance Sheet will be prepared in accordance with generally
accepted accounting principles ("GAAP") consistent with the basis of accounting
and procedures and methods employed by the Company in its financial statements
delivered pursuant to Section 2.6. During the conduct of the audit, the Company
will cooperate in all respects with the independent auditors for the purposes of
completing the Closing Balance Sheet. In addition, the Company and the
independent auditors shall be available for periodic inquiry by Parent, the
Company Stockholders' Agent and the Company, and the independent auditors will
answer such questions as Parent or the Company Stockholders' Agent may have and
provide such additional schedules and materials as Parent or the Stockholders'
Agent may reasonably request in order to permit a meaningful review of the
Closing Balance Sheet.
(ii) Definition. "TANGIBLE NET WORTH" will mean the
aggregate of all tangible assets (net of all reserves and excluding all
intangible assets, including without limitation, all goodwill and capitalized
software) set forth in the Closing Balance Sheet, less all liabilities of any
kind (including without limitation accounts payable, royalties payable, warranty
reserves, accrued bonuses, accrued vacation, employee expense obligations,
deferred revenue, litigation reserves and debt and other liabilities) set forth
in the Closing Balance Sheet determined in accordance with GAAP; provided,
however, that (x) any compensation expense arising from the exercise of Company
Options on or prior to the Closing Date will not be reflected in the Closing
Balance Sheet and (y) reasonable payments by the Company of fees and expenses of
up to $800,000 to its investment bankers, accountants, and attorneys in
connection with this Agreement and the transactions contemplated hereby will not
be included in the Closing Balance Sheet for purposes of calculating Tangible
Net Worth pursuant to this Section 1.13(a)(ii).
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<PAGE> 7
(iii) Disputes. At any time within thirty (30) days
following the delivery of the Closing Balance Sheet to Parent and the Company
Stockholders' Agent (the "REVIEW PERIOD"), Parent or the Company Stockholders'
Agent may dispute any amounts reflected or not reflected on the Closing Balance
Sheet to the extent the net effect of all such disputed amounts in the aggregate
would affect the Tangible Net Worth amount, but only on the basis that such
amounts were not arrived at in accordance with Section 1.13(a)(i); each of
Parent and the Company Stockholders' Agent will notify the other of each such
disputed item, and will specify the amount thereof in dispute, not later than
the expiration of the Review Period. If Parent and the Company Stockholders'
Agent are able to resolve all the disputed items within 20 days following
expiration of the Review Period, then the Closing Balance Sheet agreed upon by
Parent and the Company Stockholders' Agent will be final, binding and conclusive
on the parties hereto. If Parent and the Company Stockholders' Agent are unable
to resolve any disputed item and are therefore unable to agree as to the Closing
Balance Sheet and the resultant Tangible Net Worth amount within 20 days
following the expiration of the Review Period, the items remaining in dispute
shall be submitted for resolution to a nationally recognized accounting firm
(the member of which who will be primarily responsible for resolving such
disputes will have had substantial auditing experience and substantial
experience in arbitration or other dispute resolution proceedings concerning
accounting issues) selected by mutual agreement of Parent and the Company
Stockholders' Agent (or failing such agreement (as to both such accounting firm
and such member) between Parent and the Company Stockholders' Agent within 10
days after such 20 day period, as selected by mutual agreement between Parent's
independent accountants and the Company's independent accountants (prior to the
Merger), or, failing agreement by such accountants within 10 days after such
prior 10 day period, as appointed by the American Arbitration Association) (the
"ACCOUNTANTS"). The Accountants will, within 30 days after submission,
determine, based solely on presentations by Parent and the Company Stockholders'
Agent (and their representatives) and not by independent review, and render a
written report to the parties upon, such remaining disputed items and the
resultant calculation of the Closing Balance Sheet and the Tangible Net Worth
amount in accordance with the provisions hereof, and such report and the
Resultant Closing Balance Sheet will be final, binding and conclusive on the
parties hereto. In resolving any disputed item, the Accountants may not assign a
value to such item greater than the greatest value for such item claimed by
either party or less than the smallest value for such item claimed by either
party. The fees and disbursements of the Accountants (and of the American
Arbitration Association, if any) (a) will be paid out of the Escrow Fund
established under Article IV if the Tangible Net Worth amount finally determined
pursuant to this Section 1.13(a)(iii) shall be more than $25,000 below the
Tangible Net Worth amount reflected on the Closing Balance Sheet originally
submitted pursuant to Section 1.13(a)(i) hereof, or (b) will be borne by Parent
if the Tangible Net Worth amount finally determined pursuant to this Section
1.13(a)(iii) is equal to or less than $25,000 below the Tangible Net Worth
amount reflected on the Closing Balance Sheet originally submitted pursuant to
Section 1.13(a)(i) hereof. Parent and the Company hereby agree to cooperate and
work in good faith and as expeditiously as reasonably possible to resolve any
and all Closing Balance Sheet disputes.
(iv) Adjustment. In the event that the Tangible Net
Worth of the Company as of the Closing Date as reported in the Closing Balance
Sheet (or, if different, the Restated Closing Balance Sheet determined pursuant
to subparagraph (iii) above) is less than $2,000,000, then Parent shall provide
written notice of such deficiency to the Escrow Agent pursuant to the provisions
of Article IV,
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<PAGE> 8
and the deficiency shall be payable to the Parent as an escrow claim thereunder
(pursuant to the procedure set forth in such Article IV).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as of the
date hereof, subject to such exceptions as are specifically disclosed in the
disclosure schedule supplied by the Company to Parent (the "COMPANY SCHEDULES"
or "DISCLOSURE SCHEDULES") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and 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 of the Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of
1,000,000 shares, all of which are designated as Common Stock. The Company
Common Stock is held by the persons and in the amounts set forth on Schedule
2.2(a). All outstanding shares of the Company's Common Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound.
(b) As of November 25,1997, the Company has reserved 9,650
shares of Company Common Stock for issuance to employees and consultants, all of
which shares will be issued prior to the Closing Date by exercise of outstanding
options (collectively, the "COMPANY OPTIONS"). Schedule 2.2(b) sets forth for
each such outstanding Company Option the name of the holder of such option, the
number of shares of Company Common Stock subject to such option, the exercise
price of such option and the vesting schedule for such option. Except for the
Company Options described in Schedule 2.2(b) above, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
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<PAGE> 9
call, right, commitment or agreement. The holders of Company Options have been
or will be given, or shall have properly waived, any required notice prior to
the Merger and all such rights will be terminated at or prior to the Effective
Time. Upon the Effective Time without any further action necessary, all Company
Options that shall not have been exercised at or prior to the Effective Time
shall be canceled such that there shall be no outstanding Company Options after
the Effective Time. As a result of the Merger and assuming that Parent owns all
the shares of Merger Sub capital stock, immediately after the Merger, Parent
will be the record owner of all outstanding capital stock of the Company and
rights to acquire capital stock of the Company and no other person or entity
will be a record or beneficial owner of any capital stock of the Company or
rights to acquire capital stock of the Company.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in (other than stock
or other interest in a public company not exceeding a 1% interest), or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company (including the
unanimous approval of this Agreement and the Merger by the Company's
Stockholders). The Company's Board of Directors has unanimously approved the
Merger and this Agreement. Each of this Agreement and each other document
executed by the Company in connection with this Agreement and the Merger has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable in accordance with its terms
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance-injunctive relief or other equitable remedies.
The Shareholder Termination Agreement and each other document executed by any
Company Stockholder in connection with this Agreement and the Merger has been
duly executed and delivered by each Company Stockholder that is a party thereto
and constitutes valid and binding obligations of each such Company Stockholder,
enforceable in accordance with their terms except as such enforceability may be
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. Except as set forth on Schedule
2.4, the execution and delivery by the Company of each of this Agreement and
each other document executed by the Company in connection with this Agreement
and the Merger does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "CONFLICT") (i)
any provision of the Certificate of Incorporation or Bylaws of the Company or
(ii) any mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
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commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict), is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for the
filing of the Certificates of Merger with the appropriate Secretaries of State
and such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
audited balance sheet as of May 31, 1997 and the related audited statements of
income and cash flow for the twelve-month period then ended and the Company's
reviewed balance sheet as of September 30, 1997 (the "Current Balance Sheet")
(collectively, the "COMPANY FINANCIALS"). The Company Financials are correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other (except in the case of the
current Balance Sheet and related unaudited statements for normal year end
adjustments or as otherwise noted in the Company Financials). The Company
Financials fairly present in all material respects the financial condition and
operating results of the Company as of the dates and during the periods
indicated therein, subject to normal year-end adjustments, which will not be
material in amount or significance in the aggregate.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
the Company does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, in excess of $5,000
individually or $15,000 in the aggregate, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles).
2.7 No Changes. Except as set forth in Schedule 2.7, since May 30,
1997, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course
of business as conducted on that date;
(b) capital expenditure or commitment by the Company, in
excess of $10,000 individually or $25,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
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(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company, or any
direct or indirect redemption, purchase or other acquisition by the Company of
any of its capital stock;
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement other than normal course of business salary increases in connection
with ongoing yearly reviews or promotions (none of which exceeds 10% of the
previous year's salary);
(i) acquisition, sale or transfer of any asset of the Company,
except in the ordinary course of business as conducted on that date;
(j) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is bound;
(k) loan by the Company to any person or entity (other than
(i) loans to all employees aggregating to no more than $5,000 and (ii) expense
advances to employees, all of which are immaterial in any amount and are issued
in the normal course of business), incurring by the Company of any indebtedness,
guaranteeing by the Company of any indebtedness, issuance or sale of any debt
securities of the Company or guaranteeing of any debt securities of others;
(l) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company in excess of $10,000.
(m) the commencement or notice or, to the best knowledge of
the Company, threat of commencement of any lawsuit or proceeding against or
investigation of the Company or its affairs;
(n) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(o) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(p) change in pricing or royalties set or charged by the
Company;
(q) any event or condition of any character that has or could
be reasonably expected to have a Material Adverse Effect on the Company; or
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(r) negotiation or agreement, oral or written, by the Company
or any officer or employees thereof to do any of the things described in the
preceding clauses (a) through (q) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES," means any and all federal, state, local and
foreign taxes, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts.
(b) Tax Returns and Audits. Except as set forth in Schedule
2.8:
(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("RETURNS") relating to any and
all Taxes concerning or attributable to the Company or its operations and such
Returns will be true and correct in all material respects and will have been
completed in accordance with applicable law in all material respects.
(ii) The Company as of the Effective Time: (A) will
have paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld other than any Taxes to be paid by
such employees as a result of the receipt of the Merger Consideration.
(iii) The Company has not been adjudicated delinquent
by any Tax Authority in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against the Company, nor has the Company
executed any waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of
the Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against on the November Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for the
assertion of any such liability attributable to the Company, its assets or
operations.
(vi) The Company has provided to Parent or its legal
counsel copies of all federal and state income and all state sales and use Tax
Returns filed for fiscal years 1994, 1995 and 1996.
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(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("LIENS") on the assets of the Company relating
to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, the Company will not be
a party to any contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of the Company that could obligate the Company to pay any amount that
would not be deductible pursuant to Section 280G of the Code.
(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any
time, a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records in all material respects.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of materially prohibiting or
impairing any business practice of the Company, any acquisition of property
(tangible or intangible) by the Company or the conduct of business by the
Company as presently conducted.
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Company owns no real property, nor has it ever owned
any real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease. All such current leases are in full force and effect, are valid
and effective in accordance with their respective
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<PAGE> 14
terms, and there is not with respect to the Company or to the knowledge of the
Company, any other party to such leases any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default) under such leases that would result in any monetary damage to the
Company or materially interfere with the present use of the property subject to
such lease.
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except as reflected in the Company
Financials or in Schedule 2.10(b) and except for liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract
from the value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
(c) Except as described in Schedule 2.10(c), the equipment
(the "EQUIPMENT") owned or leased by the Company is, taken as a whole, (i)
adequate for the conduct of the business of the Company as currently conducted
and (ii) in good operating condition, regularly and properly maintained, subject
to normal wear and tear.
2.11 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefor and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks; trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
"Company Intellectual Property" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, Company or any of its
material subsidiaries.
"Registered Intellectual Property" shall mean all United
States, international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any
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<PAGE> 15
other Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
"Company Registered Intellectual Property" means all of
the Registered Intellectual Property owned by, or filed in the name of, Company.
(a) Except as set forth in Section 2.15 of the Disclosure
Schedule, no material Company Intellectual Property or Company Registered
Intellectual Property or product or service of Company is subject to any
proceeding or outstanding decree, order, judgment, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by Company, or
which may affect the validity, use or enforceability of such Company
Intellectual Property.
(b) All necessary registration, maintenance and renewal fees
currently due in connection with Company Registered Intellectual Property has
been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Registered Intellectual Property.
(c) Company owns and has good and exclusive title to, or has
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to, each material item of Company Intellectual
Property free and clear of any lien or encumbrance (excluding licenses and
related restrictions); and Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the business of
Company, including the sale of any products or the provision of any services by
Company.
(d) Company owns exclusively, and has good title to, all
copyrighted works that are Company products or which Company otherwise expressly
purports to own.
(e) To the extent that any material Intellectual Property has
been developed or created by a third party for Company, Company has a written
agreement with such third party with respect thereto and Company thereby either
(i) has obtained ownership of, and is the exclusive owner of, or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such Intellectual Property by operation of law or by
valid assignment.
(f) Except as set forth in Schedule 2.11(f) of the Disclosure
Schedule, the Company has not transferred ownership of, or granted any exclusive
distribution rights or exclusive license with respect to, any Intellectual
Property that is or was Company Intellectual Property, to any third party.
(g) The Company Schedules list all material contracts,
licenses and agreements to which Company is a party (i) with respect to Company
Intellectual Property licensed or transferred to
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<PAGE> 16
any third party (other than end-user licenses in the ordinary course); or (ii)
pursuant to which a third party has licensed or transferred any Intellectual
Property to Company.
(h) All material contracts, licenses and agreements relating
to the Company Intellectual Property are in full force and effect. The
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination, or
suspension of such contracts, licenses and agreements. Company is in material
compliance with, and has not materially breached any term any of such contracts,
licenses and agreements and, to the knowledge of Company, all other parties to
such contracts, licenses and agreements are in compliance with, and have not
materially breached any term of, such contracts, licenses and agreements.
Following the Closing Date, the Surviving Corporation will be permitted to
exercise all of Company's rights under such contracts, licenses and agreements
to the same extent Company would have been able to had the transactions
contemplated by this Agreement not occurred and without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which Company would otherwise be required to pay.
(i) The operation of the business of Company as such business
currently is conducted, including Company's design, development, manufacture,
marketing and sale of the products or services of Company (including with
respect to products currently under development) has not, does not and will not
infringe or misappropriate the Intellectual Property of any third party
(provided that with respect to patent rights, such representation is limited to
Company's knowledge) or, to its knowledge, constitute unfair competition or
trade practices under the laws of any jurisdiction.
(j) Except as set forth in Schedule 2.15, the Company has not
received notice from any third party that the operation of the business of
Company or any act, product or service of Company, infringes or misappropriates
the Intellectual Property of any third party or constitutes unfair competition
or trade practices under the laws of any jurisdiction.
(k) Except as set forth on Schedule 2.15, items 1 and 2, to
the knowledge of Company, no Person has or is infringing or misappropriating any
Company Intellectual Property.
(l) Company has taken reasonable steps to protect Company's
rights in Company's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Company, and, without limiting the foregoing, Company has and
enforces a policy requiring each employee and contractor to execute a
proprietary information/ confidentiality agreement substantially in the form
provided to Parent and all current and former employees and contractors of
Company have executed such an agreement, except where the failure to do so is
not reasonably expected to be material to Company.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements,
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(ii) any agreements or arrangements that contain any
severance pay or post- employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $10,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000,
(xi) any agreement, contract or commitment relating
to the disposition or acquisition of assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any purchase order or contract for the
purchase of raw materials involving $10,000 or more other than purchases in the
ordinary course of business,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement, or
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(xvi) any other agreement, contract or commitment
that involves $10,000 or more and is not cancelable without penalty within
thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, all as noted in Schedule 2.12(b), the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment to which it is a party or by which it is bound and which
are required to be set forth in Schedule 2.12(a) (any such agreement, contract
or commitment, a "CONTRACT"). Each agreement, contract or commitment set forth
in any of the Company Schedules is in full force and effect and, except as
otherwise disclosed in Schedule 2.12(b), is not subject to any default
thereunder of which the Company has knowledge by any party obligated to the
Company pursuant thereto. The Company has obtained, or will obtain prior to the
Effective Time, all necessary consents, waivers and approvals of parties to any
Contract as are required in connection with the Merger.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or, to the knowledge of the Company, stockholder of
the Company (nor to the knowledge of the Company any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has an interest), has, directly or
indirectly, (i) a direct interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, or (ii) a direct interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any contract or agreement set forth in Schedule
2.12(a); provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"interest in any entity" for purposes of this section 2.13. The Company
Schedules set forth each plan or agreement pursuant to which any amounts may
become payable (whether currently or in the future) to current or former
officers and directors of Company as a result of or in connection with the
Merger.
2.14 Governmental Authorization. Schedule 2.14 accurately lists each
material consent, license, permit, grant or other authorization issued to the
Company by a governmental entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest
(herein collectively called "COMPANY AUTHORIZATIONS"), which Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
substantially as it is currently and has been conducted or hold any interest in
its properties or assets.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit, claim or proceeding of any nature pending or, to the knowledge of
the Company, threatened against the Company, its properties or any of its
officers or directors in their capacity as such, nor, to the knowledge of the
Company, is there any basis therefor. Except as set forth in Schedule 2.15,
there is no investigation pending or threatened against the Company, its
properties or any of its officers or directors (nor, to the knowledge of the
Company, is there any basis therefor) by or before any governmental entity.
Schedule 2.15 sets forth, with respect to any pending or threatened action,
suit, proceeding or
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<PAGE> 19
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. Except as set forth in
Schedule 2.15, no governmental entity has at any time challenged or questioned
the legal right of the Company to manufacture, offer or sell any of its products
in the present manner or style thereof.
2.16 Accounts Receivable.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company reflected on the Current Balance Sheet
("ACCOUNTS RECEIVABLE") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the
ordinary course of business, are carried at values determined in accordance with
generally accepted accounting principles consistently applied and are
collectible except to the extent of reserves therefor set forth in the Current
Balance Sheet. No person has any Lien on any of such Accounts Receivable and no
request or agreement for material deduction or discount has been made with
respect to any of such Accounts Receivable.
2.17 Minute Books. The minutes of corporate proceedings and consents of
the Company made available to counsel for Parent are the only minute books of
the Company and contain a reasonably accurate summary of the meetings of
directors (or committees thereof) referred to therein.
2.18 Environmental Matters.
(a) Hazardous Material. No underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies or similar
items, are present in any material quantities, as a result of the deliberate
actions of the Company, or, to the Company's knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that the
Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
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<PAGE> 20
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company.
The Company is not aware of any fact or circumstance which could involve the
Company in any material environmental litigation or impose upon the Company any
material environmental liability.
(e) Capital Expenditures. The Company is not aware of any
capital expenditures which are required in order for it to comply with
Environmental Laws.
2.19 Brokers' and Finders' Fees. Except for any payment due to pursuant
to the engagement letter with Lehman Brothers, Inc. dated October 6, 1997, (a
true and correct copy of which has been provided to Parent) The Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.20 Employee Benefit Plans.
(a) Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c)
or (m) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any
plan, program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation, each "employee
benefit plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by the Company or
any Affiliate for the benefit of any "Employee" (as defined below), and pursuant
to which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
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(iv) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each
management, employment, severance, consulting or similar agreement or contract
between the Company or any Affiliate and any Employee;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA; and
(viii) "PENSION PLAN" shall refer to each Company
Employee Plan which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and
complete list of each Company Employee Plan and each Employee Agreement. The
Company does not have any plan or commitment, whether legally binding or not, to
establish any new Company Employee Plan or Employee Agreement, to modify any
Company Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Company Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent where
available or applicable (i) correct and complete copies of all documents
embodying or relating to each Company Employee Plan and each Employee Agreement
including all amendments thereto and written interpretations thereof and (ii)
all communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company.
(d) Employee Plan Compliance. (i) The Company has performed in
all material respects all obligations required to be performed by it under each
Company Employee Plan and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in material
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Employee Plan; (iii) there are
no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; and
(iv) except as described in Schedule 2.20(d), each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, Parent or any of
its Affiliates (other
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than ordinary administration expenses typically incurred in a termination
event); (v) there are no inquiries or proceedings pending or, to the knowledge
of the Company or any affiliates, threatened by the IRS or DOL with respect to
any Company Employee Plan; and (vi) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(h) Effect of Transaction.
(i) Except as provided in Section 1.6 of this
Agreement, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made
by the Company or Parent or any of their respective affiliates with respect to
any Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is in compliance in
all material respects with all applicable federal and state laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees (other than amounts which may be
required to be withheld as a result of an Employee's receipt of Merger
Consideration); (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) (other than
routine payments to be made in the normal course of business and consistent with
past practice) is not
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liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees.
(j) Labor. No work stoppage or labor strike against the
Company is pending or, to the knowledge of the Company, threatened. The Company
is not involved in or, to the knowledge of the Company, threatened with, any
labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
material liability to the Company. Neither the Company nor any of its
subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act which would, individually or in the aggregate,
directly or indirectly result in a material liability to the Company. The
Company is not presently, nor has it been in the past, a party to, or bound by,
any collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
2.21 Compliance with Laws. The Company has materially complied with, is
not in material violation of, and has not received any notices of violation with
respect to, any federal, state or local statute, law or regulation, domestic or
foreign.
2.22 Warranties; Indemnities. Schedule 2.22 indicates all warranty and
indemnity claims in excess of $5,000 made against the Company.
2.23 Software Development Agreements. The Company has not violated, is
not in violation of, nor would the entry into this Agreement or consummation of
the Merger cause any violation of, any terms or provisions of any agreement
under which the Company has or had an obligation to develop, supply or
distribute software to or for any third party, excluding end-user licenses for
object code executed in the ordinary course of business, nor is the Company nor
would the Company be, under any circumstances, under any obligation to deliver
source code to any third party, except delivery of source code to a third party
exclusively for the internal use of such third party to support, maintain and
develop its software products, which products are (i) used only for programming
of such third party's hardware products and (ii) distributed only to such third
party's customers only in object code format. In any such case after delivery of
such source code the Company does not have nor would it have under any
circumstances, any other obligation of any nature to any such third party,
including without limitation any support or similar obligation.
2.24 Pooling of Interests. To the knowledge of Company, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers, affiliates or stockholders has taken or agreed to take
any action which would preclude Parent's ability to account for the Merger as a
pooling of interests under GAAP.
2.25 Insurance. Section 2.25 of the Schedule sets forth the following
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers'
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compensation coverage and bond and surety arrangements) to which the Company has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past three (3) years:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past three (3)
years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Section
2.25(e) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
2.26 Bank Accounts. Section 2.26 of the Schedule contains a true,
correct and complete list as of the date hereof of all banks, trust companies,
savings and loan associations and brokerage firms in which the Company has an
account or safe deposit box and the names of all persons authorized by the
Company to draw thereon or have access thereto.
2.27 Materiality. The matters and items excluded from the
representations and warranties set forth in this Article by operations of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded matters
and items, are not and could not reasonably be expected to have a Material
Adverse Effect.
2.28 Solvency. The Company is solvent.
2.29 Predecessor Status. Set forth in Section 2.29 of the Disclosure
Schedule is a listing of all predecessor companies of the Company and the names
of any Entities from which, since October 31,
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1991, the Company previously acquired material properties or assets. The Company
has never been a subsidiary or division of another entity, nor part of an
acquisition that was later rescinded.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The execution and delivery of this Agreement by the Company
does not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a Conflict (as defined in Section 2.4) under (i) any provision of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or Merger Sub or their
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity (as defined
in Section 2.4) or any third party (so as not to trigger any Conflict), is
required by or with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for the filing of the Certificates of Merger with
the appropriate Secretaries of State.
3.3 SEC Filings; Material Adverse Change. Parent has filed all forms,
reports and documents required to be filed by Parent with the SEC since January
1, 1997, and has made available to Company such forms, reports and documents in
the form filed with the SEC. All such required forms, reports and
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documents (including those that Parent may file subsequent to the date hereof)
are referred to herein as the "PARENT SEC REPORTS." As of their respective
dates, the Parent SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Parent SEC
Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Except as disclosed in the Parent SEC Reports filed by
Parent and publicly available prior to the date of this Agreement, as of the
date hereof, there has not been any material adverse change with respect to
Parent that would require disclosure under the Securities Act.
3.4 Parent Common Stock. The shares of Parent Common Stock to be issued
in connection with the Merger, when issued in accordance with the terms and
provisions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and will not be subject to any preemptive or other
statutory right of stockholders and will be issued in compliance with applicable
United States Federal and state securities laws.
3.5 Brokers' and Finders' Fees. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.6 Acknowledgment. Parent and Merger Sub acknowledge that they and
their representatives and advisors have had the opportunity to ask questions of
and receive answers from the Company and its representatives to the extent that
Parent, Merger Sub and their representatives and advisors have deemed necessary
and appropriate and to review all written documentation and other information
requested by them and provided by the Company, for the purpose of evaluating the
Company, the merger of the Company and Merger Sub and the other transactions
contemplated by this Agreement and the agreements contemplated hereby. In
entering into this Agreement and in performing their obligations hereunder,
Parent and Merger Sub have relied solely upon their own due diligence, their
knowledge of the industry in which the business of the Company is conducted and
the representations and warranties of the Company expressly set forth in this
Agreement, and not upon any other representations, warranties or statements of
any kind; provided, however, that such diligence and knowledge shall not be
deemed a waiver by Parent or Merger Sub of any of their rights with respect to
the representations and warranties of the Company.
3.7 Continuity of Business Enterprise. It is the present intention of
Parent to continue at least one significant historic business line of the
Company, or to use at least a significant portion of the Company's historic
business assets in a business, in each case within the meaning of Treasury
Regulation Section 1.368-1(d).
3.8 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory,
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consulting and all other fees and expenses of third parties ("THIRD PARTY
EXPENSES") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
3.9 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents and approvals are set forth in
Schedule 2.4) so as to preserve all rights of, and benefits to, the Company
thereunder.
3.10 Reasonable Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable best
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
4.1 Survival of Representations and Warranties. The representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue until March 31, 1998.
4.2 Escrow Arrangements.
(a) Escrow Funds. As provided in Section 1.8, at the Effective
Time, without any act of any stockholder, the Escrow Amount will be deposited
into an escrow account with Greater Bay Trust Company, as Escrow Agent (the
"ESCROW AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND").
The Escrow Fund is to be governed by the terms set forth herein and maintained
at Parent's sole cost and expense. The portion of the Escrow Amount contributed
on behalf of each Company Stockholder shall correspond to such stockholder's
Proportionate Escrow Interest.
(b) The Escrow Fund shall be available to compensate Parent
and its affiliates for any claim, loss, expense, liability or other damage,
including reasonable attorneys' fees, to the extent of the amount of such claim,
loss, expense, liability or other damage (collectively "LOSSES") that Parent or
any of its affiliates has incurred or reasonably anticipates incurring (in the
case of an extension of the Escrow Period pursuant to Section 4.2(c)) by reason,
directly or indirectly, of the breach by the Company of any representation,
warranty, covenant or agreement of the Company contained herein.
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Losses shall not include amounts recovered from insurance. Parent and the
Surviving Company shall undertake commercially reasonable efforts to claim and
collect insurance to which they are entitled with respect to any Losses.
(c) Termination and Distribution of Escrow Funds. On March 31,
1998, the Escrow shall terminate; provided, however, that such portion of the
Escrow, which, in the reasonable judgment of Parent, subject to the objection of
the Company Stockholder Agent and the subsequent arbitration of the matter in
the manner provided in Section 4.2(i) hereof, is necessary to satisfy any
identified but unsatisfied Losses specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow,
shall remain in the Escrow (and the Escrow shall remain in existence) until the
earlier of (i) the expiration of the statute of limitations applicable to such
claims or (ii) the resolution of such claims. As soon as all such claims have
been resolved or the statute of limitations has expired, the Escrow Agent shall
deliver to the appropriate security holders of the Company the remaining portion
of the Escrow not required to satisfy such claims. Deliveries of Escrow Amounts
to Company Stockholders pursuant to this Section 4.2(c) shall be made according
to each stockholder's Proportionate Escrow Interest as certified to the Escrow
Agent by the Company Stockholders' Agent.
(d) Protection of Escrow Funds. The Escrow Agent shall hold
and safeguard the Escrow Funds during their existence, shall treat such fund as
a trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Funds only in
accordance with the terms hereof.
(e) Claims Upon Escrow Funds. In the event Parent incurs or
becomes aware of any Losses or potential Losses for which it is entitled to
indemnity under this Article IV, it shall deliver to the Escrow Agent and the
Company Stockholder Agent a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE"): (A) stating that Parent has (i) incurred or (ii) for
purposes of extending the Escrow pursuant to Section 4.2(c) above, reasonably
anticipates that it will have to incur Losses, (B) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date
each such item was paid or properly incurred, or the basis for such anticipated
liability, and either the nature of the misrepresentation, breach of warranty or
claim or the litigation matter to which such item is related. Upon the receipt
of a certificate pursuant to clause (A)(i) above the Escrow Agent shall, subject
to the provisions of Section 4.2(h) hereof, deliver to Parent out of the Escrow
Fund, as promptly as practicable, such amounts held in the Escrow Fund equal to
such Losses incurred. In determining the number of shares of Parent Common Stock
to be paid out by the Escrow Agent pursuant to this Article IV, such shares
shall be valued by the Escrow Agent at the closing price (the "ESCROW PRICE") of
Parent Common Stock on the NASDAQ or, if the Parent Common Stock is not then
listed on the NASDAQ, the principal securities market on which the Parent Common
Stock is traded, as reported in the Wall Street Journal or similar national
financial publication on the Closing Date. Upon request by the Escrow Agent, a
duly authorized officer of the Company shall deliver a certificate of the Escrow
Price.
The Parent shall not be entitled to receive any disbursement
or cause any amount to be retained in Escrow with respect to any Losses arising
in respect of any individual occurrence or
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circumstance unless the aggregate amount of all Losses shall exceed $175,000;
provided, further, that in the event the aggregate amount of such Losses of
Parent shall exceed $175,000, then Parent shall be entitled to recover from the
Escrow Fund only Losses in excess of $175,000.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Company Stockholder Agent (as defined in Section
4.2(i)) and for a period of ten (10) business days after such delivery, the
Escrow Agent shall make no delivery to Parent of any amounts out of the Escrow
Fund, pursuant to Section 4.2(e)(A)(i) hereof unless the Escrow Agent shall have
received written authorization from the Company Stockholder Agent to make such
delivery. After the expiration of such ten (10) business day period, the Escrow
Agent shall make delivery of an amount from the Escrow Fund in accordance with
Section 4.2(e)(A)(i) hereof, provided that no such payment or delivery may be
made, or retained for purposes of extending the Escrow pursuant to Section
4.2(c), if the Company Stockholder 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 ten (10) business
day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Company Stockholder Agent shall so
object in writing to any claim or claims made in any Officer's Certificate, the
Company Stockholder Agent and Parent shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Company Stockholder Agent and Parent 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 amounts from the Escrow Funds in accordance with
the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Parent or the Company Stockholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained upon the conclusion of such
litigation or both parties agree to arbitration; and in either such event the
matter shall be settled by binding arbitration conducted by three arbitrators.
Parent and the Company Stockholder Agent shall each select one arbitrator, and
the two arbitrators so selected shall select a third arbitrator. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgement of the arbitrators, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the same
extent as a court of competent law or equity, should the arbitrators determine
that discovery was sought without substantial justification or that discovery
was refused or objected to without substantial justification. The decision of a
majority of the three arbitrators 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 4.2(h) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Funds in
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accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Clara County, California under the rules then
in effect of the American Arbitration Association. For purposes of this Section
4.2(g), in any arbitration hereunder in which any claim or the amount thereof
stated in the Officer's Certificate is at issue, Parent shall be deemed to be
the Non-Prevailing Party in the event that the arbitrators award Parent less
than the sum of one-half (1/2) of the disputed amount; otherwise, the
stockholders of the Company as represented by the Agent shall be deemed to be
the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the out-of-pocket expenses, including
without limitation, reasonable attorneys' fees and costs, incurred by the other
party to the arbitration in connection therewith.
(h) Agent of the Company Stockholders; Power of Attorney.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any stockholder, Michael L.
Spilo shall be appointed as agent and attorney-in-fact (the "COMPANY STOCKHOLDER
AGENT") for each stockholder of the Company on whose behalf any Parent Common
Stock was deposited into the Escrow Fund (except such stockholders, if any, as
shall have perfected their Dissenters Rights under Georgia law), for and on
behalf of stockholders of the Company, to give and receive notices and
communications, to authorize delivery to Parent of Parent Common Stock from the
Escrow Fund in satisfaction of claims by Parent, 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 Company Stockholder Agent for the accomplishment of the foregoing.
Such agency may be changed by the stockholders of the Company from time to time
upon not less than thirty (30) days prior written notice to Parent; provided
that the Company Stockholder Agent may not be removed unless holders of a
two-thirds interest of the Escrow Funds agree to such removal and to the
identity of the substituted agent. No bond shall be required of the Company
Stockholder Agent, and the Company Stockholder Agent shall not receive
compensation for his services. Notices or communications to or from the Company
Stockholder Agent shall constitute notice to or from each of the stockholders of
the Company.
(ii) The Company Stockholder Agent shall not be
liable for any act done or omitted hereunder as Agent while acting in good faith
and in the exercise of reasonable judgment. The stockholders of the Company on
whose behalf the amounts were contributed to the Escrow Funds shall severally
indemnify the Company Stockholder Agent and hold the Company Stockholder Agent
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Company Stockholder Agent and arising out of or in
connection with the acceptance or administration of the Company Stockholder
Agent's duties hereunder, including the reasonable fees and expenses of any
legal counsel retained by the Company Stockholder Agent.
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<PAGE> 31
(i) Actions of the Company Stockholder Agent. A decision, act,
consent or instruction of the Company Stockholder Agent shall constitute a
decision of all the stockholders for whom a portion of the amounts otherwise
issuable to them are deposited in the Escrow Funds and shall be final, binding
and conclusive upon each of such stockholders, and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the Agent as
being the decision, act, consent or instruction of each and every such
stockholder of the Company. The Escrow Agent and Parent are hereby relieved from
any liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Company Stockholder Agent.
(j) Third-Party Claims. Parent shall have the right in its
sole discretion to defend and to settle any third-party claim; provided,
however, that any counsel retained to defend a third party claim to be satisfied
from the Escrow Fund shall be reasonably acceptable to the Company Stockholder
Agent and Parent shall not settle any such third party claim without the prior
consent of the Company Stockholder Agent, which consent shall not be
unreasonably withheld.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Company Stockholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
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<PAGE> 32
(v) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to Parent and the Company
Stockholder Agent to this Agreement; provided, however, that no such resignation
shall become effective until the appointment of a successor escrow agent which
shall be accomplished as follows: Parent and the Company Stockholder Agent shall
use their best efforts to mutually agree upon a successor agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, Parent shall have the right to appoint
a successor escrow agent. The successor escrow agent selected in the preceding
manner shall execute and deliver an instrument accepting such appointment and it
shall thereupon be deemed the Escrow Agent hereunder and it shall without
further acts be vested with all the estates, properties, rights, powers, and
duties of the predecessor Escrow Agent as if originally named as Escrow Agent.
Thereafter, the predecessor Escrow Agent shall be discharged for any further
duties and liabilities under this Agreement.
4.3 Limitation on Liability. Notwithstanding any other provision of
this Agreement to the contrary, absent fraud or bad faith, the liability of the
Company and the Company Stockholders with respect to any claim for a breach of
any representation, warranty, covenant or agreement contained in this Agreement
shall be limited to the assets of the Escrow Fund, and no Company Stockholder
shall have any liability to Parent or the Surviving Corporation arising from any
breach after the termination of the Escrow other than with respect to claims
made prior to such termination under Section 4.2(c) (and liability with such
claims shall be limited to the amount held in the Escrow as a result thereof).
ARTICLE V
GENERAL PROVISIONS
5.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (postage prepaid and
return receipt requested) or sent via facsimile (with a copy of such notice or
other communication and a confirmation of complete transmission delivered
personally or sent by certified or registered mail, postage prepaid and return
receipt requested, no later than the close of business on the third business day
following such transmission) 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 Parent or Merger Sub, to:
McAfee Associates, Inc.
2805 Bowers Ave.
Santa Clara, California 95051
Attention: Richard Hornstein
Facsimile No.: (408) 970-9727
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<PAGE> 33
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Helix Software Company, Inc.
47-09 30th Street
Long Island City, New York 11101
Attention: Michael Spilo
Facsimile No.: (718) 392-4212
with a copy to:
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
Attention: Audrey Roth, Esq.
Facsimile No.: (212) 808-7897
(c) if to the Escrow Agent, to:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
Palo Alto, California 94301
Attention: Eva Paivah
Telephone No.: 650-614-5720
Facsimile No.: 650-473-1326
Each notice transmitted in the manner described in this Section 5.1 shall be
deemed to have been given, received and become effective for all purposes at the
time it shall have been (i) delivered to the addressee as indicated by the
return receipt (if transmitted by mail or commercial delivery service), or the
affidavit of the messenger (if transmitted by personal delivery) or (ii)
presented for delivery to the addressee as so indicated during normal business
hours, if such delivery shall have been refused for any reason.
5.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and
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<PAGE> 34
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
5.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
5.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person (including, without limitation, those persons listed on any
exhibits hereto) any rights or remedies hereunder; and (c) without the prior
written consent of each party shall not be assigned by operation of law or
otherwise, except that Parent may assign its rights and obligations hereunder to
an affiliate of Parent provided that parent shall remain liable for all its
obligations hereunder notwithstanding such assignment. Any assignment of rights
or delegation of duties under this Agreement by a party without the prior
written consent of the other parties, if such consent is required hereby, shall
be void.
5.5 Severability. If any provision of this Agreement shall hereafter be
held to be invalid, unenforceable or illegal, in whole or in part, in any
jurisdiction under any circumstances for any reason, (i) such provision shall be
reformed to the minimum extent necessary to cause such provision to be valid,
enforceable and legal while preserving the intent of the Parties as expressed
in, and the benefits to the Parties provided by, this Agreement or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement and an equitable adjustment shall be made to this Agreement
(including, without limitation, addition of necessary further provisions to this
Agreement) so as to give effect to the intent as so expressed and the benefits
so provided. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or severance
shall affect or impair the legality, validity or enforceability of any other
provision of this Agreement.
5.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The Company Stockholders are intended to be third
party beneficiaries of the representations and warranties of Parent and Merger
Sub contained herein and it is expressly acknowledged that no provision of this
Agreement (other than Article IV) in any way limits or results in a waiver of
any right of a Company Stockholder to bring an action against Parent and/or
Merger Sub for damages incurred by such Company Stockholder arising from or
relating to any such breach.
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<PAGE> 35
5.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
5.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
5.9 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential ("CONFIDENTIAL INFORMATION");
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law,
(c) became known to the public through no fault of such party, (d) is later
lawfully acquired by such party from other sources, (e) is required to be
disclosed by order of court or government agency with subpoena powers (provided
that such party shall given the other party prior notice of such order and a
reasonable opportunity to object or take other available action), (f) is
disclosed in the course of any litigation between any of the parties hereto or
(g) is developed independently by either party without reference to, or specific
knowledge of, the other parties' Confidential Information. Notwithstanding the
foregoing, it is acknowledged that Parent may publicly disclose the material
terms of this Agreement following the date hereof in a manner reasonably
satisfactory to the Company.
5.10 Company Employee Bonuses. Parent agrees to use its best efforts to
cause the Surviving Corporation to pay all employee bonuses accrued and payable
as set forth on the Closing Balance Sheet.
* * * *
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<PAGE> 36
IN WITNESS WHEREOF, Parent, Merger Sub, Escrow Agent and the Company
have caused this Agreement to be signed by their duly authorized respective
officers, all as of the date first written above.
COMPANY PARENT
By /s/ MICHAEL SPILO By /s/ WILLIAM L. LARSON
----------------------------- -------------------------------------
William L. Larson,
Chief Executive Officer
Name Michael Spilo
--------------------------
Title President
--------------------------
MERGER SUB ESCROW AGENT*
By /s/ PRABHAT GOYAL By /s/ GREATER BAY TRUST COMPANY
---------------------------- -------------------------------------
Prabhat Goyal, President
Name Mr. Hali
-----------------------------------
Title Executive Vice President
----------------------------------
* With respect to the matters set forth in Article IV only.
***REORGANIZATION AGREEMENT***
<PAGE> 37
MCAFEE ASSOCIATES, INC.
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MCAFEE ASSOCIATES, INC.,
HELIX SOFTWARE COMPANY, INC.
AND
DNA ACQUISITION CORP.
DATED AS OF DECEMBER 1, 1997
<PAGE> 38
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
COMPANY SCHEDULE DESCRIPTION
- ---------------- ------------
<S> <C>
2.2(a) Stockholder List
2.2(b) Option List
2.4 Governmental And Third Party Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns And Audits
2.10(a) Leased Property
2.10(b) Liens On Property
2.10(c) Equipment
2.11 Intellectual Property
2.12(a) Agreements, Contracts And Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.14 Governmental Authorizations
2.15 Litigation
2.19 Expenses Of Transaction
2.20(b) Employee Benefit Plans And Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Options
2.20(h)(i) Effect Of Transaction
2.20(j) Labor Disputes
2.21 Insurance
2.24 Warranties; Indemnities
2.25 Insurance
2.26 Bank Accounts
2.29 Predecessor Status
</TABLE>
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER..........................................................2
1.1 The Merger...................................................2
1.2 Effective Time...............................................2
1.3 Effect of the Merger.........................................2
1.4 Certificate of Incorporation; Bylaws.........................2
1.5 Directors and Officers.......................................2
1.6 Effect on Capital Stock......................................3
1.7 Dissenting Shares............................................3
1.8 Surrender of Certificates; Payment of Merger Consideration...4
1.9 No Further Ownership Rights in Company Common Stock..........5
1.10 Lost, Stolen or Destroyed Certificates.......................5
1.11 Tax and Accounting Treatment.................................5
1.12 Taking of Necessary Action; Further Action...................5
1.13 Purchase Price Adjustment....................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY .....................8
2.1 Organization of the Company..................................8
2.2 Company Capital Structure....................................8
2.3 Subsidiaries.................................................9
2.4 Authority....................................................9
2.5 Company Financial Statements................................10
2.6 No Undisclosed Liabilities..................................10
2.7 No Changes..................................................10
2.8 Tax and Other Returns and Reports...........................11
2.9 Restrictions on Business Activities.........................13
2.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment ....................................13
2.11 Intellectual Property.......................................14
2.12 Agreements, Contracts and Commitments.......................16
2.13 Interested Party Transactions...............................18
2.14 Governmental Authorization..................................18
2.15 Litigation..................................................18
2.16 Accounts Receivable.........................................18
2.17 Minute Books................................................19
2.18 Environmental Matters.......................................19
2.19 Brokers' and Finders' Fees..................................19
2.20 Employee Benefit Plans......................................20
2.21 Compliance with Laws........................................22
2.22 Warranties; Indemnities.....................................22
</TABLE>
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<PAGE> 40
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.23 Software Development Agreements............................23
2.24 Pooling of Interests.......................................23
2.26 Bank Accounts..............................................24
2.27 Materiality................................................24
2.28 Solvency...................................................24
2.29 Predecessor Status.........................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.........24
3.1 Organization, Standing and Power...........................24
3.2 Authority..................................................24
3.3 SEC Filings; Material Adverse Change.......................25
3.4 Parent Common Stock........................................25
3.5 Brokers' and Finders' Fees.................................25
3.8 Expenses...................................................26
3.9 Consents...................................................26
3.10 Reasonable Efforts.........................................26
ARTICLE IV SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...............26
4.1 Survival of Representations and Warranties.................26
4.2 Escrow Arrangements........................................27
ARTICLE V GENERAL PROVISIONS................................................31
5.1 Notices....................................................31
5.2 Interpretation.............................................33
5.3 Counterparts...............................................33
5.4 Entire Agreement; Assignment...............................33
5.5 Severability...............................................33
5.6 Other Remedies.............................................33
5.7 Governing Law..............................................34
5.8 Rules of Construction......................................34
5.9 Confidentiality............................................34
</TABLE>
-ii-
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of December 1, 1997, by
and between McAfee Associates, Inc., a Delaware corporation (the "Company"), and
Michael L. Spilo, Jeremy J. Biggs, John T. Dunne, Janet M. Spitzer, Daniel A.
Fabrizio, Jonathan A. Daub, Francis E. Refol, Daniel Spilo, Tami Spilo, Estate
of James Pancamo and Attachmate Corp., each a shareholder of Helix Software
Company, Inc., a Georgia corporation (the "Shareholder").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, DNA
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
the Company ("MERGER SUB"), and Helix Software Company, Inc. ("HELIX") are
entering into an Agreement and Plan of Reorganization (the "MERGER AGREEMENT")
which provides for the merger (the "MERGER") of Merger Sub with and into Helix.
Pursuant to the Merger, shares of common stock of Helix (the "Helix Common
Stock") will be converted into the right to receive a certain number of shares
of common stock of the Company (the "Company Common Stock") on the basis
described in the Merger Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition to
the closing of the Merger Agreement;
WHEREAS, the Merger Agreement provides that, as of the Closing Date,
the shares of Company Common Stock that are issued to the Shareholder pursuant
to the Merger Agreement 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 Merger Agreement;
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
<PAGE> 2
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 ("Common Stock") issued to the Shareholder in accordance
with the terms and conditions of the Merger Agreement.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 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 30 days after the Closing Date, a registration
statement on Form S-3 with respect to such Registrable Securities (hereinafter
referred to as the "Registration Statement") and use its best efforts to cause
such registration statement to become effective as soon as practicable
thereafter, and, subject to the provisions below, use its best efforts to, keep
such registration statement effective for a period of 365 days or, if earlier,
until the Shareholder has sold all of the Registrable Securities. If at any time
after a registration statement becomes effective, the Company advises
Shareholder 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, Shareholder shall suspend
any further sale of Registrable Securities pursuant to the Registration
Statement until the Company advises Shareholder 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, provided that the
Company shall not be required to amend the registration statement during any
time when the Company's officers and director 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 Shareholder to recommence his 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. In addition, the Company may
suspend use of the registration statement to the extent the Company is advised
by its legal counsel, such action is reasonably necessary to comply with federal
securities law. In the event the sales of Registrable Securities of the
Shareholder are suspended as provided above, the 365-day period during which a
registration statement must be kept effective shall be extended for the total
number of days during which sales are suspended.
(b) Subject to subsection 1.2(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.
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<PAGE> 3
(c) Furnish to the Shareholder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as he may reasonably request
in order to facilitate the disposition of Registrable Securities owned by him.
(d) Use its best 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
Shareholder; provided that the Company shall not be required in connection
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.
(e) The Company may include securities issued in
connection with any acquisition not otherwise registered on an S-4 Registration
Statement in the registration pursuant to this Agreement.
1.3 Information from Shareholder. 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 Shareholder that
Shareholder shall furnish to the Company such information regarding such
Shareholder, the Registrable Securities held by such Shareholder, and the
intended method of disposition of such securities, as shall be required to
effect the registration of the Registrable Securities.
1.4 Expenses of Registration. All expenses of Shareholder,
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 Shareholder other than the fees of one
counsel to the Shareholder (not to exceed $10,000).
1.5 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless
Shareholder against any losses, claims, damages, or liabilities (joint or
several) to which Shareholder may become subject under the Act, or the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements' therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, or any rule or regulation promulgated
under the Act, or the 1934 Act; and the Company will pay to Shareholder as
incurred any legal or other
-3-
<PAGE> 4
expenses reasonably incurred by Shareholder in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld, nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with information furnished expressly for use in
connection with such registration by Shareholder. In addition, the Company shall
not be liable for any untrue statement or omission in any prospectus if a
supplement or amendment thereto correcting such untrue statement or omission was
delivered to Shareholder prior to the pertinent sale or sales by Shareholder.
(b) Shareholder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any other shareholder selling securities in such
registration statement and any controlling person of any such shareholder,
against any losses, claims, damages, or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Act, or the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by Shareholder expressly for use in connection with such registration;
and Shareholder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
1.5(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Shareholder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.5(b) exceed the gross proceeds from the offering
received by Shareholder.
(c) Promptly after receipt by an indemnified party under
this Section 1.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.5, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of
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<PAGE> 5
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.5, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.5.
(d) If the indemnification provided for in this Section
1.5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company and Shareholder under
this Section 1.5 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.6 Reports Under the Securities Exchange Act. The Company
agrees to file with the SEC in a timely manner all reports and other documents
and information required of the Company under the 1934 Act, and take such other
actions as may be necessary to assure the availability of Form S-3 for use in
connection with the registration rights provided in this Agreement.
1.7 Rules 144 and 144A. The Company shall use commercially
reasonable efforts to file the reports required to be filed by it under the Act
and the 1934 Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any
Shareholder of Registrable Securities, make publicly available other information
so long as necessary to permit sales of such Shareholder's securities pursuant
to Rule 144 and 144A. The Company covenants that it will take such further
action as any Shareholder of Registrable Securities may reasonably request, all
to the extent required from time to time to enable such Shareholder to sell
securities without registration under the Act within the limitation of the
exemptions provided by Rules 144 and 144A (including the requirements of Rule
144A(d)(4)). Upon the written request of any Shareholder of Registrable
Securities, the Company will deliver to such Shareholder a written statement as
to whether it has complied with such requirements.
2. Miscellaneous.
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<PAGE> 6
2.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(1) if to Parent or Merger Sub, to:
McAfee Associates, Inc.
2805 Bowers Ave.
Santa Clara, CA 95051
Attention: Richard Hornstein
Facsimile No.: (408) 970-9727
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415) 493-6811
(2) if to the Company, to:
Helix Software Company, Inc.
Attention: [______________]
Facsimile No.: [______________]
with a copy to:
Kelley Drye & Warren LLC
101 Park Avenue
New York, New York 10178
Attention: Audrey Roth, Esq.
Facsimile No.: (212) 808-7897
(3) if to the Escrow Agent, to:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
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<PAGE> 7
Palo Alto, CA 94301
Attention: Anna Paivah
Telephone No.: 650-614-5720
Facsimile No.: 650-473-1326
2.2 Interpretation. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." 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.
2.3 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.
2.4 Entire Agreement; Assignment. This Agreement, the
schedules and Exhibits hereto, and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person (including, without limitation, those persons
listed on any exhibits hereto) any rights or remedies hereunder; and (c) without
the prior written consent of each party shall not be assigned by operation of
law or otherwise, except that Parent may assign its rights and obligations
hereunder to an affiliate of Parent provided that parent shall remain liable for
all its obligations hereunder notwithstanding such assignment. Any assignment of
rights or delegation of duties under this Agreement by a party without the prior
written consent of the other parties, if such consent is required hereby, shall
be void.
2.5 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
2.6 Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
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<PAGE> 8
2.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
2.8 Rules of Construction. The parties hereto agree that
they have been represented by counsel during the negotiation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
* * * *
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
McAFEE ASSOCIATES, INC.
By: /s/ PRABHAT K. GOYAL
---------------------------------------------
Prabhat K. Goyal, Chief Financial Officer, Vice
President of Finance and Administration
Address: 2805 Bowers Avenue
Santa Clara, California 95051-0963
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 10
SHAREHOLDER
/s/ MICHAEL L. SPILO
---------------------------------------
Michael L. Spilo
Address: 248 East 31st Street, Apt. 9C
New York, NY 10016
SHAREHOLDER
/s/ JEREMY J. BIGGS
---------------------------------------
Jeremy J. Biggs
Address: 60 Malverne Avenue
Malverne, NY 11565
SHAREHOLDER
/s/ JOHN T. DUNNE
---------------------------------------
John T. Dunne
Address: 110 Caton Avenue, Apt. 5G
Brooklyn, NY 11218
SHAREHOLDER
/s/ JANET M. SPITZER
---------------------------------------
Janet M. Spitzer
Address: 30 Lafayette Street
Williston Park, NY 11596
SHAREHOLDER
/s/ DANIEL A. FABRIZIO
---------------------------------------
Daniel A. Fabrizio
Address: 2097 Larch Street
Wantagh, NY 11793
SHAREHOLDER
/s/ JONATHAN A. DAUB
---------------------------------------
Jonathan A. Daub
Address: 253 West 15th Street, Apt. 37
New York, NY 10011
<PAGE> 11
SHAREHOLDER
/s/ FRANCIS E. REFOL
---------------------------------------
Francis E. Refol
Address: 121 Pacific Street, Apt. #P1F
Brooklyn, NY 11201
SHAREHOLDER
/s/ DANIEL SPILO
---------------------------------------
Daniel Spilo
Address: 1428 S. Bentley Avenue
Los Angeles, CA 90025
SHAREHOLDER
/s/ TAMI SPILO
---------------------------------------
Tami Spilo
Address: 340 East 66th Street
New York, NY 10021
SHAREHOLDER
ESTATE OF JAMES PANCAMO
By: /s/ VALERIE SOLOMON
---------------------------------------
Title: Executrix
------------------------------------
Address: c/o Valerie Solomon, Executrix
11 Hemlock Circle
Peekskill, NY 10566
SHAREHOLDER
ATTACHMATE CORP.
By: /s/ Signature
---------------------------------------
Title:
------------------------------------
Address: 3617 131st Avenue SE
Bellevue, WA 98006
<PAGE> 1
EXHIBIT 5.1
February 11, 1998
Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by you
with the Securities and Exchange Commission on February 5, 1998 (Registration
No. 333- ) as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of a total of
1,309,477 shares of your Common Stock (the "Shares"). We understand that the
Shares are to be sold from time to time on the NASDAQ National Market at
prevailing prices or as otherwise described in the Registration Statement. As
your legal counsel, we have examined the proceedings taken by you in connection
with the sale of the Shares.
It is our opinion that the Shares are legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 10.13
LEASE ASSIGNMENT
THIS LEASE ASSIGNMENT (this "Assignment") is dated November 17, 1997
for reference purposes only and is made by and between Informix Corporation, a
Delaware corporation ("Assignor") and McAfee Associates, Inc., a Delaware
corporation ("Assignee"), who agree as follows:
1. Definitions: Except as otherwise specifically indicated in this
Assignment, a term which is capitalized shall have the meaning ascribed to it by
the Lease, and the following terms shall have the following meanings:
Landlord shall mean Birk S. McCandless, LLC, a California limited
liability company.
Lease shall mean that Lease by and between Landlord and Assignor
dated November 22, 1996, affecting certain real property commonly known as
McCandless Towers Two, 3965 Freedom Circle, Santa Clara, California.
Lender shall mean Guaranty Federal Bank, F.S.B., a federal savings
bank.
Memorandum of Lease shall mean that Memorandum of Lease by and
between Landlord and Assignor dated November 22, 1996, recorded in the Official
Records of Santa Clara County on December 18, 1996 as Instrument No. 13555660.
SNDA shall mean that Subordination, Nondisturbance and Attornment
Agreement by and between Lender, Landlord and Assignor dated December 18, 1996
recorded in the Official Records of Santa Clara County on December 18, 1996 as
Instrument No. 13555662.
Security Agreement shall mean that Security Agreement by and between
Landlord, as secured party, and Assignor, as debtor dated December 18, 1996.
Financing Statement shall mean that UCC-1 Financing Statement made
by Assignor, as debtor, for the benefit of Landlord, as secured party, dated
December 18, 1996, filed with the California Secretary of State.
Notice of Security Interest shall mean that Notice of Security
Interest in Deposit Account, by and among Landlord, Assignor and Lender dated
December 18, 1996.
Time Deposit Agreement shall mean that Time Deposit Agreement made
by Assignor for the benefit of Union Bank of California, N.A., dated December
12, 1996.
<PAGE> 2
Addendum shall mean that Addendum made by and between Union
Bank, Tenant, Landlord and Lender dated December 18, 1996.
Lease Transaction Documents shall refer to the Lease,
Memorandum of Lease, SNDA, Security Agreement, Financing Statement, Notice of
Security Interest, Time Deposit Agreement and Addendum.
Execution Date shall mean the date upon which both Assignee
and Assignor have caused this Assignment to be executed and delivered to each
other (subject to the provisions regarding satisfaction of certain conditions
set forth in Section 11 hereof).
Consent Date shall mean the later to occur of (i) twenty-two
(22) days after the Assignor has delivered to Landlord a written request for
consent to this Assignment or (ii) the date upon which the conditions set forth
in Section 11 have been waived or satisfied.
Security Deposit shall mean the security interest in the
Account described by Section 6(e) of Exhibit "D" to the Lease in the amount of
$5,191,250, and evidenced and documented by the Security Agreement, Financing
Statement, Notice of Security Interest, Time Deposit Agreement, and Addendum.
2. Recitals: Assignee and Assignor have entered into this Assignment
with reference to the following facts and objectives:
A. Landlord leased to Assignor the Premises on certain terms
and conditions, all of which are set forth in the Lease Transaction Documents.
B. Assignor desires to assign its right, title and interest in
the Lease and the other Lease Transaction Documents to Assignee, and Assignee
desires to accept the assignment thereof, and to assume and agree to perform all
of the obligations of Tenant under the Lease Transaction Documents arising from
and after the Consent Date.
C. Assignor and Assignee acknowledge that the assignment
represented by this Assignment is subject to the consent of Landlord and Lender,
as more particularly addressed in Section 11.
3. Assignment of Lease. Effective as of the Consent Date, Assignor
hereby assigns to Assignee, and Assignee hereby accepts from Assignor, all of
Assignor's right, title and interest in, under and to the Lease Transaction
Documents, subject to the limitations and reservations and satisfaction of
conditions contained in Sections 7 and 11 hereof.
4. Assumption of Obligations: Effective as of the Consent Date,
Assignee accepts the assignment and assumes and agrees to perform, as a direct
obligation to Landlord and for the benefit of Assignor, all of the terms,
conditions and obligations of the Lease Transaction
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<PAGE> 3
Documents to be performed by or otherwise applicable to Assignor, subject to the
limitations and reservations and satisfaction of conditions contained in
Sections 7 and 11 hereof.
5. Continuing Liability: Assignor acknowledges that notwithstanding the
assignment set forth in this Assignment, Assignor shall not be released of its
liability to perform its obligations under the Lease Transaction Documents
unless and until Landlord agrees in writing to so release Assignor.
6. Responsibilities Under Lease; Indemnification:
A. Assignor shall be responsible for payment of all rents and
other payments and the performance of all obligations required under the Lease
Transaction Documents to be paid or performed for any period prior to the
Consent Date, including, without limitation, (i) any and all indemnity
obligations of Assignor accrued with respect to facts or circumstances first
occurring prior to the Consent Date; (ii) any charges due to Landlord and any
amounts that Landlord may claim are due with respect to change orders approved
by Landlord and Assignor prior to the Execution Date; and (iii) any amounts owed
to or claimed by Landlord which relate to actions by Assignor occurring prior to
the Consent Date.
B. Assignee shall be responsible for payment of all rents and
other payments and the performance of all obligations required under the Lease
Transaction Documents to be paid or performed for any period on or after the
Consent Date, including, without limitation, any and all indemnity obligations
of the Tenant under the Lease Transaction Documents accrued with respect to
facts or circumstances first occurring on or after the Consent Date.
C. Assignor shall indemnify, defend, protect and hold harmless
Assignee from and against any and all losses, costs, claims, liabilities and
damages, including reasonable attorneys' fees (collectively, "Claims") arising
from or related to (i) the Premises and/or the Lease Transaction Documents which
Claims shall have accrued prior to the Consent Date, (ii) any event or condition
that shall have occurred or existed on or with respect to the Lease Transaction
Documents and/or the Premises prior to the Consent Date, and (iii) Assignor's
breach of any of its obligations under the Lease Transaction Documents (to the
extent such obligations have not been assumed by Assignee) or this Assignment
(and in this regard, Assignor shall have no obligation to cure a default by
Assignee of any obligation Assignee has assumed under this Assignment).
Notwithstanding anything contained in this Section 6C or elsewhere in this
Assignment, in the event the Lease is terminated as a result of any act,
omission or other default by Assignor relating to actions, events, or
circumstances first occurring prior to the Consent Date, then Assignee shall not
have, and hereby waives and releases any right to claim, the right to recover
from Assignor (i) damages resulting from the loss of the benefit of its bargain
represented by this Assignment, and (ii) consequential and exemplary damages
resulting from the termination of the Lease; provided, however, that Assignee
shall retain the right to recover any out-of-pocket expenses incurred by it in
connection with the transaction described by this Assignment to the extent the
loss thereof is proximately caused by such termination of the Lease.
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<PAGE> 4
D. Assignee shall indemnify, defend, protect and hold harmless
Assignor from and against any and all Claims arising from or related to (i) the
Premises and/or the Lease Transaction Documents that accrue on or after the
Consent Date, (ii) any event or condition that occurs or comes into existence
with respect to the Lease Transaction Documents and/or the Premises on or after
the Consent Date, and (iii) Assignee's breach of its obligations under the Lease
Transaction Documents or this Assignment.
E. The consent of Landlord to this Assignment shall not be
deemed a waiver of any rights and remedies of Landlord with respect to
Assignor's continuing liability for the obligations of the tenant under the
Lease Transaction Documents and shall not be deemed a waiver of any rights and
remedies of Landlord with respect to Assignor's liability for all outstanding
obligations of the tenant under the Lease Transaction Documents. The allocation
of responsibility for tenant obligations under the Lease Transaction Documents
as between Assignor or Assignee set forth in Sections 6A and 6B above shall not
be deemed to release or limit the obligations of either such party to Landlord
pursuant to the Lease Transaction Documents.
7. Effect of the Assignment: The parties agree as follows:
A. Notwithstanding anything contained herein, the rights of
Assignor which exist pursuant to Section 56 entitled "Option to Extend Term" of
the Lease shall not be assigned or otherwise transferred to Assignee, and
Assignee shall have no power to exercise such options set forth in said Section
56, unless and until Landlord enters into a written agreement with Assignor in
form reasonably satisfactory to Assignor by which Landlord releases Assignor of
any and all liability arising under the Lease Transaction Documents.
B. The parties acknowledge that the rights existing pursuant
to Section 57 entitled "First Right to Purchase" of the Lease are personal to
Assignor and cannot be assigned by Assignor and such rights are accordingly
excluded from the scope of this Assignment.
C. The parties acknowledge that Landlord has exercised its
option to reduce the size of the Premises pursuant to Section 58 entitled
"Landlord's Restaurant Option" of the Lease, and accordingly Assignor can
transfer no rights to Assignee with respect to the space so covered by such
Section 58. In addition, the rights granted to Assignor pursuant to said Section
58 are personal to Assignor, and may not be transferred by Assignor to Assignee
and accordingly are excluded from the scope of this Assignment.
D. As more particularly set forth on Exhibit B to this
Assignment, Assignor has caused a certain amount of "Tenant Caused Delay" as
that term is used in Section 7 of Exhibit C and Section 8 of Exhibit D to the
Lease. Notwithstanding the provisions of Section 6, Assignee agrees to bear all
consequences (i) relating to the timing of the commencement of the obligation to
pay rent resulting from the existence of any Tenant Caused Delay existing as of
the Consent Date and the fact that Assignor has not delivered final plans for
the Tenant Improvements by the required delivery date as disclosed on Exhibit B
hereto, and (ii) resulting from all actions taken by
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<PAGE> 5
Assignee with respect to the Shell Improvements and the development of plans for
the Tenant Improvements. Assignor shall have no obligation to indemnify or
compensate Assignee for the consequences described in the preceding sentence for
which Assignee has agreed to be responsible.
E. Assignor agrees to request of Landlord a change order to
direct the general contractor constructing the Shell Improvements to take such
action as is necessary (including the payment of overtime charges) to achieve
substantial completion of the Shell Improvements by April 1, 1997. Assignor
shall use reasonable efforts to cause such change order to be approved and
implemented in accordance with the procedures set forth in the Lease. Assignee
agrees to pay all costs incurred by Assignor in requesting, processing, and
implementing such change order (which costs are currently estimated to be
approximately $114,000) in all cases, whether or not all of the conditions set
forth in Section 11 hereof are satisfied or waived. Assignee shall make payment
of the amount of such charges at the time Assignor is required to make payment
therefor by the Lease.
F. Subject to the foregoing and Section 9 hereof, from and
after the Consent Date, Assignee shall solely be entitled to exercise all
rights, powers, privileges, options and elections and to make and give all
approvals, consents, determinations, selections, designations, judgments and
decisions of the "Tenant" under and with respect to the Lease Transaction
Documents. Any effort by Assignor or any other party to exercise, give or make
any of the foregoing shall be of no effect.
G. From and after the Consent Date, Assignee shall be entitled
to and shall, (i) pay all rent and perform all other payment obligations
pursuant to this Assignment that are due pursuant to the Lease Transaction
Documents directly to Landlord, and (ii) render performance of all other
obligations which have been assumed pursuant to this Assignment that are due
pursuant to the Lease Transaction Document directly to Landlord.
H. Assignee agrees to provide the insurance and insurance
certificates required of the Tenant under the Lease from and after the Consent
Date, and to cause Assignor to be named as an additional insured on any policy
of insurance carried by Assignee pursuant to the Lease (or which is carried by
Assignee and relates to the Premises) upon which Assignee is a named insured.
Assignee shall deliver to Assignor certificates of insurance, copies of policies
and evidence of renewal at the same times and in the same manner that such items
are required to be provided to Landlord by the Lease.
8. Assignor Rights Upon Assignee Default:
A. Default: No party to this Assignment shall be in default
hereunder, unless said party, and all other parties, have received written
notice of such default from another party hereto, and the said default is not
cured within ten (10) days following such notice; provided, however, that if the
default cannot be cured within such ten (10) day period, no default shall exist,
if cure of the default is commenced within said ten (10) day period and
thereafter diligently
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<PAGE> 6
prosecuted to completion. The foregoing shall apply only to a default under this
Assignment; a default under the Lease Transaction Documents shall be determined
under the terms of the Lease Transaction Documents, and Assignee shall be in
default under this Assignment if and when it is in default under any of the
Lease Transaction Documents.
B. Assignor's Rights Upon Default: Should Assignee be in
default under the terms of the Lease Transaction Document or this Assignment and
should Assignee fail to cure such default within any applicable cure period
(including any extension thereof granted by Landlord), or should Assignee fail
to cure such default under this Assignment, within the cure period provided in
this Agreement, Assignor shall have the following rights and remedies, in
addition to all other rights and remedies it may have at law or in equity, to
which it may resort cumulatively or alternatively:
(1) Right to Cure: If Assignee fails to pay any sum or
perform any obligation on its part to be performed under the terms of the Lease
Transaction Documents or this Assignment, Assignor may make such payment or
perform such obligation without waiving or releasing Assignee from its
obligations. Assignor shall be entitled (but not required) to take such action
at such time as is necessary to avoid the occurrence of an event of Tenant's
default under the Lease Transaction Documents. All sums paid by Assignor and all
costs of such performance by Assignor, together with interest as provided in
Section 15 hereof from the date the sum is paid until repaid, shall be
reimbursed by Assignee to Assignor within five (5) days following Assignor's
written demand.
(2) Right to Terminate: Assignor may terminate this
Assignment by written notice of the termination, in which event the Assignment
shall terminate on the date specified in the notice. Unless the default is fully
cured by Assignee, Assignor's right to terminate upon Assignee's default shall
not be affected by (i) Assignee's prior exercise of any other right or remedy
under this Assignment, at law, or in equity; (ii) Assignor's acceptance of any
sum from Assignee, whether or not it had knowledge of Assignee's default at the
time it accepted the same; and (iii) the discharge of Assignee or the further
assignment of the Lease in a bankruptcy proceeding. Termination of this
Assignment shall not relieve Assignee of its obligation to pay any sums then due
under the terms of the Lease Transaction Documents or this Assignment or from
any claim or damages resulting from Assignee's default. Upon termination of this
Assignment, and without prejudice to any other remedies Assignor may have,
Assignor shall have all remedies for default set forth in Article 20 of the
Lease, including without limitation, the right to (i) peaceably re-enter the
Premises upon voluntary surrender by Assignee; (ii) expel or remove Assignee and
any other occupants from the Premises using any legal proceedings then
available, including those proceedings contemplated by California Code of Civil
Procedure Section 1161 et seq.; (iii) enter, repossess, use, or subject to the
terms of the Lease, relet the Premises or any part thereof, for such term, at
such rent, and upon such other terms and conditions as Assignor may accept; and
(iv) remove all property of Assignee from the Premises at Assignee's expense in
accordance with the provisions of California Civil Code Sections 1980-1991. If
and to the extent this Assignment is characterized as a sublease for purposes of
determining Assignor's rights and
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<PAGE> 7
remedies against Assignee, (i) Assignor shall have the remedy described in
California Civil Code Section 1951.4 (which provides that a lessor may continue
a lease in effect after the lessee's breach and abandonment and recover rent as
it becomes due, if the lessee has the right to sublet or assign, subject only to
reasonable limitations), and (ii) Assignor shall have the right to recover
damages in accordance with the provisions of California Civil Code Section
1951.2, including the right to recover the worth at the time of the award of the
amount by which the unpaid rent which would have been earned after termination
until the time of the award exceeds the amount of rental loss that Assignee
proves could have been recently avoided.
(3) Damages on Termination: If Assignor terminates this
Assignment pursuant to Section 8B(2), Assignor shall be entitled to damages for
all detriment proximately caused by Assignee's failure to perform its
obligations under the Lease Transaction Documents and this Assignment, or which
in the ordinary course of things would be likely to result therefrom; including
without limitation, all amounts paid or payable to Landlord by Assignee under
the terms of the Lease Transaction Documents or on account of Assignee's default
in performance thereof, and all other damages recoverable by Assignor under
California law.
9. Amendment of Lease Transaction Documents: Assignee shall not enter
into any agreement that amends, modifies or changes any of the Lease Transaction
Documents without Assignor's consent; provided, however, that (i) Assignor shall
not unreasonably withhold its consent to any such agreement which is directly
related and limited to the construction of the Shell Improvement and the Tenant
Improvements pursuant to Exhibits C and D of the Lease; and (ii) Assignor shall
not unreasonably withhold its consent to any other such agreement so long as it
is not an agreement (a "Material Change") which affects the term of the Lease,
increases the obligation of the Tenant under the Lease to pay rent or any other
monetary obligation, materially increases any liability of the Tenant under the
Lease, or materially and adversely changes any of the rights of the Tenant under
the Lease Transaction Documents. Assignee shall have no obligation to consent to
a Material Change. If Assignor requests the consent of Assignor in writing to
any such agreement Assignor shall respond by granting or withholding consent in
writing within fifteen (15) days after receipt of such request; provided,
however, that if such agreement is not a Material Change, and if Assignor does
not respond by either granting or withholding such consent in writing within
said fifteen (15) day period, Assignor shall be deemed to have given its consent
to such agreement that is not a Material Change. Assignee agrees to pay all
reasonable attorneys' fees incurred by Assignor to review any request for
approval of an agreement made by Assignee pursuant to this Section 9. Any
amendment, modification or change of the Lease Transaction Documents in
violation of the provisions of this Section 9 shall have no force or effect on
Assignor.
10. Prepaid Rent and Security Deposit:
A. The parties acknowledge that Landlord now holds the
Security Deposit as security, to be applied pursuant to the provisions of the
Lease Transaction Documents. Assignor releases all claims to that sum, and such
sum shall be held by Landlord for the benefit of Assignee,
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<PAGE> 8
subject to provisions of the Lease Transaction Documents. Assignor agrees to
execute such documents as are reasonably requested by Assignee to implement the
provisions of this Section 10A. Notwithstanding anything contained herein, if
Landlord exercises its right to terminate the Lease as a result of this
Assignment pursuant to Section 19 of the Lease, then to the extent the Landlord
is obligated to return any part of the Security Deposit to the Tenant under the
Lease, Assignor shall be entitled thereto.
B. The parties acknowledge that Landlord now holds the sum of
$363,387.50 as prepaid rent, for application against the Basic Rent for the
first lease month of the term, as provided in Section 4(d) entitled "First
Month's Rent" of the Lease. Assignor releases all claims to such prepaid rent,
and such sum shall be held by Landlord for the benefit of Assignee, subject to
the provisions of the Lease Transaction Documents. The release of such amount by
Assignor for the benefit of Assignee is in consideration of the agreement of
Assignee to enter into this Assignment, particularly with regard to the
agreement of Assignee to assume all issues related to the status of the
development of plans for the Shell Improvements and the Tenant Improvements and
the consequences of all existing Tenant Caused Delay resulting from the actions
of Assignor.
C. At such time as the Security Deposit is fully disbursed to
pay for Tenant Improvement Costs or to satisfy obligations of the Tenant under
the Lease or is returned to Assignee pursuant to the provisions of the Lease,
Assignee shall pay to Assignor an amount equal to the product of (i) $25 per
square foot, times (ii) the area that the Premises is reduced by the exercise of
Landlord's restaurant option pursuant to Section 58 of the Lease (expressed in
square feet).
11. Conditions: This Assignment shall not become effective unless and
until each of the following conditions has been satisfied or waived, and the
obligations of Assignor and Assignee under this Assignment shall be conditioned
upon the satisfaction or waiver of each of the conditions stated in this
paragraph. If either of the conditions stated in Section 11A or 11C is not
satisfied within thirty (30) days after the Execution Date, this Assignment
shall become void and neither Assignor nor Assignee shall have any further
rights or obligations under this Assignment (except for the payment for change
orders to the Shell Improvements described by Section 7E). If the condition
stated in Section 11B is not satisfied or waived by both Assignor and Assignee
within fifteen (15) days after the Execution Date, or if the condition stated in
Section 11D is not satisfied or waived by both Assignor and Assignee within five
(5) days after the Execution Date, then Assignor and Assignee shall each
independently have the right to terminate this Assignment, in which event
neither Assignee nor Assignor shall have any further rights or obligations under
this Assignment (except for the payment for change orders to the Shell
Improvements described by Section 7E). The conditions are as follows:
A. Landlord shall have given its unconditional written consent
to this Assignment to the extent and in the form required by Section 19 of the
Lease.
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<PAGE> 9
B. Landlord shall have delivered to Assignor and Assignee an
estoppel certificate in the form attached hereto as Exhibit "A" that is in form,
content, and substance (i) reasonably satisfactory to Assignor, and (ii)
reasonably satisfactory to Assignee.
C. Lender shall have given its unconditional written consent
to this Assignment to the extent and in the form required by Section 11 of the
SNDA.
D. The Board of Directors of Assignee and the Board of
Directors of Assignor shall have each approved this Lease Assignment.
12. Representations by Assignor: Except as otherwise set forth on
Exhibit "B" to this Assignment or disclosed in writing by Assignor to Assignee
prior to the Execution Date, the following representations are true and correct
as of the Execution Date:
A. The Lease Transaction Documents constitute the only
agreements between Landlord and Assignor with respect to the Premises and the
Lease.
B. The Lease Transaction Documents are in full force and
effect, and neither Landlord nor Assignor has any set-off, claim, or defense to
the enforcement of the Lease Transaction Documents.
C. A true, correct and complete copy of the Lease Transaction
Documents is attached to this Assignment as Exhibit "C".
D. Neither Landlord nor Assignor is in default in the
performance of its respective obligations under the Lease Transaction Documents;
and no notice of default has been given to either Landlord or Assignor by the
other party with respect to any claimed default under the Lease Transaction
Documents.
13. Tenant Improvement Design Documents: Assignor has entered into an
agreement with Interior Architects, Inc. to design the tenant improvements to be
constructed pursuant to Exhibit "D" of the Lease. Effective as of the Consent
Date, and subject to the consent of Interior Architects, Inc. to the extent such
consent is required in order for the following to be effective, Assignor hereby
assigns to Assignee all of Assignor's right, title and interest in its agreement
with said architect and in all plans and specifications developed by such
architect for the design of such tenant improvements, and Assignee agrees to
assume and perform all of the obligations of Assignor with respect to any
remaining obligations due such architect under its agreement to compensate such
architect for its services; provided, however, that Assignor shall be
responsible for the payment of all compensation owed such architect on account
of services rendered by such architect prior to the Execution Date.
14. Delivery of Documents: On the Consent Date, Assignor shall deliver
to Assignee copies of all reports, plans and specifications, drawings,
correspondence and other documents in
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Assignor's possession which relate to the development of the Premises or the
Lease Transaction Documents; provided, however, that Assignor shall have no
obligation to deliver any documents that (i) are subject to the attorney-client
privilege or the work-product privilege, or (ii) relate to offers made or
received by Assignor relating to proposed assignments or subleasings of the
Premises, including any correspondence or communications which relate thereto.
15. Default Interest: If any amount becomes due by Assignee to Assignor
or by Assignor to Assignee, pursuant to the terms of this Assignment and such
amount is not paid when due, then the party who owes such amount shall also pay
interest at the rate of seven percent (7%) in excess of the discount rate
established by the Federal Reserve Bank of San Francisco as it may be adjusted
from time to time, not to exceed the maximum interest rate (if any) for such
obligation that is permitted by applicable law.
16. Estoppel Certificates and Financial Statements: At any time during
the term of the Lease, Assignee shall, following any request by Assignor,
promptly execute and deliver to Assignor within fifteen (15) days following
delivery of a request therefore an estoppel certificate: (i) certifying that the
Lease Transaction Documents are unmodified and in full force and effect or, if
modified, stating the nature of such modification and certifying that the Lease
Transaction Documents, as so modified, are in full force and effect; (ii)
stating the date to which the rent and other charges are paid in advance, if
any; (iii) acknowledging that there are not, to Assignee's knowledge, any
uncured defaults on the part of Assignee or Landlord under the Lease Transaction
Documents or, if there are uncured defaults, specifying the nature of such
defaults; and (iv) certifying such other information about the Lease Transaction
Documents as may be reasonably required by Assignor. At any time during the term
of the Lease, Assignee shall, upon 15 days prior written notice from Assignor,
provide Assignee's most recent financial statement and financial statements
covering the 24-month period prior to the date of such most recent financial
statement, which statement shall be prepared in accordance with generally
accepted accounting principals and, if such is the normal practice of Assignee,
shall be audited by an independent certified public accountant.
17. Miscellaneous: Should any provision of this Assignment prove to be
invalid or illegal, such invalidity or illegality shall in no way effect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to every
performance of the provision of this Assignment in which time of performance is
a factor. The captions used in this Assignment are for convenience only, and
shall not be considered in the construction or interpretation of any provision
hereof. The language in all parts of this Assignment shall in all cases be
construed as a whole according to its fair meaning, and not strictly for or
against either Assignor or Assignee, both of whom were represented by counsel in
connection with the negotiation and preparation of this Assignment. The terms
"shall", "will", and "agree" are mandatory. The term "may" is permissive. When a
party is required to do something by this Assignment, it shall do so at its sole
cost and expense without right of reimbursement from the other party unless a
provision of this Assignment expressly requires reimbursement.
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18. Brokerage Commissions: Each party hereto (i) represents to the
other that it has not had any dealings with any real estate brokers, leasing
agents or salesmen, or incurred any obligations for the payment of real estate
brokerage commissions or finders' fees which would be earned or due and payable
by reason of the execution of this Assignment except to Cooper/Brady
(representing Assignee) and Cushman & Wakefield of California, Inc.
(representing Assignor), and (ii) agrees to indemnify, defend and hold harmless
the other party from any claim for any such commission or fees which result from
the actions of the indemnifying party. Assignor shall be responsible for the
payment of any the commission owed to Cushman & Wakefield of California, Inc.,
pursuant to the separate written commission agreement between Assignor and such
broker for the payment of a commission as a result of the execution of this
Assignment, and then only to the extent of the obligations set forth in such
written agreement.
19. Notices:
A. Assignor agrees that Assignor shall promptly deliver to
Assignee copies of all notices, demands and other written communications from
Assignor to Landlord with respect to the Lease. Assignee agrees that Assignee
shall promptly deliver to Assignor copies of all notices of default and any
other formal notice regarding a material matter sent or received by Assignee
with respect to the Lease Transaction Documents, and Assignor shall have the
right to review at Assignee's offices located at the Premises (or at another
location selected by Assignee in Santa Clara County) copies of all notices,
demands and other written communications from Assignee to Landlord or from
Landlord to Assignee or which in any way relate to the Lease Transaction
Documents during the term of the Lease, excluding written documents covered by
the attorney-client privilege or the work-product privilege.
B. Throughout the term of the Lease, to the extent it has the
power to do so, Assignee shall cause notices that are to be sent to the Tenant
under the Lease Transaction Documents to be sent to both Assignor and Assignee
at the same time by the same means of delivery, to the addresses set forth in
Section 19B below (as it may be changed from time to time), including, without
limitation, notices to be sent pursuant to Section 38 entitled "Notices" of the
Lease and notices to be sent pursuant to Section 13 entitled "Notice" of the
SNDA.
C. Except for legal process which may also be served as
provided by law or as provided herein, all notices, demands, requests, consents
and other communications ("Notices") which may be given or are required to be
given by either party under this Assignment to the other shall be in writing and
shall be deemed given to and received by the party intended to receive such
Notice (i) when hand delivered, (ii) on the date on which the United States Post
Office certifies delivery or refusal to accept delivery of such Notice shall
have been deposited, postage prepaid, to the United States mail, certified
return receipt requested, properly addressed to the address specified herein, or
(iii) on the date of delivery sent to the address specified herein by reputable
overnight courier (e.g., Federal Express or other comparable service), as
evidenced by such courier's records. All such Notices from Assignee to Assignor
shall be served or addressed to Assignor at care of Informix Software, Inc.,
4100 Bohannon Drive, Menlo Park, CA 94025,
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<PAGE> 12
Attention: Mr. Clive Merredew. All such Notices by Assignor to Assignee shall be
sent to McAfee Associates, Inc. at its offices at 2805 Bowers Avenue, Santa
Clara, California 95051, Attention: Evan Collins, Controller. Either party may
change its address by notifying the other of such change.
20. Entire Agreement: This Assignment constitutes the entire Agreement
between Assignor and Assignee, and there are no binding agreements or
representations between the parties except as expressed herein. Assignee
acknowledges that neither Assignor nor any party acting on behalf of Assignor
has made any legally binding representation as to any matter except those
expressly set forth herein, and Assignee agrees that it may not reasonably rely
on any representation made by, or purportedly made by, Assignor or any party
acting on behalf of Assignor unless such representation is expressly set forth
in this Assignment. There are no oral agreements between Assignor and Assignee
affecting this Assignment, and this Assignment supersedes and cancels any and
all previous negotiations, arrangements, agreements and understandings, if any,
between Assignor and Assignee with respect to the subject matter of this
Assignment. This Assignment shall not be legally binding until it is executed by
both Assignor and Assignee. No subsequent change or addition to this Assignment
shall be binding unless in writing and signed by Assignor and Assignee.
21. Successors and Assigns: This Assignment shall be binding on and
inure to the benefit of the parties hereto, their successors in interest and
assigns. Notwithstanding anything contained in this Assignment or in the Lease,
neither this Assignment, nor any interest in the Lease Transaction Documents may
be assigned, subleased, mortgaged, pledged, or encumbered by Assignee without
the prior written consent of Assignor, which consent shall not be unreasonably
withheld. In connection with any such assignment or other transfer, (i) Assignor
may condition its consent upon the requirement that the Assignee or Transferee
assume all of Assignee's obligations under this Assignment, and (ii) Assignee
shall not be released from its obligations under this Assignment. Assignor
acknowledges that Assignee is in the process of engaging in a merger with
Network General, that Assignee will be the surviving corporation upon
consummation of the merger, and that the name of Assignee will be changed to
Network Associates, Inc., a Delaware corporation, and that Assignor's consent to
such merger transaction is not required because Assignee will be the survivor in
such merger transaction.
22. Counterparts: For the convenience of the parties, this Assignment
may be executed in one or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
23. Governing Law: This Assignment shall be governed by and construed
in accordance with the laws of the State of California.
24. Further Assurances: Assignor shall from time to time execute and
deliver such additional documents and take such additional action as Assignee
may reasonably request to carry out the purposes of this Assignment, all at no
cost to Assignor.
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<PAGE> 13
25. Attorneys' Fees: If there is any legal action or proceeding between
the parties arising from or based upon this assignment, the unsuccessful party
or parties to such action or proceedings shall pay to the prevailing party all
costs and expenses, including reasonable attorneys' fees and disbursements
incurred by the prevailing party in such action or proceeding and in any appeal
in connection therewith, and such costs, expenses, attorneys' fees and
disbursements shall be included in and as part of such judgment.
26. Authority: Each party hereto represents and warrants to the other
parties that (i) the person or persons executing this Assignment on behalf of
such party is duly authorized to execute this Assignment on behalf of such
party, and (ii) such party has the right, power and authority to execute and
deliver this document to the other parties and to perform its obligations as set
forth herein.
27. Amendment of Memorandum: At the request of either party hereto, at
any time after the Consent Date each party shall execute and cause to be
acknowledged an amendment to the Memorandum of Lease which amendment shall be
recorded in the Official Records of Santa Clara County and shall evidence the
fact of the assignment implemented pursuant to this Assignment, which amendment
shall be in form and substance reasonably satisfactory to Assignee and Assignor.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment
to be effective as of the Execution Date.
ASSIGNOR: INFORMIX CORPORATION,
a Delaware corporation
By /s/ Signature
------------------------------------------
Printed Name:
--------------------------------
Title:
--------------------------------------
ASSIGNEE: McAFEE ASSOCIATES, INC.,
a Delaware corporation
By /s/ Signature
------------------------------------------
Printed Name:
--------------------------------
Title:
--------------------------------------
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<PAGE> 14
CONSENT OF LANDLORD
Birk S. McCandless, LLC, a California limited liability company, the
Landlord under the Lease and a party to the Lease Transaction Documents to which
Landlord is a party for the benefit of both Assignee and Assignor, consents to
the above-described Assignment by Assignor to Assignee, and the acceptance and
assumption by Assignee, with respect to rights, duties and obligations under the
Lease Transaction Documents.
BIRK S. McCANDLESS, LLC,
a California limited liability company
By /s/ Birk S. McCandless
-----------------------------------------
BIRK S. McCANDLESS, its Managing Member
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<PAGE> 1
EXHIBIT 10.14
CONSENT TO ASSIGNMENT AGREEMENT
This Consent to Assignment Agreement ("Consent") is dated December 19, 1997
for reference purposes only, and entered into by and among BIRK S. McCANDLESS,
LLC, a California limited liability company ("Landlord"), GUARANTY FEDERAL
BANK, F.S.B., a federal savings bank ("Lender"), INFORMIX CORPORATION, a
Delaware corporation ("Assignor"), and NETWORKS ASSOCIATES, INC., A Delaware
corporation, formerly known as McAFEE ASSOCIATES, INC., a Delaware corporation
("Assignees").
R E C I T A L S
This consent is made with regard to the following facts:
A. All terms spelled with initial capital letter(s) in this Consent that
are not expressly defined in this Consent will have the respective meanings
given such terms in that certain Lease Assignment between Assignor and
Assignee dated November 17, 1997 (the "Assignment").
B. Landlord leased to Assignor the Premises on certain terms and
conditions, all of which are set forth in the Lease Transaction Documents.
C. Assignor desires to assign its right, title and interest in the Lease
and the other Lease Transaction Documents to Assignee, and Assignee desires to
accept the assignment thereof, and to assume and agree to perform all of the
obligations of Tenant under the Lease Transaction Documents arising from and
after the Consent Data as specified in the Assignment.
D. Assignor and Assignee desire to obtain Landlord's and Lender's
consent to the Assignment. Landlord and Lender are willing to consent to the
Assignment on the following terms and conditions.
E. Concurrently herewith, Landlord, Lender and Assignee have executed
that certain Subordination, Nondisturbance and Attornment Agreement in the form
attached to this Consent as Exhibit A ("Networks SNDA").
NOW THEREFORE, in consideration of the mutual covenants contained in this
Consent, and for valuable consideration, the receipt and sufficiency of which
are acknowledged by the parties, the parties agree as follows:
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<PAGE> 2
1. Consent to Assignment. Subject to the terms and conditions specified
in this Consent and the execution and delivery of the Networks SNDA, the
documents referred to in items 2, 3 and 4 of Exhibit C hereof, the Cushman
Agreement (defined in Section 18 hereof), the Security Deposit Documents
(defined in Subsection 19.10 below) and the Section 12 Security Documents
(defined in Subsection 12.D hereof), Landlord and Lender hereby consent to the
assignment of Assignor's right, title and interest in the Lease Transaction
Documents as more particularly described in the Assignment.
2. Terms of Consent are Controlling. With respect to the rights and
obligations between Landlord, on the one hand, and Assignor and/or Assignee on
the other, it is understood and agreed that in the event of any conflict
between this Consent and the Assignment, this Consent shall control and the
terms hereof shall be deemed to supercede the provisions of the Assignment to
that extent, but shall not affect the allocation of rights and obligations
between Assignor and Assignee themselves, which shall be as specified in the
Assignment.
3. Assumption and No Release. Effective as of the Consent Date,
Assignee expressly assumes and agrees, for the benefit of and as a direct
obligation to Landlord, to be bound by, and to perform and comply with, from
and after the Consent Date, every obligation of Assignor under the Lease
Transaction Documents. From and after the Consent Date, Assignee shall solely
be entitled to exercise all rights, powers, privileges, options and elections
and to make and give all approvals, consents, determinations, selections,
designations, judgments and decisions of "Tenant" under and with respect to the
Lease Transaction Documents, subject to the limitations and reservations
contained in Sections 7 and 9 of the Assignment. Any effort by Assignor or
any other party to exercise, give or make any of the foregoing shall be of no
effect. Notwithstanding the Assignment or Landlord's consent to the Assignment
or any of the foregoing acts by Assignee, Assignor and Assignee will be and
remain jointly and severally liable for the payment of rent and for the
performance of all other obligations of "Tenant" under the Lease Transaction
Documents from and after the Consent Date. From and after the Consent Date,
Assignee shall be entitled to and shall, (i) pay all rent and perform all other
payment obligations pursuant to the Assignment that are due pursuant to the
Lease Transaction Documents directly to Landlord, and (ii) render performance
of all other obligations which have been assumed pursuant to the Assignment
that are due pursuant to the Lease Transaction Documents directly to Landlord.
Without limiting any of Landlord's rights and remedies under the Lease and in
addition thereto, Landlord may specifically enforce the covenants and
agreements of Assignee contained in the Assignment and this Consent which exist
for Landlord's benefit. Assignee shall be directly obligated to Landlord and
Landlord shall recognize
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<PAGE> 3
Assignee as Tenant under the Lease (subject to the limitations and reservations
contained in Sections 7 and 9 of the Assignment).
4. Satisfaction or Waiver of Conditions Precedent. Assignee and Assignor
hereby acknowledge and agree that all of the conditions specified in Section 11
of the Assignment have been satisfied or have been waived by each of them,
respectively.
5. Subsequent Assignments: Recapture. This Consent does not constitute a
consent to any subsequent subletting or assignment and does not relieve Assignee
or any person claiming under or through Assignee of the obligation to obtain the
consent of Landlord under Section 19 of the Lease to any future assignment or
sublease. In the event that the Assignment is deemed to be a sublease, the
parties acknowledge and agree that Assignee (as a subtenant) shall have the
right to assign its leasehold interest or to sublet the Premises subject to
Landlord's consent (not to be unreasonably withheld) and otherwise in accordance
with the terms of Section 19 of the Lease, such that in the event of a default
by Assignee under the Lease, Landlord shall have all the rights and remedies
against Assignee in the event of a default which are available to Landlord at
law, in equity or otherwise specified in the Lease, including without limitation
the rights under California Civil Code Section 1951.4. Landlord may consent to
future assignments or subleases by Assignee without notifying Assignor and
without obtaining Assignor's consent, and that action by Landlord will not
relieve Assignor of liability under the Lease Transaction Documents; provided,
however, as between Assignee and Assignor the provisions of Section 21 of the
Assignment shall prevail. Assignee's failure to obtain Assignor's consent to any
future assignment or sublease, or failure to perform any obligation it may have
to Assignor under the Assignment, shall not limit or affect in any way the
obligations of Assignor to Landlord under the Lease Transaction Documents and
this Consent. Landlord waives the right to recapture with respect to the
Assignment. This Consent will not be construed to limit Landlord's right to
recapture the Premises as stated in Section 19 of the Lease, in the event of a
future proposal by Assignee to sublease or assign any part or parts of the
Premises which, in the aggregate, total more than seventy-five percent (75%) of
the Premises, provided that the assignments to Assignee pursuant to the
Assignment shall not be included in the calculation of aggregate square footage
of subleases and assignments in determining Landlord's rights hereunder.
6. Default Under the Lease. In the event of any default of Assignee under
the Lease Transaction Documents, Landlord may proceed directly against Assignee,
Assignor, or anyone else liable under the Lease without first exhausting
Landlord's remedies against any other person or entity liable under the Lease
Transaction Documents to Landlord. Notwithstanding the foregoing, any act or
omission of Assignee or anyone claiming under or through
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<PAGE> 4
Assignee that violates any of the provisions of the Lease Transaction Documents
will be deemed a default under the Lease Transaction Documents by Assignor.
7. Security Deposit. Assignor acknowledges the transfer and assignment to
Assignee of all right, title and interest of Assignor in, to or under the
Security Deposit (as defined in the Assignment) and held by Landlord pursuant to
Section 6(c) of Exhibit D to the Lease. Assignor waives all claims against
Landlord as to the Security Deposit. Assignee will protect, defend, indemnify
and hold Landlord harmless from and against any claims Assignor may have arising
from Assignee's application of disbursements from the Security Deposit. The
foregoing shall not affect Assignee's obligation to Assignor pursuant to Section
10.C of the Assignment.
8. Prepaid Rent. Assignor acknowledges the transfer and assignment to
Assignee of all right, title and interest of Assignor in, to or under the First
Months' Rent (as defined in the Assignment) and held by Landlord pursuant to
Section 4(d) of the Lease. Assignor waives all claims against Landlord pursuant
to Section 4(d) of the Lease. Assignor waives all claims against Landlord as to
the First Month's Rent. Assignee will protect, defend, indemnify and hold
Landlord harmless from and against any claims Assignor may have arising from
Assignee's application and use of the First Month's Rent.
9. Cancellation of Option to Extend Term. The option to extend the term
of the Lease granted to Assignor pursuant to Section 56 of the Lease is hereby
deleted in its entirety.
10. Cancellation of First Right to Purchase. The first right to purchase
the Project (as defined in the Lease) granted to Assignor pursuant to Section
57 of the Lease is hereby cancelled and Section 57 of the Lease is hereby
deleted in its entirety.
11. Schedule of Critical Dates. Exhibit D-1 and Exhibit A to Exhibit D-2
to the Lease are herby amended and restated in their entirety as shown on
Exhibit C attached to this Consent.
12. Subordination of, and Grant of Security Interest in, Claims. Until all
of Assignee's obligations under the Lease Transaction Documents have been fully
performed, Assignor subordinates any liability or indebtedness of Assignee held
by or owed to Assignor relating to the Lease Transaction Documents, the
Assignment or this Consent to the obligations of Assignee to Landlord under the
Lease Transaction Documents, the Assignment or this Consent and hereby grants to
Landlord a security interest in such claims, such security interest to be
hereinafter further documented and perfected as provided in Subsections 12.D and
19.10 hereof. Notwithstanding the foregoing, the following shall apply:
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<PAGE> 5
A. Assignor shall have the right to cure any default by Assignee under
the Lease Transaction Documents by rendering performance directly to Landlord.
Any amounts properly paid by Assignor to cure a default by Assignee shall be
repaid by Assignee to Assignor with interest at the rate specified in Section 15
of the Assignment.
B. If Assignor makes a payment to Landlord on account of an obligation
owed by Assignee to Landlord, then to the extent of such payment Assignor shall
have the right to pursue its claim for reimbursement from Assignee and to
collect and retain all amounts owed to it by Assignee on account of such
reimbursement claim. The foregoing shall apply even if there are remaining
obligations on the part of Assignee under the Lease so long as the due date for
performance of such obligations has not occurred.
C. Assignor may pursue all claims against Assignee, enforce any remedies
against Assignee permitted by the Assignment, and collect all amounts owed to it
by Assignee, even if there are remaining obligations on the part of Assignee
under the Lease Transaction Documents and the Assignment, so long as each of the
following conditions is satisfied: (i) no default exists on the part of Assignee
or Assignor under the Lease Transaction Documents with regard to obligations
owed to Landlord; (ii) all amounts then due and payable to Landlord by either
Assignor or Assignee pursuant to the Assignment have been paid; and (iii) the
security interest granted hereby and described in Subsection 12.D hereof remains
fully perfected and in full force and effect, and no uncured default by Assignor
exists thereunder.
D. Assignor hereby grants to and creates in favor of Landlord a first
priority security interest in all rights of recovery Assignor has against
Assignee relating to the Lease Transaction Documents, the Assignment or this
Consent, and in the proceeds thereof, all in form and substance reasonably
satisfactory to Landlord and Lender, as security for the performance by Assignor
of all obligations owed by it to Landlord pursuant to the Lease Transaction
Documents and the Assignment. The proceeds of any such recovery shall be
deposited in a security account created and maintained in substantially the same
manner, and pursuant to substantially the same agreements, as the Account
maintained pursuant to the Lease as security for the payment of Tenant
Improvement costs. Funds held in such security account shall be disbursed to
Assignor to reimburse Assignor for (i) each payment of rent (less any sublet
income payable directly to Assignor) made by Assignor to Landlord due pursuant
to the Lease Transaction Documents and (ii) tenant improvement costs and
commissions paid by Assignor with respect to subleases approved by Landlord to
the extent Assignor has actually collected from Assignee money damages
specifically on account of such items (amounts collected from Assignee shall be
first allocated to elements of damage awarded to
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<PAGE> 6
Assignor relative to Assignee's obligation to pay rent under the Lease
Transaction Documents and only the balance of any amounts so collected allocated
to the other elements of damage specifically awarded). Upon satisfaction of all
obligations owed to Landlord by Assignor pursuant to the lease Transaction
Documents, any remaining amounts held in such security account shall be
disbursed to Assignor. Landlord shall deliver to Assignor a security agreement,
financing statement and such other documents necessary to reasonably document
and perfect such security interest (and Landlord hereby grants a security
interest in such security interest to Lender) (collectively, all such documents
herein referred to as "Section 12 Security Documents") and the parties hereto
shall reasonably cooperate as provided in Subsection 19.10 in executing such
documents.
13. Assignor's Bankruptcy. In the event that bankruptcy proceedings
involving Assignor are commenced (whether voluntary or involuntary) and the
Assignment is recharacterized as a sublease, or otherwise, such that the Lease
between Assignor and Landlord is treated as an asset of the bankruptcy estate
and if the Lease is deemed rejected in such bankruptcy proceeding and thereby
terminated, or the Lease is otherwise terminated in connection with any such
bankruptcy proceeding for any reason, such termination shall not affect the
rights and obligations of Assignee and Landlord under the Assignment and it is
expressly agreed that in such event, (i) Assignee shall attorn to Landlord and
Landlord shall recognize Assignee under the terms and provisions of the Lease
(as assigned to Assignee pursuant to the Assignment) and (ii) Landlord and
Assignee shall enter into a new lease (with Assignee as the tenant thereunder)
on the terms and conditions of the Lease (as otherwise modified by this Consent)
and if such new lease is entered into, the term "Lease" as used herein shall
refer to such new lease and all Lease Transaction Documents related thereto. The
attornment and recognition obligations and the obligations to enter into a new
lease as specified herein are separate from the original Lease with Assignor and
shall survive termination of the original Lease with Assignor due to rejection
(or for any other reason) in any bankruptcy proceeding involving Assignor.
14. Assignee's Bankruptcy. In the event that bankruptcy proceedings
involving Assignee are commenced (whether voluntary or involuntary) and if the
Lease is rejected or otherwise terminated (as to Assignee), then Assignor,
immediately upon such rejection and/or termination shall be reinstated as the
Tenant under the Lease and Assignor shall continue to be obligated to fully
perform and comply with every obligation of the Tenant under the Lease, without
limitation or reservation, and shall thereafter have the right to again exercise
all rights, powers, privileges, options and elections and to make and give all
approvals, consents, determinations, selections, designations, judgments, and
decisions
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<PAGE> 7
of the Tenant under and with respect to the Lease Transaction Documents.
15. Waive Past Defaults. Effective on the Consent Date, Landlord and
Assignor represent that, to the best of their knowledge for their mutual benefit
and the benefit of the other parties hereto, that there are no uncured defaults
under the Lease Transaction Documents. To the extent that this representation by
Landlord is inconsistent with the estoppel letter dated November 26, 1997 from
Landlord to Assignor and Assignee, the representations set forth in this Section
15 by Landlord shall control. The representations by Landlord and Assignor
pursuant to this Section 15 shall not be deemed to constitute a waiver of any
claims for default under, or breach of, any of the provisions of the Lease
Transaction Documents occurring on or after the Consent Date or with respect to
acts occurring prior to the Consent Date of which a claiming party had no
knowledge; provided, however, with respect to any such acts of Assignor
occurring prior to the Consent Date, Landlord waives its right to terminate the
Lease. Such waiver shall not limit any of the other rights at law or in equity
which Landlord may have against Assignor in such event.
16. Lease Commencement Date. Section 2(b)(2) of the Lease is hereby
amended and restated in its entirety as follows:
(2) The later of (x) April 1, 1998 or (y) Substantial Completion (as
defined in Exhibit C) of all work to be done by Landlord pursuant to
Exhibit C, or, if Landlord is prevented from or delayed in completing
its work under Exhibit C to this lease due to Tenant Caused Delays as
specified in Exhibit C, then upon the date by which such work would
have been substantially completed but for such Tenant Caused Delays
(but not earlier than April 1, 1998).
17. Signage. The sign plans attached to the Lease as Exhibit E thereto are
hereby modified to acknowledge that the name on the signs shall be Assignee's
name (Networks Associates), but all other requirements and parameters specified
in said Exhibit E shall remain in full force and effect except that the height
and width of the letters may be reduced to fit the name in the space permitted.
18. Reimbursement of Landlord's and Lender's Costs; Payment for Change
Order. Fees and costs incurred by Landlord, and to be reimbursed by Assignor
pursuant to Section 19 of the Lease, for reviewing, processing and documenting
the Assignment and any other assignment or sublease, through the date of this
Consent, are $77,720. Fees and costs incurred by Lender in connection with
reviewing this Assignment, and which Assignor is obligated to reimburse, are
$4,402. These fees are all of the fees and costs owed to Landlord pursuant to
Section 19 of the Lease up to the
7
<PAGE> 8
Consent Date. Concurrent herewith, Assignor has delivered to Lender's counsel
its check in the amount of $4.402 to reimburse Lender for its fees and costs
incurred. Concurrent herewith, Assignor shall deliver to Landlord its check in
the amount of $57,720 to be applied against Assignor's obligation to landlord
for Landlord's costs and fees incurred through the date hereof and Assignor
agrees to cause the remaining portion ($20,000) to be paid by Cushman &
Wakefield of California, Inc. ("Cushman") to landlord prior to December 31,
1997 pursuant to that certain Amendment dated concurrently herewith between
landlord and Cushman ("Cushman Agreement"). In addition, concurrent herewith,
Assignor shall deliver to Landlord a separate check in the amount of $23,199
for Assignor's T-6 Change Order.
19. General Provisions.
19.1 Consideration for Assignment. Assignor and Assignee represent
and warrant that there are no additional payments of rent or any other
consideration of any type which has been paid or is payable by Assignee to
Assignor in connection with the Assignment or the Premises, other than as is
disclosed in the Assignment.
19.2 Brokerage Commission. Without limiting any claims for
brokerage commissions in connection with the original lease transaction between
Landlord and Assignor, Assignor and Assignee agree that Landlord will not be
liable for any brokerage commission or finder's fee in connection with the
consummation of the Assignment or this Consent. Assignor and Assignee will
protect, defend, indemnify and hold Landlord harmless from any brokerage
commission or finder's fee in connection with the consummation of the
Assignment or this Consent, and from any cost or expense (including attorney
fees) incurred by Landlord in resisting any claim for any such brokerage
commission or finder's fee. The provisions of this Section 19.2 shall survive
the expiration or earlier termination of both the Assignment and this Consent.
19.3 Controlling Law. The terms and provisions of this Consent will
be construed in accordance with and will be governed by the laws of the State
of California.
19.4 Captions. Captions to the sections in this Consent are
included for convenience only and do not modify any of the terms of this
Consent.
19.5 Entire Agreement; Waiver. This Consent constitutes the final,
complete and exclusive statement between the parties to this Consent pertaining
to the terms of Landlord's consent to the Assignment, supersedes all prior and
contemporaneous understandings or agreements of the parties regarding such
consent, and is binding on and inures to the benefit of their respective heirs,
8
<PAGE> 9
representatives, successors and assigns. No party has been induced to enter
into this Consent by, nor is any party relying on, any representation or
warranty regarding such consent outside those expressly set forth in this
Consent or otherwise specified in Exhibit C attached to this Consent. Any
agreement made after the date of this Consent is ineffective to modify, waive,
or terminate this Consent, in whole or in part, unless that agreement is in
writing, is signed by the parties to this Consent, and specifically states that
agreement modifies this Consent.
19.6 Attorney Fees. If there is any legal action or proceeding
between the parties arising from or based upon the Assignment or this Consent,
the unsuccessful party or parties to such action or proceedings shall pay to
the prevailing party all costs and expenses, including reasonable attorneys'
fees and disbursements incurred by the prevailing party in such action or
proceeding and in any appeal in connection therewith, and such costs, expenses,
attorneys' fees and disbursements shall be included in and as part of such
judgment.
19.7 Waiver. Except for the provisions regarding (i) cancellation of the
option to extend the term of the Lease (Section 9 herein), (ii) cancellation of
the first right to purchase (Section 10 herein), (iii) Assignee's right (as a
subtenant) to further assign or sublet the Premises (Section 5 herein), (iv)
modification of the Schedule of Critical Dates (Exhibit D-1 and Exhibit A to
Exhibit D-2 to the Lease) as provided in Section 11 herein, (v) Lease
Commencement Date (Section 16 herein), (vi) Signage (Section 17 herein), and
(vii) Notice (Subsection 19.8 herein), nothing contained in this Consent will
be deemed or construed to modify, waive, impair, or affect any of the
covenants, agreements, terms, provisions, or conditions contained in the Lease
Transaction Documents. In addition, the acceptance of rents by Landlord from
Assignee or anyone else liable under the Lease Transaction Documents will not
be deemed a waiver by Landlord of any provisions of the Lease Transaction
Documents.
19.8 Notice. Except for legal process which may also be served as
provided by law or as provided herein, all notices, demands, requests, consents
and other communications ("Notices") which may be given or are required to be
given by either party under this Consent to the other shall be in writing and
shall be deemed given to and received by the party intended to receive such
Notice (i) when hand delivered, (ii) on the date on which the United States
Post Office certifies delivery or refusal to accept deliver of such Notice
shall have been deposited, postage prepaid, to the United States mail,
certified return receipt requested, properly addressed to the address specified
herein, or (iii) on the date of delivery sent to the address specified herein
by reputable overnight courier (e.g., Federal Express or other comparable
service), as evidenced by such courier's records. All such Notices
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<PAGE> 10
to Assignor shall be served or addressed to Assignor at care of Informix
Software, Inc., 4100 Bohannon Drive, Menlo Park, California 94025, Attention:
Mr. Clive Merredew. All such Notices to Assignee shall be sent to Networks
Associates, Inc. at its offices at 2805 Bowers Avenue, Santa Clara, California
95051, Attention: Mr. Evan Collins, Controller. All such Notices to Landlord
shall be sent to Birk S. McCandless, LLC, at 3945 Freedom Circle, Suite 640,
Santa Clara, California 95054, Attention: Mr. Birk S. McCandless, Manager. All
such Notices to Lender shall be sent to Guaranty Federal Bank, F.S.B., 8333
Douglas Avenue, Dallas, Texas 75225, Attention: Mr. Jim Johnson. Any party may
change its address by notifying the others of such change.
19.9 AUTHORITY. Each party hereto represents and warrants to the other
parties that (i) the person or persons executing this Consent on behalf of such
party is duly authorized to execute this Consent on behalf of such party, and
(ii) such party has the right, power and authority to execute and deliver this
document to the other parties and to perform its obligations as set forth
herein.
19.10 FACILITATION. The parties agree to execute, acknowledge if
appropriate and deliver any document and cooperate in performing any acts which
are reasonably necessary to effect and/or implement the terms and conditions of
this Consent including, without limitation, (a) new documents substituting
Assignee for Assignor under the Security Agreement, the Financing Statement,
Notice of Security Interest, Time Deposit Agreement and Addendum, and any other
documents (collectively, such new documents are referred to as the "Security
Deposit Documents") as may be reasonably requested to ensure (i) assignment of
Assignor's rights to the Account to Assignee and (ii) the continuation of
Landlord's perfected security interest in the Account and Lender's perfected
security interest therein subject to and as provided in
the Lease Transaction Documents, and (b) the Section 12 Security Documents. The
parties agree to exercise best efforts to finalize and execute the Security
Deposit Documents and the Section 12 Security Documents by January 15, 1998 or
as soon thereafter as reasonably possible. Assignor and Assignee shall be
jointly and severally liable to reimburse Landlord for any attorneys' fees and
costs incurred by Landlord in such facilitation.
19.11 COUNTERPARTS; FACSIMILE SIGNATURES. This Consent may be executed in
any number of counterparts, each of which shall be an original, but all of
which together shall constitute one original. This Consent shall not be
effective until all parties' signatures have been so obtained. The parties
agree that this Consent, documents ancillary to this Consent, and related
documents to be entered into in connection with this Consent will be considered
signed when the signature of a party is delivered by
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<PAGE> 11
facsimile transmission. Such facsimile signature shall be treated in all
respects as having the same effect as an original signature.
20. Agreement of Assignor and Assignee. This Consent shall not be
effective until receipt by Landlord and Lender of a counterpart or counterparts
of this Consent duly executed by Assignor and Assignee, each thereby
acknowledging its agreement to the terms and conditions specified in this
Consent.
Landlord, Lender, Assignor and Assignee have executed this Consent on the
date set forth below their respective signatures.
Assignee: Assignor:
Networks Associates, Inc., Informix Corporation
a Delaware corporation a Delaware corporation
By: /s/ Signature By: /s/ Signature
---------------------------- ----------------------------
Name: Name:
-------------------------- --------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
-------------------------- --------------------------
Landlord: Lender:
Birk G. McCandless, LLC, Guaranty Federal Bank, F.S.B.,
a California limited liability a federal savings bank
company
By: /s/ BIRK S. MCCANDLESS By: /s/ R. STEVE LEBLANC
---------------------------- ----------------------------
Birk S. McCandless,
Manager Name: R. STEVE LEBLANC
--------------------------
Date: Title: Division Manager
-------------------------- -------------------------
Date: December 17, 1997
--------------------------
11
<PAGE> 1
EXHIBIT 10.15
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
Steefel, Levitt & Weiss
One Embarcadero Center, 30th Floor
San Francisco, California 94111
Attention: Janet Norris
- --------------------------------------------------------------------------------
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
THIS AGREEMENT made this 18th day of December, 1997 between Guaranty
Federal Bank, F.S.B., a federal savings bank (hereinafter called "Lender"),
Networks Associates, Inc., a Delaware corporation, formerly known as McAfee
Associates, Inc., a Delaware corporation (hereinafter called "Assignee"), and
Birk S. McCandless, LLC, a California limited liability company (hereinafter
called "Landlord").
WITNESSETH THAT:
WHEREAS, Lender is the owner and holder of a Construction Deed of Trust
(with Security Agreement, Fixture Filing and Assignment of Leases and Rents)
(hereinafter called the "Deed of Trust") dated December 18, 1996, covering the
real property described in Exhibit A and the buildings and improvements thereon
(hereinafter collectively called the "Mortgaged Premises") securing the payment
of a promissory note in the stated principal amount of $35,486,690.00, payable
to the order of Lender;
WHEREAS, Assignee is the tenant under a lease (hereinafter called the
"Lease") dated November 22, 1996, executed by and between Landlord and Informix
Corporation, a Delaware corporation and assigned to assignee pursuant to that
certain Lease assignment dated November 17, 1997, covering certain property
(hereinafter called the "Demised Premises") consisting of all or a part of the
Mortgaged Premises; and
WHEREAS, Assignee and Lender desire to confirm their understanding with
respect to the Lease and the Deed of Trust;
NOW, THEREFORE in consideration of the mutual covenants and agreements
herein contained, Lender and assignee hereby agree and covenant as follows:
<PAGE> 2
1. Subordination. The Lease now is, and shall at all times and for all
purposes continue to be, subject and subordinate, in each and every respect, to
the Deed of Trust, with the provisions of the Deed of Trust controlling in all
respects over the provisions of the Lease, it being understood and agreed that
the foregoing subordination shall apply to any and all increases, renewals,
modifications, extensions, substitutions, replacements and/or consolidations of
the Deed of Trust, provided that any and all such increases, renewals,
modifications, extensions, substitutions, replacements and/or consolidations
shall nevertheless be subject to the terms of this Agreement. Notwithstanding
the foregoing, the provisions of the Lease concerning construction of shell
improvements and tenant improvements, repair of damage caused by fire or other
peril, disposition of insurance proceeds, alteration of the premises, and
assignment and subletting shall prevail over any inconsistent or conflicting
provisions in the Deed of Trust, but without limiting Lender's security
interest therein or Lender's rights under the Deed of Trust to approve such
matters. Lender agrees that to the extent any action Assignee desires to take
cannot be taken without the prior written consent or approval of Lender, such
consent or approval shall not be unreasonably withheld.
2. Non-Disturbance. So long as (i) Assignee is not in default (beyond
any period given Assignee to cure such default) in the payment of rent or
additional rent or has not committed a material default in the performance of
any of the other terms, covenants or conditions of the Lease on Assignee's part
to be performed, (ii) the Lease is in full force and effect according to its
original terms, or with such amendments or modifications as Lender shall have
approved, or, if the Lease has terminated due to the bankruptcy of Informix
corporation. Assignee has entered into a new lease with Landlord on the terms
and conditions of the Lease (as specified in paragraph 3 below), and such new
lease is in full force and effect and (iii) Assignee attorns to Lender or a
purchaser of the Mortgaged Premises as provided in Paragraph 3, then (a)
Assignee's possession, occupancy, use and quiet enjoyment of the Demised
Premises under the Lease, or any extensions or renewals thereof or acquisition
of additional space which may be effected in accordance with any option
therefor in the Lease, shall not be terminated, disturbed, diminished or
interfered with by Lender in the exercise of any of its rights under the Deed
of Trust, and (b) Lender will not join Assignee as a party defendant in any
action or proceeding for the purpose of terminating Assignee's interest and
estate under the Lease because of any default under the Deed of Trust.
3. New Lease: Attornment. If the Lease between Landlord and Informix
Corporation is terminated as the result of the bankruptcy of Informix
Corporation, Assignee and Landlord agree to enter into a new lease on the terms
and conditions of the Lease (excluding Section 57 of the Lease entitled "First
Right to Purchase" and Section 56 of the Lease entitled "Option to Extend Term"
and as otherwise modified by the Consent to Assignment Agreement entered into
by the parties and Informix Corporation concurrently herewith) and if such new
lease is entered into, the term "Lease" as used herein shall refer to such new
lease. If Lender shall become the owner of the Mortgaged Premises or the
Mortgaged Premises shall be sold by reason of nonjudicial or judicial
foreclosure or other proceedings brought to enforce the Deed of Trust or the
Mortgaged Premises shall be
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<PAGE> 3
conveyed by dead-in-lieu of foreclosure, the Lease shall continue
in full force and effect as a direct Lease between Lender or other purchaser of
the Mortgaged Premises, who shall succeed to the rights and duties of Landlord,
and Assignee, and Assignee shall attorn to Lender or such purchaser, as the case
may be, upon any such occurrence and shall recognize Lender or such purchaser,
as the case may be, as the Landlord under the Lease. Such attornment shall be
effective and self-operative without the execution of any further instrument on
the part of any of the parties hereto. Assignee agrees, however, to execute and
deliver at any time and from time to time, upon the request of Landlord or of
any holder(s) of any of the indebtedness or other obligations secured by Deed
of Trust or any such purchaser, any instrument or certificate which, in the
sole reasonable judgment of the requesting party, is necessary or appropriate,
in connection with any such foreclosure or dead-in-lieu of foreclosure or
otherwise, to evidence such attornment. Assignee hereby waives the provisions
of any statute or rule of law, now or hereafter in effect, which may give or
purport to give assignee any right or election to terminate or otherwise
adversely affect the Lease and the obligations of Assignee thereunder as a
result of any such foreclosure or deed-in-lieu of foreclosure.
4. Obligations and Remedies. If Lender shall become the owner
of the Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
nonjudicial or judicial foreclosure or other proceedings brought to enforce the
Deed of Trust or the Mortgaged Premises shall be conveyed by deed-in-lieu of
foreclosure, Lender or other purchaser of the Mortgaged Premises, as the case
may be, shall have the same remedies by entry, action or otherwise in the event
of any default by Assignee (beyond the period given Assignee to cure such
default) in the payment of rent or additional rent or in the performance of any
of the other terms, covenants and conditions of the Lease on Assignee's part to
be performed that Landlord had or would have had if Lender or such purchaser
had not succeeded to the interest of Landlord. Upon attornment by Assignee as
provided herein, Lender or such purchaser shall be bound to Assignee under all
the terms, covenants and conditions of the Lease (including, without
limitation, the obligation to construct the shell improvements and the tenant
improvements as provided therein) and Assignee shall have the same remedies
against Lender or such purchaser for the breach of an agreement contained in
the Lease that Assignee might have had under the Lease against Landlord if
Lender or such purchaser had not succeeded to the interest of Landlord:
provided, however, that Lender or such purchaser shall not be liable or bound
to Assignee:
(a) for any act or omission of any prior landlord
(including Landlord); or
(b) for any offsets or defenses which Assignee might have
against any prior landlord (including Landlord); or
(c) for or by any rent or additional rent which Assignee
might have paid for more than the current month to any prior
landlord (including Landlord); or
<PAGE> 4
(d) by any amendment, modification or consensual
termination of the Lease made without Lender's consent; or
(e) for any security deposit, rental deposit or similar
deposit given by Assignee to a prior landlord (including
Landlord) unless such deposit is actually paid over to Lender or
such purchaser by the prior landlord (such deposits do not
include the Account for Assignee Improvements which Lender
acknowledges will be disbursed pursuant to Exhibit D of the Lease
for such item; or
(f) for any moving, relocation or refurbishment allowance
or any construction of or payment or allowance for tenant
improvements to the Demised Premises or any part thereof or to
the Mortgaged Premises or any part thereof for the benefit of
Assignee except as provided in Exhibit D to the Lease so long as
Assignee pays all costs associated therewith by disbursements
from the Account and otherwise; or
(g) for the payment of any leasing commissions or other
expenses for which any prior landlord (including Landlord)
incurred the obligation to pay; or
(h) by any notice given by Assignee to a prior landlord
(including Landlord) unless a copy thereof was also then given to
Lender.
The person or entity to whom Assignee attorns shall be liable to Assignee under
the Lease only for matters arising during such person's or entity's period of
ownership, and such liability shall terminate upon the transfer by such person
or entity of its interest in the Lease and the Mortgaged Premises as to events
occurring after the date of transfer.
5. No Abridgment. Nothing herein contained is intended, nor
shall it be construed, to abridge or adversely affect any right or remedy of
Landlord under the Lease in the event of any default by Assignee (beyond any
period given Assignee to cure such default) in the payment of rent or additional
rent or in the performance of any of the other terms, covenants or conditions of
the Lease on Assignee's part to be performed.
6. Notices of Default to Lender. Assignee agrees to give Lender
a copy of any default notice sent by Assignee to Landlord under the Lease.
7. Representations by Assignee. Assignee represents and warrants
to Lender that Assignee has validly executed the Lease Assignment; the Lease is
valid, binding and enforceable and is in full force and effect in accordance
with its terms; the Lease has not been amended except as stated herein; no rent
under the Lease has been paid more than thirty (30) days in advance of its due
date; there are no defaults existing under the Lease; and Assignee, as of this
date, has no charge, lien, counterclaim or claim of offset under the
<PAGE> 5
Lease, or otherwise, against the rents or other charges due or to become due
under the Lease.
8. Rent Payment. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
nonjudicial or judicial foreclosure or other proceedings brought to enforce the
Deed of Trust or the Mortgaged Premises shall be conveyed by deed-in-lieu of
foreclosure, Assignee agrees to pay all rents directly to lender or other
purchaser of the Mortgaged Premises, as the case may be, in accordance with the
Lease immediately upon notice of Lender or such purchaser, as the case may be,
succeeding to Landlord's interest under the Lease. Assignee further agrees to
pay all rents directly to Lender immediately upon notice that lender is
exercising its rights to such rents under the Deed of Trust or any other loan
documents (including but not limited to any Assignment of Leases and Rents)
following a default by Landlord or other applicable party.
9. Notice of Deed of Trust. To the extent that the Lease shall
entitle Assignee to notice of any deed of trust or security agreement, this
Agreement shall constitute such notice to the Assignee with respect to the Deed
of Trust and to any and all other deeds of trust and security agreements which
may hereafter be subject to the terms of this Agreement.
10. Landlord Defaults. Assignee agrees with Lender that effective
as of the date of this Agreement: (i) Assignee shall not take any steps to
terminate the Lease for any default by Landlord or any succeeding owner of the
Mortgaged Premises until after giving Lender written notice of such default,
stating the nature of the default and giving Lender thirty (30) days from
receipt of such notice to effect cure for the same, or if cure cannot be
effected within said thirty (30) days due to the nature of the default, Lender
shall have a reasonable time to cure provided that it commences cure within said
thirty (30) day period of time and diligently carries such cure to completion;
and (ii) notice to Landlord under the Lease (oral or written) shall not
constitute notice to Lender.
11. No Amendment, Termination, Assignment or Subletting of Lease.
Assignee agrees that Assignee's interest in and obligations under the Lease
shall not be altered, modified or terminated without the prior written consent
of Lender. Assignee further agrees that Assignee shall not assign the Lease or
allow it to be assigned in any manner or sublet the Demised Premises or any part
thereof without the prior written consent of Lender in any situation where
Landlord's consent to any such action is required under the Lease. With respect
to consents to be given by Lender pursuant to this paragraph, such consent shall
not be unreasonably withheld.
12. Liability of Lender. If Lender shall become the owner of the
Mortgaged Premises or the Mortgaged Premises shall be sold by reason of
foreclosure or other proceedings brought to enforce the Mortgage or the
Mortgaged Premises shall be conveyed by deed-in-lieu of foreclosure, Assignee
agrees that, notwithstanding anything to
5
<PAGE> 6
the contrary contained in the Lease, after such foreclosure sale or conveyance
by deed-in-lieu of foreclosure, Lender shall have no personal liability to
tenant under the Lease and Assignee shall look solely to the estate and property
of Landlord in the Mortgaged Premises, to the net proceeds of sale thereof or
the rentals received therefrom, to the Account and proceeds therefrom held by
Lender for the satisfaction of Assignee's remedies for the collection of a
judgment or other judicial process requiring the payment of money by landlord in
the event of any default or breach by Landlord with respect to any of the terms,
covenants, and conditions of the Lease to be observed or performed by Landlord
and any other obligation of Landlord created by or under this Lease, and no
other property or assets of Landlord or of its partners, officers,
beneficiaries, co-tenants, shareholders, or principals (as the case may be)
shall be subject to levy, execution or other enforcement procedures for the
satisfaction of Assignee's remedies. The term "Landlord" as used herein shall be
limited to mean and include only the owner or owners at the time in question of
Landlord's interest in the Lease, which term shall include Lender in the event
Lender acquires title to the Mortgaged Premises. Further, in the event of any
transfer by Landlord of Landlord's interest in this Lease, Landlord (and in the
case of any subsequent transfers or conveyances, the then assignor), including
each of its partners, officers, beneficiaries, co-tenants, shareholders or
principals (as the case may be) shall be automatically freed and released, from
and after the date of such transfer or conveyance, of all liability for the
performance of any covenants and agreements which accrue subsequent to the date
of such transfer of Landlord's interest.
13. Notice. Any notice or communication required or permitted
hereunder shall be given in writing, sent by (a) personal delivery, or (b)
expedited delivery service with proof of delivery, or (c) United States mail,
postage prepaid, registered or certified mail, or (d) telegram, telex or
telecopy, addressed as follows:
To Lender: Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Jim Johnson
To Assignee: Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
Attention: Controller
or to such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
and received 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 telegraph, telex
or telecopy, upon receipt.
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<PAGE> 7
14. Modification. This Agreement may not be modified orally or in any
manner other than by an agreement in writing signed by the parties hereto or
their respective successors in interest.
15. Successor Lender. The term "Lender" as used throughout this
Agreement includes any successor or assign of Lender and any holder(s) of any
interest in the indebtedness secured by the Deed of Trust.
16. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, their successors and assigns, and
any purchaser or purchasers at foreclosure of the Mortgaged Premises, and their
respective heirs, personal representatives, successors and assigns.
17. Paragraph Headings. The paragraph headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit the
scope or meaning of the various and several paragraphs hereof.
18. Gender and Number. Within this Agreement, words of any gender shall
be held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural and words in the
plural number shall be held and construed to include the singular, unless the
context otherwise requires.
19. Applicable Law. This Agreement and the rights and duties of the
parties hereunder shall be governed for all purposes by the law of the State of
California and the law of the United States applicable to transactions within
such state.
20. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be one and the
same instrument with the same signature as if all parties to this Agreement had
signed the same signature page.
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be duly executed as of the day and year first above written.
LENDER:
GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank
By: /s/ R. STEVE LeBLANC
----------------------------
Name: R. Steve LeBlanc
-----------------------
Its: Division Manager
-----------------------
7
<PAGE> 8
ASSIGNEE:
NETWORKS ASSOCIATES, INC., A Delaware
corporation
By: [SIG]
---------------------------------
Name: Probhat Goyal
---------------------------
Its: CFO
---------------------------
LANDLORD:
BIRK S. MCCANDLESS, LLC, a California
limited liability company
By: [SIG]
---------------------------------
Name: Birk S. McCandless
---------------------------
Its: Manager
---------------------------
[Add acknowledgments]
8
<PAGE> 9
DESCRIPTION OF REAL PROPERTY:
All that certain real property in the City of Santa Clara, County of Santa
Clara, State of California, described as follows:
Parcel One:
All of Parcel 2, as shown upon that certain Map entitled, "Lot Line Adjustment
Parcel Map, being a resubdivision of Parcels A and B as shown on that certain
Parcel Map recorded in Book 531 of Maps at Page 8, Santa Clara County Records",
which Map was filed for record in the Office of the Recorder of the County of
Santa Clara, State of California, on February 26, 1988 in Book 584 of Maps, at
Pages 17 and 18.
Parcel Two
All those easement rights as disclosed by that certain "First Amended and
Restated Reciprocal Easement Agreement and other Agreements Respecting Real
Property", executed by McCandless Towers, Phase I, a California General
Partnership and McCandless Towers, Phase II, a California General Partnership,
dated April 15, 1988, recorded August 11, 1988 in Book K637 Page 1781, Official
Records of Santa Clara.
EXHIBIT A
<PAGE> 10
CALIFORNIA
ALL-PURPOSE
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
COUNTY OF SANTA CLARA )
On 12/17/97 before me, Persis M. McGinn, Notary Public,
------- ----------------------------------------------------
DATE NAME, TITLE OF OFFICER-E.G. "JANE DOE, NOTARY PUBLIC"
personally appeared, Birk S. McCandless personally known to me to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal. [SEAL] PERSIS M. McGINN
Comm. #1106916
NOTARY PUBLIC - CALIFORNIA
SANTA CLARA COUNTY
Comm. Exp. July 25, 2000
/s/ PERSIS M. McGINN (SEAL)
- -----------------------
NOTARY PUBLIC SIGNATURE
OPTIONAL INFORMATION
TITLE OR TYPE OF DOCUMENT_______________________________________________________
DATE OF DOCUMENT_____________________________________NUMBER OF PAGES____________
SIGNER(S) OTHER THAN NAMED ABOVE________________________________________________
<PAGE> 11
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
--------------
County of Santa Clara
-------------
On December 18, 1997 before me, Karin C. Wallace
----------------- -------------------------------
Date Name and Title of Officer
(e.g. "Jane Doe, Notary Public")
personally appeared Prabhat Goyal
---------------------
Name(s) of Signer(s)
[X] personally known to me - OR - [ ] proved to me on the basis of satisfactory
evidence to be the person(s) whose name(s) is/are
subscribed to the within instrument and
acknowledged to me that he/she/they executed the
[ SEAL ] same in his/her/their authorized capacity(ies),
KARIN C. WALLACE and that by his/her signature(s) on the instrument
the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
KARIN C. WALLACE
--------------------------
Signature of Notary Public
- ------------------------------------OPTIONAL------------------------------------
Though the information below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent removal and
reattachment of this form to another document.
DESCRIPTION OF ATTACHED DOCUMENT
Title or Type of Document: Subordination Non disturbance Agreement
----------------------------------------------------
Document Date: December 18, 1997 Number of Pages: 8
---------------------
Signer(s) Other Than Named Above:
----------------------------------------------
CAPACITY(IES) CLAIMED BY SIGNER(S)
Singer's Name: Prabhat Goyal Signer's Name:
----------------------- -------------------------
[ ] Individual [ ] Individual
[X] Corporate Officer [ ] Corporate Officer
Title(s) CFO Title(s):
-------------------------- --------------------------
[ ] Partner -- [ ] Limited [ ] General [ ] Partner -- [ ] Limited [ ] General
[ ] Attorney-in-Fact [ ] Attorney-in-Fact
[ ] Trustee [ ] Trustee
[ ] Guardian or Conservator RIGHT [ ] Guardian or Conservator RIGHT
[ ] Other: THUMBPRINT [ ] Other: THUMBPRINT
----------------------- OF SIGNER ----------------------- OF SIGNER
Signer is Representing: TOP OF Signer is Representing: TOP OF
THUMB THUMB
----------------------- HERE ----------------------- HERE
----------------------- -----------------------
<PAGE> 12
STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on 19th day of December, 1997 by
R. Steve LeBlanc, Vice President of Guaranty Federal Bank, F.S.B.
[SEAL] ANNETTE M. FOSTER
Notary Public
STATE OF TEXAS /s/ ANNETTE M. FOSTER
My Comm. Exp. 03-13-2001 ----------------------------------
Notary Public, State of Texas
My Commission Expires: Annette Foster
Printed or Typed Name
<PAGE> 1
BIRK S. McCANDLESS, LLC
AND
INFORMIX CORPORATION
LEASE
<PAGE> 2
SUMMARY OF LEASE
McCANDLESS TOWERS TWO
1. DATE OF LEASE:
2. LANDLORD: Birk S. McCandless, LLC
3945 Freedom Circle, Suite 640
Santa Clara, California 95054
3. TENANT: Informix Corporation,
a Delaware corporation
4. PREMISES: 3965 Freedom Circle
Santa Clara, California
5. SQUARE FEET: 207,650 sq. ft.
6. PERMITTED USE: General office, software development, research
and development, training and large-meeting
purposes, catered events, occasional retail
sales other than to the general public, incidental
services to be provided primarily to Tenant's
employees working in the Premises, including (i)
retail sales, (ii) food services, (iii) vending
machines, and (iv) kitchens and other legal uses
related thereto
7. TERM: Fifteen (15) years
(a) SCHEDULED
COMMENCEMENT
DATE: April 1, 1998
(b) SCHEDULED
EXPIRATION
DATE: March 31, 2013
8. RENT:
(a) BASIC RENT: See Section 5(a)
(b) TENANT'S ESTIMATED SHARE OF
COMMON AREA CHARGES: See Section 16
9. SECURITY DEPOSIT: None
10. PARKING SPACES
PROVIDED: See Section 15
11. OTHER IMPORTANT
PROVISIONS: Early Access Tenant Access During Term
Option to Extend Term First right to
Purchase Landlord's Restaurant Option
Sidewalk Easement Easement
EXHIBITS:
A -- Premises
B -- Land
C -- Shell Improvements Work Letter Agreement
C-1 -- Shell Improvement Plans
D -- Tenant Improvements Work Letter Agreement
<PAGE> 3
D-1 -- Schedule of Critical Dates
D-2 -- Construction Contract
D-3 -- Security Agreements
E -- Sign Plans
F-1 -- Restaurant Space (First Floor)
F-2 -- Restaurant Space (Lower Floor)
G -- Form of Subordination, Non-Disturbance and Attornment Agreement
THIS SUMMARY OF LEASE IS INTENDED TO SUMMARIZE CERTAIN KEY PROVISIONS IN THE
ATTACHED LEASE. IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE
PROVISIONS OF THIS SUMMARY AND THE LEASE, THE PROVISIONS OF THE LEASE SHALL
GOVERN.
<PAGE> 4
TABLE OF CONTENTS
ITEM
1. USE
2. TERM
3. POSSESSION
4. MONTHLY RENT
5. ADJUSTMENT OF BASIC RENT
6. RESTRICTION ON USE
7. COMPLIANCE WITH LAWS
8. ALTERATIONS
9. REPAIR AND MAINTENANCE
10. LIENS
11. INSURANCE
12. UTILITIES AND SERVICE
13. TAXES AND OTHER CHARGES
14. ENTRY BY LANDLORD
15. COMMON AREA; PARKING
16. COMMON AREA CHARGES
17. DAMAGE BY FIRE; CASUALTY
18. INDEMNIFICATION
19. ASSIGNMENT AND SUBLETTING
20. DEFAULT
21. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
22. EMINENT DOMAIN
23. NOTICE AND COVENANT TO SURRENDER
24. TENANT'S QUITCLAIM
25. HOLDING OVER
26. SUBORDINATION
27. CERTIFICATE OF ESTOPPEL
28. SALE BY LANDLORD
29. ATTORNMENT TO LENDER OR THIRD PARTY
30. DEFAULT BY LANDLORD
31. CONSTRUCTION CHANGES
32. MEASUREMENT OF PREMISES
33. ATTORNEY FEES
34. SURRENDER
35. WAIVER
36. EASEMENTS; AIRSPACE RIGHTS
37. RULES AND REGULATIONS
38. NOTICES
39. NAME
40. GOVERNING LAW; SEVERABILITY
41. DEFINITIONS
42. TIME
43. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
<PAGE> 5
44. ENTIRE AGREEMENT
45. CORPORATE AUTHORITY
46. RECORDING
47. REAL ESTATE BROKERS
48. EXHIBITS AND ATTACHMENTS
49. ENVIRONMENTAL MATTERS
50. SIGNAGE
51. SUBMISSION OF LEASE
52. TENANT IMPROVEMENTS
53. ADDITIONAL RENT
54. EARLY ACCESS
55. TENANT ACCESS DURING TERM
56. OPTION TO EXTEND TERM
57. FIRST RIGHT TO PURCHASE
58. LANDLORD'S RESTAURANT OPTION
59. REASONABLENESS
60. LANDLORD'S REPRESENTATIONS
61. SIDEWALK EASEMENT
62. EASEMENT
63. McCANDLESS FITNESS CENTER
<PAGE> 6
LEASE
THIS LEASE is made this _____ day of ______________________, 1996, by
and between BIRK S. MCCANDLESS, LLC, a California limited liability company
("Landlord"), and INFORMIX CORPORATION, a Delaware corporation ("Tenant").
W I T N E S S E T H :
Landlord leases to Tenant and Tenant leases from Landlord those certain
premises as specified in Exhibit A (the "Premises") including the Shell
Improvements related thereto and Tenant Improvements to be constructed therein
as specified in Section 52 herein which shall consist of approximately two
hundred seven thousand six hundred fifty (207,650) square feet on floors 1-11
and the additional space on the lower level floor outlined in red on Exhibit A
hereto, subject to reduction as provided in Section 58 below and subject to
adjustment in accordance with Section 32 herein. As used herein the term
"Project" shall mean and include all of the land (the "Land") described in
Exhibit B and all the buildings, improvements, fixtures and equipment now or
hereafter situated on said land.
Tenant and Landlord each covenant, as a material part of the
consideration of this lease, to perform and observe each and all of the terms,
covenants and conditions set forth below, and this lease is made upon the
condition of such performance and observance.
1. USE
Subject to the restrictions contained in Section 6 hereof, Tenant
may only use the Premises for general office, software development, research and
development, training and large-meeting purposes, catered events, occasional
retail sales other than to the general public, incidental services to be
provided primarily to Tenant's employees working in the Premises, including (i)
retail sales, (ii) food services, (iii) vending machines, and (iv) kitchens and
other legal uses related
6
<PAGE> 7
thereto and shall not use or permit the Premises to be used for any other
purpose.
2. TERM
(a) The term shall be for fifteen (15) years (unless sooner
terminated as hereinafter provided) and, subject to Sections 2(b) and 3, shall
commence on April 1, 1998 and end on March 31, 2013. The "Scheduled Commencement
Date" for purposes of this lease is April 1, 1998.
(b) The term of the lease shall commence on the date ("Lease
Commencement Date") that possession of the Premises is deemed tendered by
Landlord to Tenant, provided that possession of the Premises shall not be deemed
tendered and the term shall not commence until the earlier of:
(1) Occupancy of the Premises by any of Tenant's operating
personnel; or
(2) The later of (x) April 1, 1998 or (y) Substantial
Completion (as defined in Exhibit C and Exhibit D) of all work to be done by
Landlord pursuant to Exhibit C and Exhibit D to this lease, exclusive of
telephones or other communication systems and punchlist items, or, if Landlord
is prevented from or delayed in completing its work under Exhibit C and/or
Exhibit D to this lease due to Tenant Caused Delays as specified in Exhibit C
and Exhibit D, then upon the date by which such work would have been
substantially completed but for such Tenant Caused Delays (but not earlier than
April 1, 1998).
3. POSSESSION
(a) Except as specifically set forth herein, if Landlord for any
reason other than Landlord default cannot deliver possession of the Premises to
Tenant by the Scheduled Commencement Date, this lease shall not be void or
voidable, Landlord shall not be liable to Tenant for any loss or damage on
account thereof and, unless Landlord's failure to deliver possession of the
Premises to Tenant by the Scheduled Commencement Date is caused by Tenant caused
delays as defined in Exhibit C and/or Exhibit D to this lease, Tenant shall not
be liable for rent until the commencement of the term is determined in
accordance with Section 2(b). If the term commences on a date other than the
Scheduled Commencement Date,
7
<PAGE> 8
then the parties shall immediately execute an amendment to this lease stating
the actual date of commencement and the revised expiration date. The expiration
date of the term shall be extended by the same number of days that Tenant's
possession of the Premises was delayed from that set forth in Section 2(a).
(b) Tenant's inability or failure to take possession of the
Premises when delivery is tendered by Landlord (with the improvements to be done
pursuant to Exhibit C and Exhibit D to this lease substantially completed) shall
not delay the commencement of the term of this lease or Tenant's obligation to
pay rent. Tenant acknowledges that Landlord shall incur significant expenses
upon the execution of this lease, even if Tenant never takes possession of the
Premises, including without limitation brokerage commissions and fees, legal and
other professional fees, the costs of space planning and the costs of
construction of the Shell Improvements and the Tenant Improvements. Tenant
acknowledges that all of said expenses shall be included in measuring Landlord's
damages should Tenant breach the terms of this lease.
(c) On or before December 31, 1996, Landlord shall deliver to
Tenant (i) a policy of title insurance (or a copy of the recorded grant deed and
title insurance commitment) indicating that Landlord holds the undivided fee
simple title to the Land and (ii) evidence reasonably satisfactory to Tenant
that Landlord has closed a construction loan in an amount sufficient to allow
Landlord to fulfill its obligations set forth in Exhibit C to this Lease. If
Landlord fails to fulfill such requirement, subject to the extension of time
permitted by Section 3(e) below, Tenant shall have the right to terminate this
Lease within ten (10) days after the expiration of the specified time period, as
it may have been extended pursuant to Section 3(e) below, by giving Landlord
written notice ("First Cancellation Notice") of such election to terminate
within ten (10) days following the expiration of such time period. If Tenant
gives Landlord the First Cancellation Notice as specified in the preceding
sentence, Landlord may cause such Notice to be void and of no force or effect if
Landlord acquires title to the Land on or before January 15, 1997, in which case
this lease shall remain in full force and effect and Landlord shall have until
March 15, 1997 to close a construction loan for construction of the Shell
Improvements and Tenant Improvements as contemplated herein (evidenced by a
8
<PAGE> 9
fully executed loan agreement between Landlord and the construction lender with
no conditions to enforceability of the agreement, a copy of which shall be
provided by Landlord to Tenant). If Landlord fails to close the construction
loan as required in the preceding sentence on or before March 15, 1997, subject
to the extension of time permitted by Section 3(e) below, then Landlord and
Tenant shall each have the right to terminate this Lease within ten (10) days
after the expiration of the specified time period, as it may have been extended
pursuant to Section 3(e) below, by giving written notice to the other of such
election to terminate within ten (10) days following the expiration of such time
period.
(d) If Landlord fails to deliver the Premises to Tenant with all
conditions to commencement of the term of this Lease satisfied, including,
without limitation, fulfillment of the obligations set forth in Exhibits C and D
hereto, within one hundred five (105) days (subject to extension as set forth in
Section 3(e) below) after March 31, 1998, the scheduled delivery date of the
Premises, then Tenant shall receive one day of free rent for every day of delay
beyond such 105-day period (as extended by Section 3(e) below) to the date of
lease commencement, which free rent shall commence on the Lease Commencement
Date.
(e) The time periods in which Landlord is required to satisfy the
conditions described in Sections 3(c), 3(d) and 3(f) respectively, will be
extended day-for-day for Tenant-caused delay (as defined in Exhibit C and/or D
to this Lease) and delay caused by Force Majeure, provided that Landlord shall
notify Tenant within the applicable time period that such time period has been
extended based on such a delay, giving the reason for the delay, and specifying
the number of days of delay. Landlord must then meet the requirements imposed by
Section 3(c), Section 3(d) or Section 3(f) as applicable, within such extended
period.
(f) If Landlord fails to deliver the Premises to Tenant with all
conditions to commencement of the term of this Lease satisfied, including
without limitation, fulfillment of the obligations set forth in Exhibits C and D
hereto, within nine (9) months after March 31, 1998, the scheduled delivery date
of the Premises (subject to extension as set forth in Section 3(e) above), then
Tenant shall have the right to terminate this
9
<PAGE> 10
Lease, effective upon written notice delivered to Landlord within ten (10) days
following expiration of such period.
(g) If either Landlord or Tenant elect to terminate this Lease
pursuant to their specified rights set forth in Section 3(c), or Section 3(f),
then Landlord shall immediately deliver to Tenant all sums previously paid by
Tenant to Landlord in connection with this Lease and this lease shall be deemed
void and of no force or effect and the parties shall have no further obligation
or liability to each other and neither party shall have any claim for damages
against the other. If the Account identified in Paragraph 6(e) of Exhibit D
hereto has been established, Landlord or Landlord's lender, as the case may be,
shall immediately execute any document reasonably required by Tenant in order to
release the funds in such account into Tenant's sole custody, together with any
and all interest earned on such funds.
(h) The term "Force Majeure" shall mean acts of God, strikes,
lockouts, labor troubles, inability to procure labor or materials, fire,
accident, riot, civil commotion, laws or regulations of general applicability,
acts of any third party, or any cause that is not due to Landlord's negligence
or willful misconduct or any cause that is beyond Landlord's reasonable control,
provided that the term "Force Majeure" shall not include financial inability,
regardless of the cause of such financial inability.
4. MONTHLY RENT
(a) Basic Rent. Tenant shall pay to Landlord as basic rent for
the Premises, in monthly installments in advance on or before the first day of
the first full calendar month of the term and on or before the first day of each
and every successive calendar month the amounts specified in Section 5(a) below.
Basic rent for any partial month shall be payable in advance and shall be
prorated based on the actual number of days during the lease term occurring in
such month divided by the total number of days in such month.
(b) Common Area Charges. In addition to the above basic rent and
as additional rent, Tenant shall pay to Landlord, subject to adjustments and
reconciliation as provided in Section 16 of this lease, the sum of Eighty-Three
Thousand Sixty Dollars ($83,060.00) per month on or before the first day of the
first
10
<PAGE> 11
full calendar month of the term and on the first day of each and every
successive calendar month, said sum representing Tenant's estimated payment of
its percentage share of common area charges as provided for in Section 16 of
this lease. Payment of common area charges for any partial month shall be
payable in advance and shall be prorated based on the actual number of days
during the lease term occurring in such month divided by the total number of
days in such month.
(c) Manner and Place of Payment. All payments of basic rent and
common area charges shall be paid to Landlord, without deduction or offset, in
lawful money of the United States of America, at the office of Landlord at 3945
Freedom Circle, Suite 640, Santa Clara, California 95054, or to such other
person or place as Landlord may from time to time designate in writing.
(d) First Month's Rent. Within five (5) days following Tenant's
receipt of written notice (accompanied by an owner's title policy substantiating
such notice or a copy of the recorded grant deed and title insurance commitment)
that Landlord has acquired the Land, Tenant shall deposit with Landlord the sum
of Three Hundred Sixty-Three Thousand Three Hundred Eighty-Seven and 50/100
Dollars ($363,387.50) to be applied against the basic rent for the first lease
month of the term.
(e) Security Deposit. None.
5. SCHEDULE OF BASIC RENT PAYMENTS
(a) The monthly basic rent provided for in Section 4(a) shall be
adjusted periodically and the monthly basic rent for each period shall be as set
forth below:
Lease Months 1-12:
$363,387.50 per month
Lease Months 13-24:
The monthly basic rent shall be adjusted on the first (1st) day
of the thirteenth (13th) Lease Month by making the CPI Adjustment as defined in
Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent
11
<PAGE> 12
as adjusted through the last day of the twenty-fourth (24th) Lease Month;
provided, however, in no event shall the increase in the monthly basic rent be
less than three and five-tenths percent (3.5%) or more than six and five-tenths
percent (6.5%) of the monthly basic rent for the twelfth (12th) Lease Month.
Lease Months 25-36:
The monthly basic rent shall be adjusted on the first (1st) day
of the twenty-fifth (25th) Lease Month by making the CPI Adjustment as defined
in Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the thirty-sixth (36th)
Lease Month; provided, however, in no event shall the increase in the monthly
basic rent be less than three and five-tenths percent (3.5%) or more than six
and five-tenths percent (6.5%) of the monthly basic rent for the twenty-fourth
(24th) Lease Month.
Lease Months 37-48:
The monthly basic rent shall be adjusted on the first (1st) day
of the thirty-seventh (37th) Lease Month by making the CPI Adjustment as defined
in Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the forty-eighth (48th)
Lease Month; provided, however, in no event shall the increase in the monthly
basic rent be less than three and five-tenths percent (3.5%) or more than six
and five-tenths percent (6.5%) of the monthly basic rent for the thirty-sixth
(36th) Lease Month.
Lease Months 49-60:
The monthly basic rent shall be adjusted on the first (1st) day
of the forty-ninth (49th) Lease Month by making the CPI Adjustment as defined in
Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the sixtieth (60th) Lease
Month; provided, however, in no event shall the increase in the monthly basic
rent be less than three and five-tenths percent (3.5%) or more than six and
five-tenths percent (6.5%) of the monthly basic rent for the forty-eighth (48th)
Lease Month.
Lease Months 61-72:
12
<PAGE> 13
The monthly basic rent shall be adjusted on the first (1st) day
of the sixty-first (61st) Lease Month to ninety percent (90%) of the
then-prevailing market rate for five (5) year leases, determined in accordance
with Section 5(c) below; provided that in no event shall the monthly basic rent
for this period be less than the monthly basic rent in effect for the sixtieth
(60th) Lease Month nor greater than one hundred ten percent (110%) of such
amount.
Lease Months 73-84:
The monthly basic rent shall be adjusted on the first (1st) day
of the seventy-third (73rd) Lease Month by making the CPI Adjustment as defined
in Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the eighty-fourth (84th)
Lease Month; provided, however, in no event shall the increase in the monthly
basic rent be less than three and five-tenths percent (3.5%) or more than six
and five-tenths percent (6.5%) of the monthly basic rent for the seventy-second
(72nd) Lease Month.
Lease Months 85-96:
The monthly basic rent shall be adjusted on the first (1st) day
of the eighty-fifth (85th) Lease Month by making the CPI Adjustment as defined
in Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the ninety-sixth (96th)
Lease Month; provided, however, in no event shall the increase in the monthly
basic rent be less than three and five-tenths percent (3.5%) or more than six
and five-tenths percent (6.5%) of the monthly basic rent for the eighty-fourth
(84th) Lease Month.
Lease Months 97-108:
The monthly basic rent shall be adjusted on the first (1st) day
of the ninety-seventh (97th) Lease Month by making the CPI Adjustment as defined
in Section 5(b) below and Tenant shall thereafter pay the increased amount of
monthly basic rent as adjusted through the last day of the one hundred eighth
(108th) Lease Month; provided, however, in no event shall the increase in the
monthly basic rent be less than three and five-
13
<PAGE> 14
tenths percent (3.5%) or more than six and five-tenths percent (6.5%) of the
monthly basic rent for ninety-sixth (96th) Lease Month.
Lease Months 109-120:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred ninth (109th) Lease Month by making the CPI Adjustment as
defined in Section 5(b) below and Tenant shall thereafter pay the increased
amount of monthly basic rent as adjusted through the last day of the one hundred
twentieth (120th) Lease Month; provided, however, in no event shall the increase
in the monthly basic rent be less than three and five- tenths percent (3.5%) or
more than six and five-tenths percent (6.5%) of the monthly basic rent for the
one hundred eighth (108th) Lease Month.
Lease Months 121-132:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred twenty-first (121st) Lease Month to ninety percent (90%) of
the then-prevailing market rate for five (5) year leases, as determined in
accordance with Section 5(c) below; provided that in no event shall the monthly
basic rent for this period be less than the monthly basic rent in effect for the
one hundred twentieth (120th) Lease Month.
Lease Months 133-144:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred thirty-third (133rd) Lease Month by making the CPI Adjustment
as defined in Section 5(b) below and Tenant shall thereafter pay the increased
amount of monthly basic rent as adjusted through the last day of the one hundred
forty- fourth (144th) Lease Month; provided, however, in no event shall the
increase in the monthly basic rent be less than three and five-tenths percent
(3.5%) or more than six and five-tenths percent (6.5%) of the monthly basic rent
for the one hundred thirty-second (132nd) Lease Month.
Lease Months 145-156:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred forty-fifth (145th) Lease Month by making the CPI Adjustment
as defined in Section 5(b) below and
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Tenant shall thereafter pay the increased amount of monthly basic rent as
adjusted through the last day of the one hundred fifty- sixth (156th) Lease
Month; provided, however, in no event shall the increase in the monthly basic
rent be less than three and five-tenths percent (3.5%) or more than six and
five-tenths percent (6.5%) of the monthly basic rent for the one hundred
forty-fourth (144th) Lease Month.
Lease Months 157-168:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred fifty-seventh (157th) Lease Month by making the CPI
Adjustment as defined in Section 5(b) below and Tenant shall thereafter pay the
increased amount of monthly basic rent as adjusted through the last day of the
one hundred sixty-eighth (168th) Lease Month; provided, however, in no event
shall the increase in the monthly basic rent be less than three and five-tenths
percent (3.5%) or more than six and five-tenths percent (6.5%) of the monthly
basic rent for the one hundred fifty-sixth (156th) Lease Month.
Lease Months 169-180:
The monthly basic rent shall be adjusted on the first (1st) day
of the one hundred sixty-ninth (169th) Lease Month by making the CPI Adjustment
as defined in Section 5(b) below and Tenant shall thereafter pay the increased
amount of monthly basic rent as adjusted through the last day of the one hundred
eightieth (180th) Lease Month; provided, however, in no event shall the increase
in the monthly basic rent be less than three and five-tenths percent (3.5%) or
more than six and five-tenths percent (6.5%) of the monthly basic rent for the
one hundred sixty-eighth (168th) Lease Month.
(b) The "CPI Adjustment" as used in this lease shall mean to
increase the amount of monthly basic rent as of the applicable adjustment date
to the amount determined by multiplying the amount of the monthly basic rent for
the lease month immediately preceding the adjustment date (e.g. if the
adjustment date is the 1st day of the 13th lease month you use the monthly basic
rent for the 12th lease month) by the CPI Factor. The "CPI Factor" is determined
by dividing the Consumer Price Index for All Urban Consumers (base year 1984 =
100) for San Francisco-Oakland-San Jose, Metropolitan Area published by the
United States Department of Labor, Bureau of
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Labor Statistics ("Index"), which is published for the calendar month
immediately preceding the applicable adjustment date ("Extension Index") by the
Index published for the calendar month that is twelve months prior to the
Extension Index.
(c) The market rent adjustments on the first (1st) day of the
sixty-first (61st) and one hundred twenty-first (121st) Lease Months will be
established based on full fair market rent for the Premises, without taking into
account Tenant's specific use of the Premises, consideration of Tenant funding
the initial construction of the Tenant Improvements, or amortization of any
capital expenditures then included in common area charges but otherwise taking
into account the terms of the lease (including scheduled adjustments of rent)
and the condition of the Premises. The full fair market rent shall mean the
monthly rent (triple net) then obtained for five (5) year leases of comparable
terms for rental space (not less than 50,000 square feet) in comparable
buildings. With respect to the market rent adjustments made on the first (1st)
day of the sixty-first (61st) and one hundred twenty-first (121st) Lease Months,
Landlord shall notify Tenant of the amount which Landlord believes to be the
then-prevailing market rent no later than the 60th day prior to the date on
which each such adjustment is to be made. If Tenant does not agree that the
amount stated in Landlord's notice is the then- prevailing market rate, and
Landlord and Tenant cannot agree on the market rate within ten (10) days after
Landlord's notice to Tenant of its initial opinion as to the then-prevailing
market rent (the "Rent Negotiation Period"), the then-prevailing fair market
rental rate shall be determined by appraisal by MAI appraiser(s), all of whom
shall be licensed in the State of California and shall have at least ten (10)
years experience in appraising commercial real estate of the same type and use
and in the same geographic area as the Premises, shall be appointed and shall
act in accordance with the following procedures:
(i) Within ten (10) days after the end of the Rent
Negotiation Period, Landlord and Tenant shall agree upon an appraiser meeting
the above qualifications and if they cannot so agree then each of them shall
designate a qualified appraiser by giving written notice of the name, address
and qualification of said appraiser to the other party. If either party fails to
select an appraiser within the ten (10) day period, the appraiser selected by
the other party shall be deemed selected by both parties and no other appraiser
shall be
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selected. If two appraisers are selected, they shall select a third
appropriately qualified appraiser. If the two appraisers fail to select a third
qualified appraiser within ten (10) days of their selection, the third appraiser
shall be appointed by the then presiding judge of the county where the Premises
are located upon application by either party.
(ii) If only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its determination of the market rent
for the Premises within fifteen (15) days following his selection, which
appraisal shall be conclusively determinative and binding on the parties as the
then-prevailing market rent for purposes of this Section 5(c).
(iii) If multiple appraisers are selected, the appraisers
shall meet not later than ten (10) days following the selection of the last
appraiser. At such meeting the appraisers shall attempt to determine the market
rent for the Premises as of the commencement date of the extended term by the
agreement of at least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the market
rate for the Premises at the initial meeting, such agreement shall be
determinative and binding upon the parties hereto and the agreeing appraisers
shall, in simple letter form executed by the agreeing appraisers, forthwith
notifying both Landlord and Tenant of the amount set by such agreement. If
multiple appraisers are selected and two (2) appraisers are unable to agree on
the market rent for the Premises within thirty (30) days following appointment
of the third appraiser, all appraisers shall submit to Landlord and Tenant an
independent appraisal of the market rent for the Premises, in simple letter form
within forty (40) days following appointment of the third appraiser. The parties
shall then determine the market rent for the Premises by averaging the
appraisals; provided that any high or low appraisal, differing from the middle
appraisal by more than ten percent (10%) of the middle appraisal, shall be
disregarded in calculating the average.
(v) [Intentionally omitted].
(vi) If only one appraiser is selected, then each party shall
pay one-half of the fees and expenses of that
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appraiser. If three appraisers are selected, each party shall bear the fees and
expenses of the appraiser it selects and one- half of the fees and expenses of
the third appraiser. (d) Landlord, at its option and in Landlord's sole
discretion, may eliminate the minimum CPI increase of three and five-tenths
percent (3.5%) per annum as provided above, in which case there will be no
required minimum increases, but the remainder of the procedures applicable to
(and the limits on) CPI increases will remain in effect. Landlord may exercise
this option at anytime during the lease term by so notifying Tenant.
6. RESTRICTION ON USE
Tenant shall not do or permit to be done in or about the Premises
or the Project, nor bring or keep or permit to be brought or kept in or about
the Premises or Project, anything which is prohibited by fire or any other
insurance covering the Project or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Project or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in or about the Premises or the Project which will constitute waste or
which will in any way obstruct or interfere with the rights of other tenants or
occupants of the Project or injure or annoy them, or use or allow the Premises
to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit
any nuisance in or about the Premises or the Project. 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 use the Premises in any manner that will cause or emit any
objectionable odor, noise or light into the adjoining premises or Common Area.
Tenant shall not do anything on the Premises that will cause damage to the
Project and Tenant shall not overload the floor capacity of the Premises or the
Project. No machinery, apparatus or other appliance shall be used or operated in
or on the Premises that will in any manner injure, vibrate or shake the
Premises. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises or the Project except in trash containers
placed inside exterior enclosures designated for that purpose by Landlord, or
where otherwise designated by Landlord; and no toxic or Hazardous Materials [as
defined in Section 49A(1)] shall be disposed of through the plumbing or sewage
system. No materials, supplies, equipment, finished
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products or semi-finished products, raw materials or articles of any nature
shall be stored or permitted to remain outside of the building proper. No retail
sales to the general public shall be made on the Premises; provided, however,
Tenant may make sales on the Premises to its employees and Tenant's invitees
without violating this provision. Any food service on the Premises shall be
limited to food service facilities (e.g., cafeteria, vending machines, catering)
for use primarily by employees of Tenant located on the Premises and their
invitees. Tenant shall comply with any covenant, condition or restriction ("C.C.
& R.s") affecting the Premises existing as of the date Tenant executes this
Lease. Landlord shall exercise reasonable business judgment with respect to any
approval rights it may have under the C.C.& R.'s taking into account the effect
that the exercise of such rights would have on Tenant's use of the Premises and
Tenant's rights under this lease and shall act in good faith to avoid any
material adverse impact thereon.
7. COMPLIANCE WITH LAWS
Tenant shall, in connection with its use and occupation of the
Premises, at its sole cost and expense, promptly observe and comply with (i) all
laws, statutes, ordinances and governmental rules, regulations and requirements
of federal, state, county, municipal and other governmental authorities, now or
hereafter in effect, which shall impose any duty upon Landlord or Tenant with
respect to the use, occupancy or alteration to the Premises (except as otherwise
provided in Section 8 and without limiting Landlord's obligations under
Paragraph 10 of Exhibit C hereto and Paragraph 11 of Exhibit D hereto), (ii)
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted and (iii) with any direction or occupancy
certificate issued pursuant to law by any public authority; provided, however,
that no such failure shall be deemed a breach of these 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 or not Landlord is a party thereto) 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. This lease shall remain in full force and
effect notwithstanding any loss of use or other effect on Tenant's enjoyment of
the Premises by reason of any
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governmental laws, statutes, ordinances, rules, regulations and requirements now
or hereafter in effect.
Notwithstanding the above, Tenant at its cost shall have the
right, at any time, to contest or appeal any mandated compliance that is
Tenant's obligation as required by this Section 7. Landlord shall not be
required to join in any proceeding or contest brought by Tenant unless the
provisions of any law require that the proceeding or contest be brought by or in
the name of Landlord or any owner of the Premises. In that case Landlord shall
join in the proceeding or contest or permit it to be brought in Landlord's name
as long as Landlord is not required to bear any cost. Tenant, on final
determination of the proceeding or contest, shall immediately pay or discharge
any decision or judgment rendered, together with all costs, charges, interest,
and penalties incidental to the decision or judgment and Tenant shall hold
Landlord and the Premises harmless from any damage arising out of the proceeding
or contest and shall insure the payment of any judgment that may be rendered.
8. ALTERATIONS
Tenant shall not make or suffer to be made any alteration,
addition or improvement to or of the Premises or any part thereof (collectively
referred to herein as "alterations") without (i) the prior written consent of
Landlord except with respect to nonstructural alterations costing less than
$50,000 in the aggregate per calendar year (as adjusted by the CPI over the term
of the lease), which consent shall not be unreasonably withheld or delayed, (ii)
a valid building permit issued by the appropriate governmental authority and
(iii) otherwise complying with all applicable laws, regulations and requirements
of governmental agencies having jurisdiction and with the rules, regulations and
requirements of any board of fire underwriters or similar body. Even if
Landlord's consent is not required, Tenant shall still notify Landlord in
writing prior to making such alteration of the nature of the alteration, the
estimated cost thereof, and the contractor engaged to perform such work (which
contractor is subject to Landlord's consent, which shall not be unreasonably
withheld or delayed), and such alteration shall comply with clauses (ii) and
(iii) of the preceding sentence. Notwithstanding any provision to the contrary,
Tenant shall be permitted maximum flexibility in redesigning the layout and
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configuration of the Premises during the term from time to time, and Tenant
shall not be required to remove any such alterations and restore the Premises,
provided such alterations do not materially and adversely affect the building
shell and/or building systems and do not require changes to the Shell
Improvements which Landlord deems are unreasonable, in Landlord's reasonable
business judgment, but restoration will be required to the extent that the
alteration in question causes the level of the tenant improvements in the
Premises as installed when taken as a whole to be less than the initial Tenant
Improvements installed pursuant to Exhibit D (including the per floor minimum
specified in Exhibit D). Landlord's consent to any requested alteration shall
not create on the part of Landlord or cause Landlord to incur any responsibility
or liability for such alteration's compliance with all laws, rules and
regulations of federal, state, county, municipal and other governmental
authorities. Any alteration made by Tenant (excluding moveable furniture and
trade fixtures not attached to the Premises) shall become the property of
Landlord upon the expiration or sooner termination of the lease. Without
limiting the foregoing, all heating, lighting, electrical (including all wiring,
conduit, outlets, drops, buss ducts, main and subpanels), air conditioning,
partitioning, drapery and carpet installations made by Tenant, regardless of how
attached to the Premises, together with all other alterations that have become
an integral part of the Project in which the Premises are a part and which are
then existing, shall become the property of Landlord upon the expiration or
sooner termination of the lease and shall not be deemed trade fixtures and,
subject to Landlord's right to require removal and restoration as specified
herein, shall remain upon and be surrendered with the Premises at the
termination of the lease.
Regardless of whether Landlord's consent is required in
connection with the making of any alteration by Tenant, the same shall be made
by Tenant at its sole risk, cost and expense and only after Landlord's written
approval of any contractor or person selected by Tenant for that purpose, and
the same shall be made at such time and in such manner as Landlord may from time
to time designate. Tenant shall, if required by Landlord, secure at Tenant's
cost a completion and lien indemnity bond for such work. Upon the expiration or
sooner termination of the term, Landlord may, at its sole option, require
Tenant, at Tenant's sole cost and expense, to promptly remove any such
alteration made by Tenant and designated by Landlord to be
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removed, repair any damage to the Premises caused by such removal and restore
the Premises to their condition prior to Tenant's alteration. Tenant shall have
no obligation to remove the initial Tenant Improvements constructed in the
Premises pursuant to Exhibit D attached hereto or any subsequent alterations for
which restoration is not required as provided above. Upon Tenant's written
request made at the time Tenant requests Landlord's consent to any alteration,
Landlord shall notify Tenant in writing if Landlord will require Tenant to
remove such alteration at the expiration or sooner termination of this Lease.
Any moveable furniture and equipment or trade fixtures remaining on the Premises
at the expiration or other termination of the term shall become the property of
the Landlord; provided, however, in addition to all other remedies available to
Landlord at law or in equity, Landlord may (i) require Tenant to remove same or
(ii) remove same at Tenant's cost, and Tenant shall be liable to Landlord for
all damages incurred by Landlord related thereto.
If during the term any alteration, addition or change of the
Premises, the Common Area or the Project is required by law, regulation,
ordinance or order of any public authority, due to Tenant's particular use of
the Premises or caused by Tenant's alterations or additions to the Premises,
Tenant, at its sole cost and expense, shall promptly make the same. If during
the term any alterations, additions or changes to the Premises, the Common Area
or the Project is required by law, regulation, ordinance or order of any public
or quasi-public authority, and which are not due to Tenant's particular use of
the Premises or caused by Tenant's alterations or additions to the Premises,
Landlord shall make such alterations, additions or changes and the cost thereof
shall be a common area charge and Tenant shall pay its percentage share of such
cost to Landlord as provided in Section 16 and if such costs are capital
expenditures under generally accepted accounting procedures, such costs shall be
amortized as specified in Section 16 of this lease.
9. REPAIR AND MAINTENANCE
All provisions of this Section 9 are subject to Landlord's and
Tenant's respective obligations under the work letters attached hereto as
Exhibits C and D and subject to the compliance with law provisions in Sections 7
and 8 herein and the rights and obligations of Landlord and/or Tenant as set
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forth in Sections 17 and 22 herein. By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair (excepting
only "punchlist items"). Except as expressly provided below, Tenant shall at its
sole cost keep and maintain the entire Premises and every part thereof
including, without limitation, the windows, window frames, plate glass, glazing,
elevators within the Premises, truck doors, doors and all door hardware, the
interior walls and partitions, lighting and the electrical, mechanical, and
plumbing systems. Tenant shall also repair and maintain the elevator and the
heating and air conditioning systems (unless Landlord has elected to keep and
maintain the elevator and the heating and air conditioning systems as provided
below) which shall include, without limitation, a periodic maintenance agreement
with reputable and licensed service companies. If Tenant's use of the elevator
and the heating and air conditioning systems is limited to normal business hours
(8:00 a.m. to 6:00 p.m.), such agreement shall provide for service at least as
often as every 60 days; if Tenant's use of the elevator and the heating or air
conditioning systems extends beyond such normal business hours this service
shall be as often as may be reasonably required by Landlord and in any event
such service shall meet all warranty enforcement requirements of such equipment
and comply with all manufacturer recommended maintenance. In the event the
elevator or the heating and air conditioning systems are not maintained by
Tenant in accordance with the above, Landlord may elect, at its option, to keep
and maintain the heating and air conditioning systems of the Premises and in
such event, Tenant shall pay to Landlord upon demand the full cost of such
maintenance, including without limitation, the cost of maintenance contracts and
building engineer hired by Landlord to oversee such repairs and maintenance and
administer such maintenance contracts. Tenant, at its option, may require
Landlord to keep and maintain the heating and air conditioning systems and
elevators of the Premises and in such event, Tenant shall pay to Landlord upon
demand the full cost of such maintenance, including without limitation, the cost
of maintenance contracts and building engineer hired by Landlord to oversee such
repairs and maintenance and administer such maintenance contracts. The foregoing
shall not limit or modify the respective obligations of Landlord and Tenant with
respect to the construction and installation of the Shell Improvements (as
specified in Exhibit C) and the Tenant Improvements (as specified in Exhibit D).
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Subject to the provisions of Section 17, Landlord shall keep and
maintain the roof, structural elements, and exterior walls of the buildings
constituting the Project and Common Area (including without limitation,
electricity for the common area, water to both the common area and the building
in which the Premises are located, garage maintenance and sweeping, common area
security, common fire life safety system, landscape and fountain, exterior
window washing and common area facilities engineer) in good order and repair.
Tenant waives all rights under and benefits of California Civil Code Sections
1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or
hereafter in effect. The cost of the repairs and maintenance which are the
obligation of Landlord under this Section 9, (except for any repairs,
maintenance or replacements required by Landlord's failure to construct the
Improvements in accordance with the provisions of Exhibits C and D or for which
Landlord is responsible under paragraph 10 of Exhibit C or paragraph 11 of
Exhibit D), including without limitation, maintenance contracts and supplies,
materials, equipment and tools used in such repairs and maintenance shall be a
common area charge and except for those costs to be treated as capital
expenditures as specifically provided below, Tenant shall pay its percentage
share of such costs to Landlord when such cost is incurred (and such costs shall
not be deemed to be capital expenditures for purposes of this lease) as provided
in Section 16; provided, however, subject to the waiver of subrogation in
Section 11 hereof, that if any repairs or maintenance is required because of an
act or omission of Tenant, or its agents, employees or invitees, Tenant shall
pay to Landlord upon demand the full cost of such repairs or maintenance.
Notwithstanding any provision to the contrary herein, the cost of any capital
expenditures (determined in accordance with generally accepted accounting
procedures) made in connection with the repair and maintenance of (i) the roof,
structural elements and exterior walls of the building which are obligations of
Landlord herein or (ii) electrical system, including electrical switch gear and
components, elevator and hot water boiler(s) to the extent such cost exceeds
Fifty Thousand Dollars ($50,000) per item, (except for any repairs, maintenance
or replacements required by Landlord's failure to construct the Improvements in
accordance with the provisions of Exhibits C and D or for which Landlord is
responsible under paragraph 10 of Exhibit C or paragraph 11 of Exhibit D), shall
be deemed capital expenditures and common area charges for
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purposes of this lease and the cost thereof shall be amortized as provided in
Section 16 of this lease.
10. LIENS
Tenant shall keep the Premises and the Project free from any
liens arising out of any work performed, materials furnished or obligations
incurred by Tenant, its agents, employees or contractors. Upon Tenant's receipt
of a preliminary twenty (20) day notice filed by a claimant pursuant to
California Civil Code Section 3097, Tenant shall immediately provide Landlord
with a copy of such notice. Should any lien be recorded against the Project,
Tenant shall give immediate notice of such lien to Landlord. 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 (including attorneys' fees) incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the rate of twelve percent (12%) per annum or the maximum rate
permitted by law, whichever is less. Landlord shall have the right at all times
to post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper for the protection of Landlord, the
Premises and the Project and any other party having an interest therein, from
mechanics' and materialmen's liens and like liens. Tenant shall give Landlord at
least fifteen (15) days prior notice of the date of commencement of any
construction on the Premises in order to permit the posting of such notices. In
the event Tenant is required to post an improvement bond with a public agency in
connection with any work performed by Tenant on or to the Premises, Tenant shall
include Landlord as an additional obligee.
11. INSURANCE
Tenant, at its sole cost and expense, shall keep in force during
the term (i) commercial general liability and property damage insurance with a
combined single limit of at least $10,000,000 per occurrence insuring against
personal or bodily injury to or death of persons occurring in, on or about
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the Premises or Project and any and all liability of the insureds with respect
to the Premises or arising out of Tenant's maintenance, use or occupancy of the
Premises and all areas appurtenant thereto, (ii) direct physical loss-special
insurance covering all of Tenant's equipment, trade fixtures, appliances,
furniture, furnishings, and personal property from time to time located in, on
or about the Premises, with coverage in the amount of the full replacement cost
thereof, (iii) Worker's Compensation Insurance as required by law, together with
employer's liability coverage with a limit of not less than $1,000,000 for
bodily injury for each accident and for bodily injury by disease for each
employee and (iv) earthquake insurance coverage covering loss or damage to the
Premises and/or Project, in the amount of the full replacement value thereof,
with increased cost of reconstruction and contingent liability (including
demolition), plus a policy of rental income insurance in the amount of one
hundred percent (100%) of eighteen (18) months rent (including sums paid as
additional rent) applicable to such casualty and Tenant shall be responsible for
all earthquake related repairs as specified in Section 16 herein. Tenant's
commercial general liability and property damage insurance, Tenant's Workers
Compensation Insurance and earthquake insurance shall be endorsed to provide
that said insurance shall not be cancelled or reduced except upon at least
thirty (30) days prior written notice to Landlord. Claims made shall not
constitute a reduction in coverage for purposes of the preceding sentence.
Further, Tenant's commercial general liability and property damage insurance
shall be primary and shall be endorsed to provide that Landlord and McCandless
Management Corporation, and their respective partners, officers, directors and
employees and such other persons or entities as directed from time to time by
Landlord shall be named as additional insureds for all liability using ISO
Bureau Form CG20111185 (or a successor form) or such other endorsement form
reasonably acceptable to Landlord; shall contain a severability of interest
clause; and shall be issued by an insurance company admitted to transact
business in the State of California (except companies participating in providing
earthquake insurance as specified below) and rated A VIII or better in Best's
Insurance Reports (or successor report). All of the insurance companies
participating in providing earthquake insurance shall be rated A VIII or better
in Best's Insurance Reports (or successor report). The deductibles for all
insurance (except for earthquake insurance which is provided for below) required
to
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be maintained by Tenant hereunder shall not exceed Two Hundred Fifty Thousand
Dollars ($250,000) without the approval of Landlord which shall not be
unreasonably withheld or delayed. Tenant shall be permitted to self-insure for
all or a portion of such earthquake insurance, provided, that the sum of such
self-insured amount plus the amount of any deductible for any such earthquake
insurance shall not exceed two percent (2%) of Tenant's net worth on the date
that such insurance is procured and renewed from time to time or on the date of
any adjustment to the deductible or self-insured amount and Tenant shall be
solely responsible for all such self-insured amounts and deductibles. The
commercial general liability insurance carried by Tenant shall specifically
insure the performance by Tenant of the indemnification provisions set forth in
Section 18 of this lease provided, however, nothing contained in this Section 11
shall be construed to limit the liability of Tenant under the indemnification
provisions set forth in said Section 18. If Landlord or any of the additional
insureds named on any of Tenant's insurance, have other insurance which is
applicable to the covered loss on a contributing, excess or contingent basis,
the amount of the Tenant's insurance company's liability under the policy of
insurance maintained by Tenant shall not be reduced by the existence of such
other insurance. Any insurance carried by Landlord or any of the additional
insureds named on Tenant's insurance policies shall be excess and
non-contributing with the insurance so provided by Tenant.
Tenant shall, prior to the commencement of the term and at least
fifteen (15) days prior to any renewal date of any insurance policy required to
be maintained by Tenant pursuant to this Section, provide Landlord with a
completed Certificate of Insurance, using a form acceptable in Landlord's
reasonable judgement, attaching thereto copies of all endorsements required to
be provided by Tenant under this lease. Tenant agrees to increase the coverage
or otherwise comply with changes in connection with said commercial general
liability, property damage, direct physical loss as Landlord or Landlord's
lender may from time to time reasonably require.
Landlord shall obtain and keep in force a policy or policies of
insurance covering loss or damage to the Premises and Project, in the amount of
the full replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, with increased cost
of reconstruction and contingent liability
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(including demolition), plus a policy of rental income insurance in the amount
of one hundred percent (100%) of eighteen (18) months' rent (including sums paid
as additional rent) and such other insurance as Landlord or Landlord's lender
may from time to time require. Landlord may, but shall not be obligated to,
obtain flood and/or earthquake insurance. Landlord shall have no liability to
Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The
cost of all such insurance purchased by Landlord, plus any charges for deferred
payment of premiums and the amount of any deductible incurred upon any covered
loss within the Project, shall be common area charges and Tenant shall pay to
Landlord its percentage share of such costs as provided in Section 16. If the
cost of insurance is increased due to Tenant's use of the Premises, then Tenant
shall pay to Landlord upon demand the full cost of such increase.
Notwithstanding any provision to the contrary contained herein,
Landlord and Tenant hereby mutually waive any and all rights of recovery against
one another for real or personal property loss or damage occurring to the
Premises or the Project, or any part thereof, or to any personal property
therein, from perils either actually or required hereunder to be insured against
under fire and extended insurance and any other property insurance policies
existing for the benefit of the respective parties (i) unless such insurance
does not permit such waiver of liability and (ii) the party whose insurance will
not permit such waiver of liability has notified the other party of such fact in
writing at least thirty (30) days prior to the real or personal property loss or
damage in question.
If Tenant does not take out and maintain insurance as required
pursuant to this Section 11, Landlord may, but shall not be obligated to, take
out the necessary insurance and pay the premium therefor, and Tenant shall repay
to Landlord promptly on demand, as additional rent, the amount so paid. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
additional rent, any and all reasonable expenses (including attorney fees) and
damages which Landlord may sustain by reason of the failure of Tenant to obtain
and maintain such insurance, it being expressly declared that the expenses and
damages of Landlord shall not be limited to the amount of the premiums thereon.
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12. UTILITIES AND SERVICE
Tenant shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pickup, sewer charges and all other services
supplied to or consumed on the Premises. In the event that any service is not
separately metered or billed to the Premises, the cost of such utility service
or other service shall be a common area charge and Tenant shall pay its
percentage share of such cost to Landlord as provided in Section 16. In
addition, the cost of all utilities and services furnished by Landlord to the
Common Area shall be a common area charge and Tenant shall pay its percentage
share of such cost to Landlord as provided in Section 16.
If Tenant's use of any such utility or service is materially in
excess of the average furnished to the other tenants of the Project, and such
utility or service is not separately metered, then Tenant shall pay to Landlord
upon demand, as additional rent, the full cost of such excess use, or Landlord
may cause such utility or service to be separately metered, in which case Tenant
shall pay the full cost of such utility or service and reimburse Landlord upon
demand for the cost of installing the separate meter.
Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of rent by reason of, the failure of any
person or entity to furnish any of the foregoing services when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, governmental moratoriums,
regulations or other governmental actions, or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall
not be relieved from the performance of any covenant or agreement in this lease
because of any such failure, and no eviction of Tenant shall result from such
failure. The foregoing shall not be construed to limit Landlord's liability if
utility service is interrupted for a period longer than fifteen (15) days as a
result of the active negligence or willful misconduct of Landlord or its agents,
employees, contractors or invitees.
13. TAXES AND OTHER CHARGES
All real estate taxes and assessments and other taxes, fees and
charges of every kind or nature, foreseen or
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unforeseen, which are levied, assessed or imposed upon Landlord and/or against
the Premises, building, Common Area or Project, or any part thereof by any
federal, state, county, regional, municipal or other governmental or
quasi-public authority, together with any increases therein for any reason,
shall be a common area charge and Tenant shall pay its percentage share of such
costs to Landlord as provided in Section 16. Any future assessment for public
improvements may be paid by Landlord in full or in installments, but Tenant's
contribution will be determined and payable based on the installment schedule if
that option was actually available to Landlord. By way of illustration and not
limitation, "other taxes, fees and charges" as used herein include any and all
taxes payable by Landlord (other than state and federal personal or corporate
income taxes measured by the net income of Landlord from all sources,
inheritance taxes, gift taxes, documentary transfer taxes, franchise taxes, late
payment charges and penalties which are due to Landlord's fault and special
assessments not related to the operation of the Project and/or not levied
against real estate) whether or not now customary or within the contemplation of
the parties hereto, (i) upon, allocable to, or measured by the rent payable
hereunder, including, without limitation, any gross income or excise tax levied
by the local, state or federal government with respect to the receipt of such
rent, (ii) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any part thereof, (iii) upon or measured by the value of Tenant's
personal property or leasehold improvements located in the Premises, (iv) upon
this transaction or any document to which Tenant is a party creating or
transferring an interest or estate in the Premises, (v) upon or with respect to
vehicles, parking or the number of persons employed in or about the Project, and
(vi) any tax, license, franchise fee or other imposition upon Landlord which is
otherwise measured by or based in whole or in part upon the Project or any
portion thereof. If Landlord contests any such tax, fee or charge, the cost and
expense incurred by Landlord thereby (including, but not limited to, costs of
attorneys and experts) shall also be common area charges and Tenant shall pay
its percentage share of such costs to Landlord as provided in Section 16. In the
event the Premises and any improvements installed therein by Tenant or Landlord
are valued by the assessor disproportionately higher or lower than those of
other tenants in the building or Project or in the event alterations or
improvements are made to the Premises, Tenant's percentage
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share of such taxes, assessments, fees and/or charges shall be readjusted upward
or downward accordingly and Tenant agrees to pay such readjusted share. Such
determination shall be made by Landlord from the respective valuations assigned
in the assessor's work sheet or such other information as may be reasonably
available.
Tenant agrees to pay, before delinquency, any and all taxes
levied or assessed during the term hereof upon Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, including
carpeting and other property installed by Tenant notwithstanding that such
carpeting or other property has become a part of the Premises. If any of
Tenant's personal property shall be assessed with the Project, Tenant shall pay
to Landlord, as additional rent, the amount attributable to Tenant's personal
property within ten (10) days after receipt of a written statement from Landlord
setting forth the amount of such taxes, assessments and public charges
attributable to Tenant's personal property.
Tenant at its cost shall have the right, at any time, to seek a
reduction in the assessed valuation of the Premises or to contest or appeal any
real property taxes that are to be paid by Tenant. Landlord shall not be
required to join in any proceeding or contest brought by Tenant unless the
provisions of any law require that the proceeding or contest be brought by or in
the name of Landlord or any owner of the Premises. In that case Landlord shall
join in the proceeding or contest or permit it to be brought in Landlord's name
as long as Landlord is not required to bear any cost. Tenant, on final
determination of the proceeding or contest, shall immediately pay or discharge
any decision or judgment rendered, together with all costs, charges, interest,
and penalties incidental to the decision or judgment. Tenant shall hold Landlord
and the Premises harmless from any damage arising out of the proceeding or
contest and shall insure the payment of any judgment that may be rendered.
14. ENTRY BY LANDLORD
Landlord reserves, and shall at all reasonable times and upon
reasonable notice to Tenant have, the right to enter the Premises (i) to inspect
the Premises, (ii) to supply
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services to be provided by Landlord hereunder, (iii) to show the Premises to
prospective purchasers, lenders and to put 'for sale' or 'for lease' signs
thereon, (iv) to show the Premises to prospective tenants during the last twelve
(12) months of the lease term; (v) to post notices required or allowed by this
lease or by law, (vi) to alter, improve or repair the Premises and any portion
of the Project, and (vii) to erect scaffolding and other necessary structures in
or through the Premises or the Project where reasonably required by the
character of the work to be performed. Landlord shall not be liable in any
manner for any inconvenience, disturbance, loss of business, nuisance or other
damage arising from Landlord's entry and acts pursuant to this Section and
Tenant shall not be entitled to an abatement or reduction of rent if Landlord
exercises any rights reserved in this Section. For each of the foregoing
purposes, Landlord shall at all times have and retain a key with which to unlock
all of the doors in, on and about the Premises (excluding Tenant's vaults, safes
and similar areas designated in writing by Tenant in advance), and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency in order to obtain entry to the Premises. Any
entry by Landlord to the Premises pursuant to this Section 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. Notwithstanding any provision to the
contrary contained herein, Landlord shall exercise its entry rights with respect
to the Premises in a reasonable manner designed not to unreasonably interfere
with Tenant's use of the Premises and shall schedule such entries (except in
emergency situations) in a manner to minimize interference. In addition,
Landlord's entry of the Premises must be made in the company of an escort if
Tenant provides an escort.
15. COMMON AREA; PARKING
Subject to the terms and conditions of this lease and as Landlord
may from time to time prescribe, Tenant and Tenant's employees and invitees
shall, in common with other occupants of the Project, and their respective
employees and invitees and others entitled to the use thereof, have the
nonexclusive right to use the access roads, parking areas (except as provided
below) and facilities within the Project provided and designated by Landlord for
the general use and
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convenience of the occupants of the Project which areas and facilities shall
include, but not be limited to, sidewalks, parking, refuse, landscape and plaza
areas, roofs and building exteriors, 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 the Common Area provided such
changes do not materially and adversely affect Tenant's use or occupancy of the
Premises. Landlord shall also have the right at any time to change the name,
number or designation by which the Project is commonly known.
Tenant shall have the exclusive use of the parking area in the
Common Area [not less than 3.6 parking spaces per One Thousand (1,000) rentable
square feet of the Premises (e.g. 207,650 square feet x 3.6 = 747 parking
spaces)] in the Common Area as designated from time to time by Landlord, subject
to the limitations of applicable law, the CC&R's existing as of the date of this
Lease, any reciprocal easement agreement encumbering the land existing as of the
date of this Lease, the restaurant parking rights specified in Section 58 below
and the parking plan to be approved by Tenant as specified below, and Landlord's
access as reasonably necessary to fulfill Landlord's obligations with respect to
the leases in the Project. Landlord reserves the right at its sole option to
assign and label parking spaces, but it is specifically agreed that Landlord is
not responsible for policing any such parking spaces. In the event that Landlord
exercises the Restaurant Option in paragraph 58 below, Landlord shall prepare a
parking plan to be approved by Tenant, such approval not to be unreasonably
withheld or delayed. If requested by Tenant and to the extent legally
permissible, Landlord shall prohibit access and parking in the common area of
this Project by the tenants in the adjacent project known as McCandless Towers I
and Tenant shall be responsible for any and all costs related thereto (including
without limitation the cost of installing gates between the parking structures
in this Project and McCandless Towers I). Tenant acknowledges that it has no
right to parking on the McCandless Towers I project site, except to the extent
specifically set forth in the CC&R's and/or reciprocal easement agreement
encumbering McCandless Towers I. Tenant shall not at any time park or permit the
parking of
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Tenant's trucks or other vehicles, or the trucks or other vehicles of
others, adjacent to loading areas 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
vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others,
in any portion of the Common Area not designated by Landlord for such use by
Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to
be parked on any portion of the Common Area.
Landlord shall operate, manage and maintain the Common Area and
the level of such operation, management and maintenance shall be at a level
comparable to the operation, management and maintenance provided at McCandless
Towers I as of the execution date of this lease. Tenant shall have the right to
make reasonable requests of Landlord concerning additional maintenance,
additional security, and the like, which Landlord shall implement so long as
Tenant pays the costs thereof and such changes do not adversely affect the
Project. The cost of such maintenance, operation and management of the Common
Area, including but not limited to landscaping, repair of paving, parking lots
and sidewalks, security and exterminator services and salaries and employee
benefits (including union benefits) of on-site and accounting personnel engaged
in such maintenance and operations management, shall be a common area charge and
Tenant shall pay to Landlord its percentage share of such costs as provided in
Section 16.
16. COMMON AREA CHARGES
Subject to Section 58 of this lease, Tenant shall pay to
Landlord, as additional rent, an amount equal to one hundred percent (100%) of
the total common area charges as defined below. The square footage of the
Project for purposes of determining common area percentages is based on the
square footage of floors 1 through 11 of the Building and excludes the lower
level, notwithstanding that certain parts of the lower level have been
designated as part of the Premises and/or the Restaurant. Tenant's percentage
share of common area charges shall be paid as follows:
Tenant's estimated monthly payment of common area charges payable
by Tenant during the calendar year in which the term commences is set forth in
Section 4(b) of this lease. Prior to the commencement of each succeeding
calendar year of
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the term (or as soon as practicable thereafter), Landlord shall deliver to
Tenant a written estimate of Tenant's monthly payment of common area charges.
Tenant shall pay, as additional rent, on the first day of each month during the
term in accordance with Section 4(b) of the lease, its monthly share of common
area charges as estimated by Landlord. Within one hundred twenty (120) days of
the end of each calendar year and of the termination of this lease (or as soon
as practicable thereafter), Landlord shall deliver to Tenant a statement of
actual common area charges incurred for the preceding year. If such statement
shows that Tenant has paid less than its actual percentage then Tenant shall on
demand pay to Landlord the amount of such deficiency. If Tenant fails to pay
such deficiency due within ten (10) days after demand, Tenant shall pay an
additional ten percent (10%) of the amount due as a penalty. If such statement
shows that Tenant has paid more than its actual percentage share then Landlord
shall, at its option, promptly refund such excess to Tenant or credit the amount
thereof to the rent next becoming due from Tenant. Landlord reserves the right
to revise any estimate of common area charges if actual or projected common area
charges show an increase or decrease in excess of 10% from any earlier estimate
for the same period. In such event, Landlord shall deliver the revised estimate
to Tenant, together with an explanation of the reasons therefor, and Tenant
shall revise its payments accordingly. Landlord's and Tenant's obligation with
respect to adjustments at the end of the term or earlier expiration of this
lease shall survive such termination or expiration.
As used in this lease, "common area charges" shall include, but
not be limited to, (i) all items identified in Sections 8, 9, 11, 12, 13 and 15
as being common area charges; (ii) the amortized cost of capital improvements
installed by Landlord for the purpose of reducing operating costs; (iii)
salaries and employee benefits (including union benefits) of personnel engaged
in the operation and maintenance of the Project (or the building in which the
Premises are located) and payroll taxes applicable thereto; (iv) supplies,
materials, equipment and tools used or required in connection with the operation
and maintenance of the Project; (v) licenses, permits and inspection fees; (vi)
costs related to the common operation and maintenance of the Project and the
adjacent property commonly known as McCandless Towers I; (vii) all other
operating costs incurred by Landlord in maintaining and operating the Project;
and (viii) an amount equal to one and
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one-half percent (1.5%) of the basic rent payable by Tenant under this lease as
compensation for Landlord's services (and/or for the services of a third party
management company, if Landlord so elects) in connection with the operation and
management of the Project. The cost of any capital improvement or capital
expenditure includable in common area charges as specified in Sections 8 and 9
of this lease and clause (ii) of the preceding sentence (excluding specifically
capital improvements required as a result of any casualty), shall be limited to
the amortized cost thereof, determined by amortizing said capital improvement
over its useful life, including interest at a rate of two percent (2%) over the
then current Prime Rate as published by the Wall Street Journal, and the monthly
cost thereof as so determined, shall be included in common area charges as it
accrues monthly. Tenant, at its option, may elect to pay the full amount of its
share of such cost (based on the remaining lease term - that is, Tenant's share
of the amortized payments which would be payable during the then-remaining Lease
term without interest) immediately in lieu of making the monthly payments
specified above. Any determination of what constitutes a capital improvement or
capital expenditure and/or the useful life of any capital improvement or capital
expenditure as used herein shall be made in accordance with generally accepted
accounting procedures.
Notwithstanding any provision herein to the contrary, common area
charges shall not include any of the following:
(a) Wages, salaries, fees, and fringe benefits paid to executive
personnel or officers or partners of Landlord;
(b) Any charge for depreciation of the building or equipment;
(c) Any charge for Landlord's income taxes, excess profit taxes,
franchise taxes, or similar taxes on Landlord's business;
(d) All costs relating to activities for the solicitation and
execution of leases of space in the building;
(e) The cost of correcting defects in the construction of the
building or in the building equipment as specified in Exhibits C and D to this
lease, except that conditions (not occasioned by construction defects) resulting
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from ordinary wear and tear will not be deemed defects for the purposes of this
category;
(f) The cost of any repair made by Landlord because of the total
or partial destruction of the building or the condemnation of a portion of the
building;
(g) Any increase in insurance premiums to the extent that such
increase is caused or attributable to the use, occupancy or act of another
tenant;
(h) The cost of any items for which Landlord is reimbursed by
insurance or otherwise compensated by parties other than tenants of the building
pursuant to clauses similar to this paragraph;
(i) The cost of any removal, treatment or abatement of asbestos
or any other hazardous substance or gas in the Project or the Premises (without
limiting Tenant's obligations specified in Section 49 of this Lease);
(j) The cost of alterations of a space in the building leased to
other tenants;
(k) The cost of overtime or other additional expenses to Landlord
caused by its default or performing work expressly provided for in this Lease to
be borne at Landlord's expense;
(l) Ground rent or similar payment to a ground Lessor;
(m) The excess cost of any utilities and/or services provided to
other tenants in the Project which is disproportionate to such utilities and
service provided to Tenant to the extent it exceeds such use by Tenant on a
prorata basis.
17. DAMAGE BY FIRE; CASUALTY
In the event the Premises are damaged by any casualty which is
covered under an insurance policy required to be maintained or which is actually
maintained by Landlord or Tenant pursuant to Section 11 (including without
limitation earthquake insurance to be procured by Tenant), Landlord shall
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be entitled to the use of all insurance proceeds and shall repair such damage as
soon as reasonably possible and this lease shall continue in full force and
effect. In the event of an earthquake, Tenant shall be solely responsible for
all costs of repair and restoration of the Premises and the Project to the
extent not covered by earthquake insurance, including without limitation any
deductibles related thereto.
In the event the Premises are damaged by any casualty not covered
under an insurance policy required to be maintained (or which is actually
maintained) pursuant to Section 11, Landlord may, at Landlord's option, either
(i) repair such damage, at Landlord's expense, as soon as reasonably possible,
in which event this lease shall continue in full force and effect, or (ii) give
written notice to Tenant within thirty (30) days after the date of the
occurrence of such damages of Landlord's intention to cancel and terminate this
lease as of the date of the occurrence of the damages. In the event Landlord
elects to terminate this lease pursuant hereto, Tenant shall have the right
within ten (10) days after receipt of the required notice to notify Landlord in
writing of Tenant's intention to repair such damage at Tenant's expense, without
reimbursement from Landlord, in which event this lease shall continue in full
force and effect and Tenant shall proceed to make such repairs as soon as
reasonably possible. If Tenant does not give such notice within the ten (10) day
period, this lease shall be cancelled and terminated as of the date of the
occurrence of such damage. Under no circumstances shall Landlord be required to
repair any injury or damage to (by fire or other cause), or to make any
restoration or replacement of, any of Tenant's personal property, trade fixtures
or property leased from third parties, whether or not the same is attached to
the Premises.
If the Premises are damaged by casualty during the term from any
cause, whether or not covered by the insurance required under Section 11, and
the Premises cannot reasonably and lawfully be repaired or restored within
eighteen (18) months of the date of such casualty to substantially the condition
existing prior to such casualty, then either Landlord or Tenant may terminate
this Lease by giving written notice of such termination within ten (10) days
after Tenant receives written notice from Landlord that a report from an
independent contractor (which report shall be enclosed with such notice and
shall be delivered to Tenant within sixty (60) days after the
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date of such casualty) indicates that such repair period will exceed the
eighteen (18) month period and such termination will be effective as of the date
of the casualty or such later date if necessary to permit recovery by Landlord
of rental loss insurance, provided that this provision shall be construed to
provide Landlord with the maximum recovery of such insurance. All of Tenant's
obligations under this Lease, including, without limitation the obligation to
pay rent and make other payments, shall be wholly abated as of the date of such
casualty if the Lease is terminated pursuant to this paragraph.
If the Premises are partially or totally destroyed or damaged and
Landlord or Tenant repair them pursuant to this lease, the rent payable
hereunder for the period during which such damage and repair continues shall be
abated only in proportion to the square footage of the Premises rendered
untenantable to Tenant by such damage or destruction and only to the extent
covered by the rental income insurance provided for in Section 11 of this lease.
Tenant shall have no claim against Landlord for any damage, loss or expense
suffered by reason of any such damage, destruction, repair or restoration. The
parties waive the provisions of California Civil Code sections 1932(2) and
1933(4) (which provisions permit the termination of a lease upon destruction of
the leased premises), and hereby agree that the provisions of this Section 17
shall govern in the event of such destruction. Termination of this lease as
provided herein shall not limit or restrict in any way Tenant's liability for
all costs of repair and restoration related to damage caused by an earthquake.
18. 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 or the Project by or from
any cause whatsoever except to the extent caused by (i) the negligence or
willful misconduct of Landlord or its employees, agents or contractors, or (ii)
the failure of Landlord to perform its obligations under this lease where such
failure has persisted for an unreasonable period of time after notice of such
failure. Without limiting the foregoing, Landlord shall not be liable to Tenant
for any injury to or death of any person or damages to or destruction of
property by reason of, or arising from, any latent defect in the Premises or
Project (except to the extent caused by the negligence or willful misconduct of
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Landlord or its employees, agents or contractors) or the act or negligence of
any other tenant of the Project. Tenant shall immediately notify Landlord of any
defect in the Premises or Project.
Except to the extent injury to persons or damage to property is
caused by (i) the negligence or willful misconduct of Landlord or its employees,
agents or contractors, or (ii) the failure by Landlord to observe any of the
terms and conditions of this lease, Tenant shall hold Landlord harmless from and
defend Landlord against any claim, liability, loss, damage or expense (including
attorney fees) 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 from any cause
whatsoever or on account of the use, condition, occupational safety or occupancy
of the Premises. Tenant shall further hold Landlord harmless from and defend
Landlord against any claim, liability, loss, damage or expense (including
attorney fees) arising (i) from Tenant's use of the Premises or from the conduct
of its business or from any activity or work done, permitted or suffered by
Tenant or its agents or employees in or about the Premises or Project, (ii) out
of the failure of Tenant to observe or comply with Tenant's obligation to
observe and comply with laws or other requirements as set forth in Section 7,
(iii) by reason of any labor or service performed for, or materials used by or
furnished to, Tenant or any contractor engaged by Tenant with respect to the
Premises, or (iv) from any other act, neglect, fault or omission of Tenant or
its agents or employees. The provisions of this Section 18 are subject to the
waiver of subrogation contained in Section 11 hereof. The provisions of this
Section 18 shall not apply to Hazardous Materials. The obligations of the
parties to each other with respect to Hazardous Materials shall be governed
solely by Section 48 hereof.
The provisions of this Section 18 shall survive the expiration or
earlier termination of this lease.
19. ASSIGNMENT AND SUBLETTING
Tenant shall not voluntarily assign, encumber or otherwise
transfer its interest in this lease or in the Premises, or sublease all or any
part of the Premises, or allow any other person or entity to occupy or use all
or any part of the Premises, without first obtaining Landlord's written
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consent, which consent shall not be unreasonably withheld or delayed, and
otherwise complying with the requirements of this Section 19. Any assignment,
encumbrance or sublease without Landlord's consent (if required), or in
violation of this Section 19, shall constitute a material default.
If Tenant desires to sublet or assign all or any portion of the
Premises, Tenant shall give Landlord written notice thereof, specifying the
projected commencement date of the proposed sublet or assignment (which date
shall be not less than twenty-one (21) days before the commencement date of the
assignment or sublet in question), the portions of the Premises proposed to be
sublet or assigned, the terms and conditions of the proposed assignment or
sublease (including the rent to be paid by the proposed assignee or subtenant)
and the name, address and telephone number of the proposed assignee or
subtenant. Tenant shall further provide Landlord with such other information
concerning the proposed assignee or subtenant as requested by Landlord.
If Tenant subleases or assigns and/or proposes to Landlord to
sublease or assign any part or parts of the Premises which, in the aggregate,
total more than seventy-five percent (75%) of the initial Premises, then for a
period of thirty (30) days after Landlord's receipt of Tenant's written notice,
Landlord shall have the option, exercisable by delivering written notice to
Tenant, to terminate this lease as of the date specified in Landlord's written
notice to Tenant, which date shall not be less than thirty (30) days nor more
than ninety (90) days after the date of Landlord's written notice to Tenant,
provided that Tenant shall have a period of ten (10) days after receipt of any
such notice from Landlord to notify Landlord that Tenant withdraws its request
for consent, in which case Landlord's exercise of its recapture option described
above shall be of no further force or effect. If Landlord exercises its option
to terminate this lease as provided in the foregoing sentence, any and all prior
subleases or assignments for less than one full floor of the Premises shall, at
Landlord's option, be terminated concurrently with the termination of this lease
and Landlord may, if it so elects, enter into a new lease for the Premises or
any portion thereof with the proposed assignee or subtenant or any other third
party (including any previous subtenant or assignee) on such terms as Landlord
and such person may agree; in such event, Tenant shall not be entitled to any
portion of the
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profit, if any, which Landlord may realize on account of such termination and
reletting. Any consent executed by Landlord to a sublease or assignment with
respect to one full floor or more of the Premises shall, if requested by Tenant,
include a covenant from Landlord to recognize such subtenant or assignee in the
circumstances described above. The amount of rent payable by any subtenant under
a sublease shall not be a factor in Landlord's giving or withholding its consent
to any sublessee.
If Landlord does not elect to terminate this lease as provided
hereinabove in this Section 19 and if Landlord consents in writing to the
proposed assignment or sublet, Tenant shall be free to assign or sublet all or a
portion of the Premises subject to the following conditions: (i) any sublease
shall be on the same terms set forth in the notice given to Landlord; (ii) no
sublease shall be valid and no subtenant shall take possession of the sublet
premises until an executed counterpart of such sublease has been delivered to
Landlord; (iii) no subtenant shall have a further right to sublet; (iv) fifty
percent (50%) of any economic consideration received by Tenant with respect to
such assignment or sublet, whether denominated rentals or otherwise, which
exceed, in the aggregate, the sum of (i) one hundred ten percent (110%) of the
basic rent (triple net) which Tenant is obligated to pay under this lease
(prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease or assignment), (ii) the common area charges applicable
thereto (prorated to reflect obligations allocable to that portion of the
Premises subject to the sublease or assignment), (iii) the amortized cost of
leasehold improvements constructed for such assignee or subtenant (amortized
over the term of the sublease or assignment, including interest at a rate of two
percent (2%) over the then current Prime Rate as published by the Wall Street
Journal) and (iv) brokerage fees paid in connection with such sublease or
assignment (amortized over the term of the sublease or assignment, including
interest at a rate of two percent (2%) over the then current Prime Rate as
published by the Wall Street Journal) (the "net profit") shall be payable to
Landlord as additional rent under this lease without affecting or reducing any
other obligation of Tenant hereunder; (v) no sublet or assignment shall release
Tenant of Tenant's obligation or alter the primary liability of Tenant to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder; and (vi) any assignee or subtenant must
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expressly agree to assume and perform all of the covenants and conditions of
Tenant under this lease. Tenant shall pay to Landlord promptly upon demand as
additional rent, Landlord's actual attorneys' fees and other costs incurred for
reviewing, processing or documenting any requested assignment or sublease,
whether or not Landlord's consent is granted. Tenant shall not be entitled to
assign this lease or sublease all or any part of the Premises (and any attempt
to do so shall be voidable by Landlord) during any period in which Tenant is in
default under this lease. Upon curing any such default, Tenant may thereafter
resubmit the proposed assignment or sublease to Landlord for Landlord's consent,
subject to all the terms and conditions of this Section 19; provided, however,
(and without limiting any of Landlord's rights and remedies under this lease)
the prohibition stated in the preceding sentence shall not apply to a
non-monetary default that is not curable.
If Tenant is a partnership, a withdrawal or change, voluntary or
involuntary or by operation of law, of any general partner or the dissolution of
the partnership shall be deemed an assignment of this lease subject to all the
conditions of this Section 19. If Tenant is a corporation any dissolution,
merger, consolidation or other reorganization of Tenant or the sale or other
transfer of a controlling percentage of the capital stock of Tenant or the sale
of more than fifty percent (50%) of the value of Tenant's assets shall be an
assignment of this lease subject to all the conditions of this Section 19. The
term "controlling percentage" means the ownership of, and the right to vote,
stock possessing more than 50% of the total combined voting power of all classes
of Tenant's capital stock issued, outstanding and entitled to vote. This Section
shall not apply if Tenant is a corporation the stock of which is traded through
an exchange.
The acceptance of rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or sublet shall not be deemed consent to any subsequent assignment or
sublet. In the event of default by any assignee of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee or successor. Landlord may consent to subsequent assignments or
sublets of this lease or amendments or modifications to this lease with
assignees of Tenant, without notifying Tenant, or
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any successor of Tenant, and without obtaining its or their consent thereto and
such action shall not relieve Tenant of liability under this lease.
No interest of Tenant in this lease shall be assignable by
operation of law (including, without limitation, the transfer of this lease by
testacy or intestacy but excluding a transfer by operation of law in connection
with a merger). Each of the following acts shall be considered an involuntary
assignment if not dismissed, discharged or otherwise cured within sixty (60)
days after the act in question: (i) if Tenant is or becomes bankrupt or
insolvent, makes an assignment for the benefit of creditors or institutes a
proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if
Tenant is a partnership or consists of more than one person or entity, if any
partner of the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ
of attachment or execution is levied on this lease; or (iii) if, in any
proceeding or action to which Tenant is a party, a receiver is appointed with
authority to take possession of the Premises. An involuntary assignment which is
not dismissed, discharged or otherwise cured during the applicable time period
set forth above shall constitute a default by Tenant and Landlord shall have the
right to elect to terminate this lease, in which case this lease shall not be
treated as an asset of Tenant.
Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this lease, all rent from any subletting
of all or a part of the Premises as permitted by this lease, and Landlord, as
assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed
on Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this lease; except that, until the occurrence of an act or
default by Tenant, Tenant shall have the right to collect such rent, subject to
promptly forwarding to Landlord any portion thereof to which Landlord is
entitled pursuant to this Section 19.
Notwithstanding any provision to the contrary in this lease, the
following "exempt transactions" shall be permitted without Landlord's consent,
without triggering the obligation to pay fifty percent (50%) of the "net profit"
and without being counted toward the seventy-five percent (75%) subleasing
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floor that, if passed, permits Landlord to terminate this lease: (i) sublease or
assignment to any affiliate or company with whom Tenant is leasing the facility
because of its strategic alliance or shared facility arrangement; (ii) any
merger or non-bankruptcy reorganization where the net worth of the surviving
corporation is the same or better than Tenant immediately before implementation
of the transaction; (iii) any sale of substantially all of the assets of Tenant
so long as the net worth of the transferee is the same or better than Tenant
immediately prior to such sale; provided that (i) Tenant shall give written
notice thereof to Landlord in the manner required for other assignments or
subleases by this Section 19; (ii) Tenant shall continue to be fully obligated
under this lease; (iii) any such assignee shall expressly assume and agree to
perform and any subtenant shall expressly agree to be subject to all the terms
and conditions of this lease to be performed by Tenant (to the extent applicable
to the sublease premises); and (iv) any such assignment or sublet shall be
subject to all other terms and conditions of this Section 19 pertaining to
assignments and/or sublets (excepting only the requirement concerning prior
written consent of Landlord).
20. DEFAULT
The occurrence of any of the following shall constitute a default
by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder
within five (5) days after the date on which Tenant receives written notice from
Landlord that such payment is past due; (ii) abandonment of the Premises
(Tenant's failure to occupy and conduct business in the Premises for fourteen
(14) consecutive days without paying rent or performing its other obligations
under this lease shall be deemed an abandonment); (iii) failure of Tenant to
deliver to Landlord any instrument, assurance, financial statement,
subordination agreement or certificate of estoppel required under this Lease
within the time period specified for such performance if the failure continues
for ten (10) days after written notice of the failure from Landlord to Tenant;
or (iv) failure of Tenant to perform any other obligation under this lease if
the failure to perform is not cured within thirty (30) days after written notice
thereof has been given to Tenant (provided that if such default cannot
reasonably be cured within thirty (30) days, Tenant shall not be in default if
Tenant commences to cure such failure to perform within the thirty (30) day
period and diligently and in good faith
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continues to cure the failure to perform), except in the case of an emergency or
dangerous condition, in which case Tenant's time to perform shall be that time
period which is reasonable under the circumstances. The notice referred to in
clauses (iii) and (iv) above shall specify the failure to perform and the
applicable lease provision and shall demand that Tenant perform the provisions
of this lease within the applicable period of time. No notice shall be deemed a
forfeiture or termination of this lease unless Landlord so elects in the notice.
In addition to the above, the occurrence of any of the following
events shall also constitute a default by Tenant: (i) an involuntary assignment
(as specified in Section 19 of this lease); or (ii) any financial statements
given to Landlord by Tenant are materially false.
In the event of a default by Tenant, then Landlord, in addition
to any other rights and remedies of Landlord at law or in equity, shall have the
right either to terminate Tenant's right to possession of the Premises (and
thereby terminate this lease) or elect to keep this lease in full force and
effect. Should Landlord elect to keep this lease in full force and effect,
Landlord shall have the right to enforce all of Landlord's rights and remedies
under this lease, including but not limited to the rights and remedies as
Landlord may have under California Civil Code section 1951.4 (or successor Code
section) or any other California statute so long as Landlord does not terminate
Tenant's right to possession.
Should Landlord at any time terminate this lease for any breach,
in addition to any other remedy it may have, it shall have the immediate right
of entry and may remove all persons and property from the Premises and shall
have all the rights and remedies of a landlord provided by California Civil Code
section 1951.2 or any successor code section. Upon such termination, in addition
to all its other rights and remedies, Landlord shall be entitled to recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Premises and including (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably
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avoided; (iii) the worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
lease or which in the ordinary course of events would be likely to result
therefrom. The "worth at the time of award" of the amounts referred to in (i)
and (ii) above is computed by allowing interest at the rate of twelve percent
(12%) per annum. The "worth at the time of award" of the amount referred to in
(iii) above shall be computed by discounting such amount at the discount rate of
the federal reserve bank of San Francisco at the time of award plus one percent
(1%). Property removed from the Premises may be stored in a public or private
warehouse or elsewhere at the sole cost and expense of Tenant. In the event that
Tenant shall not immediately pay the cost of storage of such property after the
same has been stored for a period of thirty (30) days or more, Landlord may sell
any or all thereof at a public or private sale in such manner and at such times
and places that Landlord, in its sole discretion, may deem proper, without
notice to or demand upon Tenant.
21. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT
Landlord, at any time after Tenant commits a default, may, but
shall not be obligated to, cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord shall be due immediately from
Tenant to Landlord and shall bear interest at the rate of twelve percent (12%)
per annum or the maximum rate permitted by law, whichever is less, from the date
the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due
Landlord hereunder shall be additional rent.
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 payments, income,
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rent, award or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance. Tenant shall have no claim against
Landlord or otherwise for the value of any unexpired term of this lease.
Notwithstanding the foregoing, Tenant shall be entitled to any compensation for
depreciation to and cost of removal of Tenant's equipment and fixtures and any
compensation for its relocation expenses necessitated by such taking, but in
each case only to the extent the condemning authority makes a separate award
therefor or specifically identifies a portion of the award as being therefor.
Each party waives the provisions of section 1265.130 of the California Code of
Civil Procedure (which section allows either party to petition the Superior
Court to terminate this lease in the event of a partial taking of the Premises).
If any action or proceeding is commenced for such taking of the
Premises or any portion thereof or of any other space in the Project, 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
or of any other space in the Project, and Landlord shall decide to discontinue
the use and operation of the Project or decide to demolish, alter or rebuild the
Project, then Landlord shall have the right to terminate this lease by giving
Tenant written notice thereof within sixty (60) days of the earlier of the date
of Landlord's receipt of such notice of intention to condemn or the commencement
of said action or proceeding. Such termination shall be effective as of the last
day of the calendar month next following the month in which such notice is given
or the date on which title shall vest in the condemnor, whichever occurs first.
In the event of a partial taking, or conveyance in lieu thereof,
of the Premises and fifty percent (50%) or more of the number of square feet in
the Premises are taken then Tenant may terminate this lease. Any election by
Tenant to so terminate shall be by written notice given to Landlord within sixty
(60) days from the date of such taking or conveyance and shall be effective on
the last day of the calendar month next following the month in which such notice
is given or the date on which title shall vest in the condemnor, whichever
occurs first.
If a portion of the Premises is taken by power of eminent domain
or conveyance in lieu thereof and neither
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Landlord nor Tenant terminates this lease as provided above, then this lease
shall continue in full force and effect as to the part of the Premises not so
taken or conveyed and all payments of rent shall be apportioned as of the date
of such taking or conveyance so that thereafter the amounts to be paid by Tenant
shall be in the ratio that the area of the portion of the Premises not so taken
bears to the total area of the Premises prior to such taking.
23. NOTICE AND COVENANT TO SURRENDER
On the last day of the term or on the effective date of any
earlier termination, Tenant shall surrender to Landlord the Premises in its
condition existing as of the commencement of the term (except for ordinary wear
and tear, casualty damage, condemnation, Hazardous Materials not introduced to,
in, on, under or about the Premises by Tenant or Tenant's employees, agents,
contractors or invitees and alterations Tenant is not required to remove) and,
except as otherwise provided pursuant to the terms of Section 8 (and provided
that Landlord has met all requirements imposed by Section 8 in order to require
removal) of this lease, all of the improvements and alterations made to the
Premises in their condition existing as of the date of completion of
construction and/or installation (normal wear and tear, casualty damage, eminent
domain, and Hazardous Materials not introduced to, in, on, under or about the
Premises by Tenant or Tenant's employees, agents, contractors or invitees
excepted) with all originally painted interior walls washed or repainted if
marked or damaged, interior vinyl covered walls cleaned and repaired or replaced
if marked or damaged, all carpets shampooed and cleaned, the air conditioning
and heating system serviced and repaired by a reputable and licensed service
firm (unless Landlord has elected to maintain such system pursuant to paragraph
9 of this lease) and all floors cleaned and waxed; all to the reasonable
satisfaction of Landlord. On or prior to the last day of the term or the
effective date of any earlier termination, Tenant shall remove all of Tenant's
personal property and trade fixtures, together with improvements or alterations
that Tenant is obligated to remove pursuant to the provisions of Section 8 of
this lease, from the Premises, and all such property not removed shall be deemed
abandoned. In addition, Landlord, at Landlord's option may require on or prior
to the expiration or earlier termination of this lease, Tenant to remove, at
Tenant's sole cost and expense, all or any part of
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any telephone or other communication cabling and wiring, computer cabling and
wiring and any other cabling and wiring of any sort installed in the space above
the suspended ceiling of the Premises or anywhere else in the Premises and shall
promptly repair any damage to the suspended ceiling, lights, light fixtures,
walls and any other part of the Premises resulting from such removal.
If the Premises are not surrendered as required in this Section,
Tenant shall indemnify Landlord against all loss, liability and expense
(including but not limited to, attorney fees) resulting from the failure by
Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenants. It is agreed between Landlord and Tenant
that the provisions of this Section shall survive termination of this lease.
24. TENANT'S 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 to remove the cloud or encumbrance created by this lease from the real
property of which the Premises are a part. This obligation shall survive said
expiration or termination.
25. HOLDING OVER
Any holding over after the expiration or termination of this
lease with the written consent of Landlord shall be construed to be a tenancy
from month to month at the monthly rent, as adjusted, in effect on the date of
such expiration or termination. All provisions of this lease, except those
pertaining to the term and any option to extend, shall apply to the month to
month tenancy. The provisions of this Section are in addition to, and do not
affect, Landlord's right of reentry or other rights hereunder or provided by
law.
If Tenant shall retain possession of the Premises or any part
thereof without Landlord's consent following the expiration or sooner
termination of this lease for any reason, then Tenant shall pay to Landlord for
each day of such retention 150% the amount of the daily rental in effect during
the last month prior to the date of such expiration or
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termination. Tenant shall also indemnify and hold Landlord harmless from any
loss, liability and expense (including, but not limited to, attorneys fees)
resulting from delay by Tenant in surrendering the Premises, including without
limitation any claims made by any succeeding tenant founded on such delay.
Acceptance of rent by Landlord following expiration or termination shall not
constitute a renewal of this lease, and nothing contained in this Section shall
waive Landlord's right of re-entry or any other right. Tenant shall be only a
Tenant at sufferance, whether or not Landlord accepts any rent from Tenant,
while Tenant is holding over without Landlord's written consent.
26. SUBORDINATION
In the event Landlord's title or leasehold interest is now or
hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the
request of Landlord or the lender, execute in writing an agreement subordinating
its rights under this lease to the lien of such encumbrance, provided, however,
that this Lease shall not be subordinate to any such lender's encumbrance unless
and until such lender and Tenant execute a subordination, non-disturbance and
recognition agreement in form reasonably satisfactory to Tenant or, if so
requested, agreeing that the lien of lender's encumbrance shall be or remain
subject and subordinate to the rights of Tenant under this lease.
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 amounts due hereunder and otherwise observe and perform all provisions
of this lease. In addition, if in connection with any such loan the lender shall
request reasonable modifications of this lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereof,
provided that (i) such requests are required by an institutional lender who
holds or will hold a first deed of trust on the Project and are customarily
required by institutional lenders in comparable transactions, (ii) Tenant is
reimbursed for any legal expenses reasonably incurred by Tenant in connection
with making such changes, and (iii) such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder. In the event of a default
by Landlord under any loan to which Tenant has agreed to subordinate, and the
lender is threatening to take or is
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taking action that could impair Tenant's rights under this lease, Landlord
agrees not to object to Tenant acquiring the rights of such lender with respect
to such loan so long as Tenant's default under this Lease has not caused
Landlord's loan default.
Tenant has reviewed and approved the form of Subordination
Non-Disturbance and Attornment Agreement received from Guaranty Federal Bank
attached hereto as Exhibit G and agrees to execute such agreement in
substantially the form attached in connection with a construction loan to be
provided by Guaranty Federal Bank.
27. CERTIFICATE OF ESTOPPEL
Each party shall, within ten (10) calendar days after receipt of
written request therefor, execute and deliver to the other party, in recordable
form, a certificate stating that the lease is unmodified and in full force and
effect, or in full force and effect as modified and stating the modifications.
The certificate shall also state the amount of the monthly rent, the date to
which monthly rent has been paid in advance, the amount of the security deposit
and/or prepaid monthly rent, and, such other statements of fact (to the extent
true) as the requesting party's lender may reasonably request. Failure to
deliver such certificate within such time shall constitute a conclusive
acknowledgment by the party failing to deliver the certificate that the lease is
in full force and effect and has not been modified except as may be represented
by the party requesting the certificate. Any such certificate requested by
Landlord may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises or Project. Further, within five (5) calendar days
following written request made from time to time by Landlord, Tenant shall
furnish to Landlord a copy of Tenant's last publicly issued financial
statements.
28. SALE BY LANDLORD
In the event the original Landlord hereunder, or any successor
owner of the Project or Premises, shall sell or convey the Project or Premises
and any such successor owner shall assume Landlord's obligations under this
lease, all liabilities and obligations on the part of the original Landlord, or
such successor owner, under this lease assumed by the transferee and accruing
thereafter shall terminate, and
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thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner and to look solely to such new
owner for performance of any and all such liabilities and obligations. Tenant is
relying on Landlord's development expertise in entering into this lease and
Landlord shall not sell this Project prior to substantial completion of the work
to be performed by Landlord in Exhibits C and D to this lease, without Tenant's
consent which shall not be unreasonably withheld or delayed, except to (i) an
affiliate of Landlord or an entity controlled by Birk S. McCandless, or (ii) to
a developer with the development experience necessary to complete the
Improvements as required in Exhibits C and D approved by Tenant, which approval
shall not be unreasonably withheld or delayed.
29. ATTORNMENT TO LENDER OR THIRD PARTY
In the event the interest of Landlord in the land and buildings
in which the Premises are located (whether such interest of Landlord is a fee
title interest or a leasehold interest) is encumbered by deed of trust, and such
interest is acquired by a lender or any other third party through judicial
foreclosure or by exercise of a power of sale at private trustee's foreclosure
sale, Tenant hereby agrees to release Landlord of any obligation arising on or
after any such foreclosure sale and to attorn to the purchaser at any such
foreclosure sale and to recognize such purchaser as the Landlord under this
lease.
30. 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 thirty (30) days after written notice by Tenant to Landlord and to
the holder of any first mortgage or deed of trust covering the Premises
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.
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If Landlord is in default of this lease, Tenant may cure such
default and/or institute suit against Landlord in a court of competent
jurisdiction for such relief or remedy as may be available at law or in equity,
but Tenant shall have no right to offset any sums expended by Tenant as a result
of Landlord's default against future rent and other sums due and payable
pursuant to this lease. If Landlord is in default of this lease, and as a
consequence Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title and interest of Landlord in the
Project of which the Premises are a part, and out of rent or other income from
such real property receivable by Landlord or out of the consideration received
by Landlord from the sale or other disposition of all or any part of Landlord's
right, title and interest in the Project of which the Premises are a part
(including insurance proceeds). Neither Landlord nor any of the partners
comprising the partnership designated as Landlord shall be personally liable for
any deficiency.
31. 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
changes as Landlord or Landlord's architect determines to be desirable in the
course of construction of the Premises and/or the improvements constructed or
being constructed therein, and no such changes or any changes in plans for any
other portions of the Project, shall affect this lease or entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to Tenant;
provided, however, Landlord shall not make such changes after the plans for the
Shell Improvements have been approved by Tenant without Tenant's consent (not to
be unreasonably withheld or delayed), if such changes would (i) materially and
adversely affect the quality, function and appearance of the building and the
building components (to the extent that appearance is a reasonable consideration
with the component in question), or the useable area, or (ii) increase the cost
of construction of the Tenant Improvements (unless Landlord is willing to pay
for such additional costs).
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32. MEASUREMENT OF PREMISES
Landlord and Tenant hereby agree that the rentable square footage
of the Premises is approximate only, is based on the Plans for the Shell
Improvements attached hereto as Exhibit C, and the rentable square footage of
the Premises for purposes of this lease is two hundred seven thousand six
hundred fifty (207,650) square feet. Landlord and Tenant agree that there shall
not be any adjustment in basic rent or common area charges or other amounts
payable hereunder by reason of inaccuracies in such measurement. Landlord and
Tenant agree that such measurement is not determined in accordance with BOMA
Standards for calculating rentable square footage and such standard shall not
apply to the foregoing measurement for purposes of this lease.
33. ATTORNEY FEES
If either party commences an action against the other party
arising out of or in connection with this lease, the prevailing party shall be
entitled to have and recover from the losing party all expenses of litigation,
including, without limitation, travel expenses, attorney fees, expert witness
fees, trial and appellate court costs, and deposition and transcript expenses.
If either party becomes a party to any litigation concerning this lease, or
concerning the Premises or the Project, by reason of any act or omission of the
other party or its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to the other party
for all expenses of litigation, including, without limitation, travel expenses,
attorney fees, expert witness fees, trial and appellate court costs, and
deposition and transcript expenses.
34. SURRENDER
The voluntary or other surrender of this lease or the Premises by
Tenant, or a mutual cancellation of this lease, shall not work 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.
35. WAIVER
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No delay or omission in the exercise of any right or remedy on
any default shall impair such right or remedy or be construed as a waiver. The
receipt and acceptance by Landlord of delinquent rent or other payments shall
not constitute a waiver of any other default and acceptance of partial payments
shall not be construed as a waiver of the balance of such payment due. No act or
conduct of Landlord, including, without limitation, the acceptance of keys to
the Premises, shall constitute an acceptance of the surrender of the Premises by
Tenant before the expiration of the term. Only a written notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish a termination of this lease (except that Landlord's termination of
Tenant's right to possession of the Premises shall constitute a termination of
this lease). Consent to or approval of any act requiring consent or approval
shall not be deemed to waive or render unnecessary consent to or approval of any
subsequent act. Any waiver of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of this
lease.
36. EASEMENTS; AIRSPACE RIGHTS
Landlord reserves the right to alter the boundaries of the
Project and grant easements and dedicate for public use portions of the Project
without Tenant's consent, provided that no such grant or dedication shall
interfere with Tenant's use of the Premises or otherwise cause Tenant to incur
cost or expense. From time to time, and upon Landlord's demand, Tenant shall
execute, acknowledge and deliver to Landlord, in accordance with Landlord's
instructions, any and all documents, instruments, maps or plats necessary to
effectuate Tenant's covenants hereunder.
This lease confers no rights either with regard to the subsurface
of or airspace above the land on which the Project is located or with regard to
airspace above the building of which the Premises are a part. Tenant agrees that
no diminution or shutting off of light or view by a structure which is or may be
erected (whether or not by Landlord) on property adjacent to the building of
which the Premises are a part or to property adjacent thereto, shall in any way
affect this lease, or entitle Tenant to any reduction of rent, or result in any
liability of Landlord to Tenant.
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37. RULES AND REGULATIONS
Landlord shall have the right from time to time to promulgate
reasonable rules and regulations for the safety, care and cleanliness of the
Project (excluding the Premises) and the Common Area, or for the preservation of
good order, provided that such rules and regulations do not materially and
adversely affect Tenant's use or occupancy of the Premises. On delivery of a
copy of such rules and regulations to Tenant, Tenant shall comply with the rules
and regulations, and a violation of any of them shall constitute a default by
Tenant under this lease. If there is a conflict between the rules and
regulations and any of the provisions of this lease, the provisions of this
lease shall prevail. Such rules and regulations may be amended by Landlord from
time to time; provided such rules and regulations do not materially and
adversely affect Tenant's use or occupancy of the Premises.
38. NOTICES
Except for legal process which may also be served as provided by
law or as provided herein, all notices, demands, requests, consents and other
communications ("Notices") which may be given or are required to be given by
either party to the other shall be in writing and shall be deemed given to and
received by the party intended to receive such Notice (i) when hand delivered,
(ii) on the date on which the United States Post Office certifies delivery or
refusal to accept delivery if such Notice shall have been deposited, postage
prepaid, to the United States Mail, certified return receipt requested, properly
addressed to the address specified herein, or (iii) date of delivery if sent to
the address specified herein by reputable overnight courier (e.g. Federal
Express or other comparable service), as evidenced by such courier's records.
Prior to the commencement date, all such Notices from Landlord to Tenant
shall be served or addressed to Tenant at c/o Informix Software, Inc., 4100
Bohannon Drive, Menlo Park, California 94025, Attention: Mr. Clive Merredew. On
or after the commencement date all such Notices from Landlord to Tenant shall be
addressed to Tenant at the Premises.
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All such Notices by Tenant to Landlord shall be sent to Landlord at its
offices at 3945 Freedom Circle, Suite 640, Santa Clara, California 95054.
Either party may change its address by notifying the other of such
change.
39. NAME
Tenant shall not use the name of the Project for any purpose,
other than as the address of the business conducted by Tenant in the Premises,
without the prior written consent of Landlord.
40. GOVERNING 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 held or rendered invalid, unenforceable or ineffective for any
reason whatsoever, all other provisions hereof shall be and remain in full force
and effect.
41. DEFINITIONS
As used in this lease, the following words and phrases shall have
the following meanings:
AUTHORIZED REPRESENTATIVE: any officer, agent, employee or
independent contractor retained or employed by either party, acting within
authority given him by that party.
ENCUMBRANCE: any deed of trust, mortgage or other written
security device or agreement affecting the Premises or the Project that
constitutes security for the payment of a debt or performance of an obligation,
and the note or obligation secured by such deed of trust, mortgage or other
written security device or agreement.
LEASE MONTH: the period of time determined by reference to the
day of the month in which the term commences and continuing to one day short of
the same numbered day in the next succeeding month; e.g., the tenth day of one
month to and including the ninth day in the next succeeding month.
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LENDER: the beneficiary, mortgagee or other holder of an
encumbrance, as defined above.
LIEN: a charge imposed on the Premises by someone other than
Landlord, by which the Premises are made security for the performance of an act.
Most of the liens referred to in this lease are mechanic's liens.
MAINTENANCE: repairs, replacement, repainting, cleaning and other
ordinary maintenance.
MONTHLY RENT: the sum of the monthly payments of basic rent and
common area charges.
PERSON: one or more human beings, or legal entities or other
artificial persons, including, without limitation, partnerships, corporations,
trusts, estates, associations and any combination of human being and legal
entities.
PROVISION: any term, agreement, covenant, condition, clause,
qualification, restriction, reservation or other stipulation in the lease that
defines or otherwise controls, establishes or limits the performance required or
permitted by either party.
RENT: basic rent, common area charges, additional rent, and all
other amounts payable by Tenant to Landlord required by this lease or arising by
subsequent actions of the parties made pursuant to this lease.
Words used in any gender include other genders. If there be more than
one Tenant, the obligations of Tenant hereunder are joint and several. All
provisions whether covenants or conditions, on the part of Tenant shall be
deemed to be both covenants and conditions. The Section headings are for
convenience of reference only and shall have no effect upon the construction or
interpretation of any provision hereof.
42. TIME
Time is of the essence of this lease and of each and all of its
provisions.
43. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
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Any amount due from Tenant to Landlord hereunder which is not
paid within three (3) days after the date on which Tenant receives written
notice from Landlord that such amount is past due shall bear interest at the
rate of ten percent (10%) per annum from the date due until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any default by Tenant under this lease. In addition, Tenant
acknowledges that late payment by Tenant to Landlord of basic rent or common
area charges or of any other amount due Landlord from Tenant, will cause
Landlord to incur costs not contemplated by this lease, the exact amount of such
costs being extremely difficult and impractical to fix. Such costs include,
without limitation, processing and accounting charges, and late charges that may
be imposed on Landlord, e.g., by the terms of any encumbrance and note secured
by any encumbrance covering the Premises. Therefore, if any such payment due
from Tenant is not received by Landlord within five (5) days after the date such
amount is due, Tenant shall pay to Landlord an additional sum of five percent
(5%) of the overdue payment as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. Acceptance of any late charge shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
available to Landlord. No notice to Tenant of failure to pay shall be required
prior to the imposition of such interest and/or late charge, and any notice
period provided for in Section 20 shall not affect the imposition of such
interest and/or late charge. Any interest and late charge imposed pursuant to
this Section shall be and constitute additional rent payable by Tenant to
Landlord.
44. ENTIRE AGREEMENT
This lease, including any exhibits and attachments, constitutes
the entire agreement between Landlord and Tenant relative to the Premises and
this lease 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 or
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their agents or representatives relative to the leasing of the Premises are
merged in or revoked by this lease.
45. CORPORATE AUTHORITY
Each individual executing this lease on behalf of the corporation
represents and warrants that he is duly authorized to execute and deliver this
lease on behalf of the corporation in accordance with a duly adopted resolution
of the Board of Directors of said corporation and that this lease is binding
upon said corporation in accordance with its terms. Tenant shall deliver to
Landlord, within ten (10) days of the execution of this lease, a copy of the
resolution of the Board of Directors of Tenant authorizing the execution of this
lease and naming the officers that are authorized to execute this lease on
behalf of Tenant, which copy shall be certified by Tenant's secretary as correct
and in full force and effect.
46. RECORDING
Neither Landlord nor Tenant shall record this lease or a short
form memorandum hereof without the consent of the other. Notwithstanding any
provision to the contrary in this lease, Landlord shall consent to the recording
of a short form memorandum making specific reference to the term, option to
extend, and right of offer to purchase contained in this lease, and Landlord
shall execute and acknowledge such short form memorandum if requested to do so
by Tenant. Upon acquisition of title to the Land by Landlord, the memorandum of
lease shall be recorded prior to the recording of any deed of trust or other
encumbrance against the Land, the Project, the Premises, or any part thereof.
47. REAL ESTATE BROKERS
Each party represents and warrants to the other party that it has
not had dealings in any manner with any real estate broker, finder or other
person with respect to the Premises and the negotiation and execution of this
lease except Cushman & Wakefield of California, Inc. ("Cushman") and Wayne
Mascia & Associates ("Wayne Mascia"). Except for the commissions and fees to be
paid to Cushman and Wayne Mascia as provided in this Section, each party shall
indemnify and hold harmless the other party from all damage, loss, liability and
expense (including attorneys' fees and related costs) arising out of or
resulting
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from any claims for commissions or fees that have been or may be asserted
against the other party by any broker, finder or other person with whom Tenant
or Landlord, respectively, has dealt, or purportedly has dealt, in connection
with the Premises and the negotiation and execution of this lease. Landlord
shall pay broker leasing commissions to Cushman and to Wayne Mascia in
connection with the Premises and the negotiation and execution of this lease, to
the extent agreed to by separate written agreements between Landlord and Cushman
and between Landlord and Wayne Mascia. Landlord and Tenant agree that Landlord
shall not be obligated to pay any broker leasing commissions, consulting fees,
finder fees or any other fees or commissions arising out of or relating to any
extended term of this lease or to any expansion or relocation of the Premises at
any time.
48. EXHIBITS AND ATTACHMENTS
All exhibits and attachments to this lease are a part hereof.
49. ENVIRONMENTAL MATTERS
A. TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS.
(1) HAZARDOUS MATERIALS HANDLING. Except for reasonable
quantities of ordinary office supplies and janitorial supplies, Tenant, its
agents, invitees, employees, contractors, sublessees, assigns and/or successors
shall not use, store, dispose, release or otherwise cause to be present or
permit the use, storage, disposal, release or presence of Hazardous Materials
(as defined below) in, on or about the Premises or Project. As used herein
"Hazardous Materials" shall mean any petroleum or petroleum by-products,
flammable explosives, asbestos, urea formaldehyde, radioactive materials or
waste and any "hazardous substance", "hazardous waste", "hazardous materials",
"toxic substance" or "toxic waste" as those terms are defined under the
provisions of the California Health and Safety Code and/or the provisions of the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
section 9601 et seq.), as amended by the Superfund Amendments and
Reauthorization Act of 1986 (42 U.S.C. section 9601 et seq.), or any other
hazardous or toxic substance, material or waste which is or becomes regulated by
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any local governmental authority, the State of California or any agency thereof,
or the United States Government or any agency thereof.
(2) NOTICES. Tenant shall immediately notify Landlord in
writing of: (i) any enforcement, cleanup, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any law,
regulation or ordinance relating to the industrial hygiene, environmental
protection or the use, analysis, generation, manufacture, storage, presence,
disposal or transportation of any Hazardous Materials (collectively "Hazardous
Materials Laws"); (ii) any claim made or threatened by any person against
Tenant, the Premises, Project or buildings within the Project relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous Materials; and (iii) any reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or removed from the Premises, Project or buildings within the
Project, including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant shall also supply to Landlord as
promptly as possible, and in any event within five (5) business days after
Tenant first receives or sends the same, with copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in any way to the
Premises, Project or buildings within the Project or Tenant's use thereof.
Tenant shall promptly deliver to Landlord copies of hazardous waste manifests
reflecting the legal and proper disposal of all Hazardous Materials removed by
Tenant or at Tenant's request from the Premises.
B. INDEMNIFICATION OF LANDLORD. Tenant shall indemnify, defend
(by counsel acceptable to Landlord), protect, and hold Landlord, and each of
Landlord's partners, employees, agents, attorneys, successors and assigns, free
and harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death of or
injury to any person or damage to any property whatsoever (including water
tables and atmosphere), to the extent arising from or caused in whole or in
part, directly or indirectly, by (i) the presence in, on, under or about the
Premises, Project or buildings within the Project or discharge in or from the
Premises, Project or buildings within the Project of any Hazardous Materials
caused by Tenant, (ii)
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Tenant's use, analysis, storage, transportation, disposal, release, threatened
release, discharge or generation of Hazardous Materials to, in, on, under, about
or from the Premises, Project or buildings within the Project, or (iii) with
respect to the use, analysis, storage, transportation, disposal, release,
threatened release, discharge or generation of Hazardous Materials to, in, on,
under, about or from the Premises, Project or buildings within the Project by
Tenant or Tenant's employees, agents, contractors or invitees, Tenant's failure
to comply with any Hazardous Materials Laws whether knowingly, unknowingly,
intentionally or unintentionally. Tenant's obligations hereunder shall include,
without limitation, and whether foreseeable or unforeseeable, all costs of any
required or necessary repair, cleanup or detoxification or decontamination of
the Premises, Project or buildings within the Project, and the preparation and
implementation of any closure, remedial action or other required plans in
connection with the use, analysis, storage, transportation, disposal, release,
threatened release, discharge or generation of Hazardous Materials to, in, on,
under, about or from the Premises, Project or buildings within the Project, by
Tenant or Tenant's employees, agents, contractors or invitees in violation of
the provisions of this Section 49 of this lease or in violation of applicable
environmental laws. In addition, Tenant shall reimburse Landlord for (i) losses
in or reductions to rental income resulting from Tenant's use, storage or
disposal of Hazardous Materials, (ii) all costs of refitting or other
alterations to the Premises, Project or buildings within the Project required as
a result of Tenant's use, storage, or disposal of Hazardous Materials including,
without limitation, alterations required to accommodate an alternate use of the
Premises, Project or buildings within the Project, and (iii) any diminution in
the fair market value of the Premises, Project or buildings within the Project
caused by Tenant's use, storage, or disposal of Hazardous Materials. For
purposes of this Section 49, any acts or omissions of Tenant, or by employees,
agents, assignees, contractors or subcontractors of Tenant or others acting for
or on behalf of Tenant (whether or not they are negligent, intentional, willful
or unlawful) shall be strictly attributable to Tenant.
C. SURVIVAL. The provisions of this Section 49 shall survive the
expiration or earlier termination of the term of this lease.
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D. LANDLORD'S REPRESENTATION. Landlord represents and warrants to
Tenant that, to its actual knowledge, without duly of inquiry or investigation,
Landlord is not aware of any contamination of the Project by Hazardous Materials
at levels which would, under applicable law, require investigation or
remediation, and that Landlord has delivered to Tenant copies of all
environmental site assessments in its possession and control made with respect
to the Project.
50. SIGNAGE
Tenant shall not, without obtaining the prior written consent of
Landlord, install or attach any sign or advertising material on any part of the
outside of the Premises, or on any part of the inside of the Premises which is
visible from the outside of the Premises, or in the halls, lobbies, windows or
elevators of the building in which the Premises are located or on or about any
other portion of the Common Area or Project, except that Tenant shall be allowed
a monument sign and building signage acceptable to Landlord in Landlord's
reasonable discretion (including without limitation size, type, color and
location) and compliance with the requirements specified below. If Landlord
consents to the installation of any sign or other advertising material, the
location, size, design, color and other physical aspects thereof shall be
subject to Landlord's prior written approval and shall be in accordance with any
sign program applicable to the Project. In addition to any other requirements of
this Section 50, the installation of any sign or other advertising material by
or for Tenant must obtain a permit and comply with all applicable laws,
statutes, requirements, rules, ordinances and any C.C. & R.'s or other similar
requirements. With respect to any permitted sign installed by or for Tenant,
Tenant shall maintain such sign or other advertising material in good condition
and repair and shall remove such sign or other advertising material on the
expiration or earlier termination of the term of this lease. The cost of any
permitted sign or advertising material and all costs associated with the
installation, maintenance and removal thereof shall be paid for solely by
Tenant. If Tenant fails to properly maintain or remove any permitted sign or
other advertising material, Landlord may do so at Tenant's expense. Any cost
incurred by Landlord in connection with such maintenance or removal shall be
deemed additional rent and shall be paid by Tenant to Landlord within ten (10)
days following notice from Landlord.
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Landlord may remove any unpermitted sign or advertising material without notice
to Tenant and the cost of such removal shall be additional rent and shall be
paid by Tenant within ten (10) days following notice from Landlord. Landlord
shall not be liable to Tenant for any damage, loss or expense resulting from
Landlord's removal of any sign or advertising material in accordance with this
Section 50. The provisions of this Section 50 shall survive the expiration or
earlier termination of this lease. Notwithstanding the foregoing, Tenant shall
have the right to install two signs on the building in accordance with the sign
plans attached hereto as Exhibit E, subject to applicable laws. The foregoing
sign approval shall apply to the original Tenant and to any subtenant or
assignee of the original Tenant which becomes a subtenant or assignee through an
"exempt transaction" as described in Section 19 hereof and to any subtenant or
assignee permitted under this Lease which occupies at least 100,000 square feet
of the Premises, provided that the total number of signs so pre-approved is
limited to two (2) and both signs shall be for the same entity (one (1) name
only).
51. SUBMISSION OF LEASE
The submission of this lease to Tenant for examination or
signature by Tenant is not an offer to lease the Premises to Tenant, nor an
agreement by Landlord to reserve the Premises for Tenant. Landlord will not be
bound to Tenant until this lease has been duly executed and delivered by both
Landlord and Tenant.
52. IMPROVEMENTS
(a) The "Shell Improvements" (as defined in Exhibit C) shall be
constructed and installed in accordance with the plans and specifications, and
other terms and conditions, set forth in Exhibit C to this lease, which is
incorporated herein and made a part hereof by this reference. The improvements
shall be constructed and installed at the expense of Landlord and/or Tenant as
set forth in Exhibit C to this lease and in each case shall be performed in a
diligent and workmanlike manner.
(b) The "Tenant Improvements" (as defined in Exhibit D shall be
constructed and installed in accordance with the plans and specifications, and
other terms and conditions, set
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forth in Exhibit D to this lease, which is incorporated herein and made a part
hereof by this reference. The improvements shall be constructed and installed at
the expense of Landlord and/or Tenant as set forth in Exhibit D to this lease
and in each case shall be performed in a diligent and workmanlike manner. 53.
ADDITIONAL RENT
All costs, charges, fees, penalties, interest and any other
payments (including Tenant's reimbursement to Landlord of costs incurred by
Landlord) which Tenant is required to make to Landlord pursuant to the terms and
conditions of this lease and any amendments to this lease shall be and
constitute additional rent payable by Tenant to Landlord when due as specified
in this lease and any amendments to this lease.
54. EARLY ACCESS
Tenant shall have access to the Premises prior to the
commencement of the term, but only for purposes of installing Tenant's
furniture, fixtures and equipment. Such access shall be provided to Tenant on a
floor-by-floor basis when such floors have been sufficiently completed to allow
such access without interfering with Landlord's work under Exhibits C and D.
Tenant's access to the Premises pursuant to this Section shall be subject to all
the terms and conditions of this lease, including the insurance obligations
specified in Section 11. Prior to Landlord granting Tenant such access to the
Premises, Tenant shall provide Landlord with proof that Tenant has satisfied
said insurance requirements. Further, Tenant shall cooperate with Landlord and
Landlord's contractors to minimize any interference with construction of the
Shell Improvements and the Tenant Improvements and Tenant's right to such access
may be terminated by Landlord if such access by Tenant unreasonably interferes
with Landlord's construction of such Improvements. Such access to the Premises
for the purposes stated herein shall not accelerate the commencement or
termination dates of this lease specified in Section 2(a) hereof and Tenant
shall not be obligated to pay basic rent or common area charges until the
commencement of the term.
55. TENANT ACCESS DURING TERM
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Tenant shall be permitted access to the Premises, the building
and the parking structure at all times (24 hours per day, 7 days per weeks, 52
weeks per year).
56. OPTION TO EXTEND TERM
Landlord grants to Tenant the option to extend the term for one
period of ten (10) years (the "Extended Term") following the expiration of the
initial term set forth in Section 2 ("Initial Term") under all the provisions of
this lease except for the amount of the basic rent. The basic rent for the
Extended Term shall be adjusted to the then prevailing market rent; provided
that in no event shall the basic rent for the Extended Term be less than the
basic rent in effect at the expiration of the Initial Term. This option is
further subject to the following terms and conditions:
(a) Tenant must deliver its irrevocable written notice of
Tenant's exercise of this option to Landlord not less than eighteen (18) Lease
Months prior to the expiration of the Initial Term. Notwithstanding the date of
exercise of this option by Tenant, Landlord shall not have the obligation to
commence the process of determining the basic market rent for the Extended Term
until the commencement of the twelve (12) month period immediately prior to the
expiration of the Initial Term. Time is of the essence with respect to the time
period during which Tenant must deliver to Landlord its written notice of
exercise and, therefore, if Tenant fails to give Landlord its irrevocable
written notice of its exercise of this option within the time period provided
above then this option shall expire and be of no further force or effect.
(b) The parties shall have ninety (90) days (the "Negotiation
Period") from the date Landlord receives Tenant's notice of exercise in which to
agree on the amount constituting the market rent. If Landlord and Tenant agree
on the amount of the market rent, they shall immediately execute an amendment to
this lease setting forth the expiration date of the Extended Term and the amount
of the basic rent to be paid by Tenant during the Extended Term. If they cannot
agree, the market rent shall be determined based upon an appraisal as specified
in (c) below.
(c) If it becomes necessary to determine the fair market rent for
the Premises by appraisal, MAI appraiser(s),
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all of whom shall be licensed in the State of California and shall have at least
ten (10) years experience in appraising commercial real estate of the same type
and use and in the same geographic area as the Premises, shall be appointed and
shall act in accordance with the following procedures:
(i) Within thirty (30) days after the end of the Negotiation
Period, Landlord and Tenant shall agree upon an appraiser meeting the above
qualifications and if they cannot so agree then each of them shall designate a
qualified appraiser by giving written notice of the name, address and
qualification of said appraiser to the other party. If either party fails to
select an appraiser within the thirty (30) day period, the appraiser selected by
the other party shall be deemed selected by both parties and no other appraiser
shall be selected. If two appraisers are selected, they shall select a third
appropriately qualified appraiser. If the two appraisers fail to select a third
qualified appraiser within thirty (30) days of their selection, the third
appraiser shall be appointed by the then presiding judge of the county where the
Premises are located upon application by either party.
(ii) If only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its determination of the market rent
for the Premises within thirty (30) days following his selection, which
appraisal shall be conclusively determinative and binding on the parties as the
appraised market rate.
(iii) If multiple appraisers are selected, the appraisers
shall meet not later than twenty (20) days following the selection of the last
appraiser. At such meeting the appraisers shall attempt to determine the market
rent for the Premises as of the commencement date of the extended term by the
agreement of at least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the market
rent for the Premises, such agreement shall be determinative and binding upon
the parties hereto and the agreeing appraisers shall, in simple letter form
executed by the agreeing appraisers, forthwith notifying both Landlord and
Tenant of the amount set by such agreement. If multiple appraisers are selected
and two (2) appraisers are unable to agree on the market rent for the Premises
within thirty (30) days following appointment of the third, all appraisers shall
submit to Landlord and Tenant an independent appraisal of the
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market rent for the Premises, in simple letter form within forty (40) days
following appointment of the third appraiser. The parties shall then determine
the market rent for the Premises by averaging the appraisals; provided that any
high or low appraisal, differing from the middle appraisal by more than ten
percent (10%) of the middle appraisal, shall be disregarded in calculating the
average.
(v) The appraisers' determination of market rent shall be
based on the monthly rent (triple net) then obtained for ten (10) year leases of
comparable terms for rental space (not less than 50,000 square feet) in
comparable buildings without taking into account Tenant's specific use of the
Premises or consideration of Tenant funding the initial construction of the
Tenant Improvements but otherwise taking into account the terms of this lease
and the condition of the Premises (and providing for periodic increases to
market during the Extended Term if applicable).
(vi) If only one appraiser is selected, then each party shall
pay one-half of the fees and expenses of that appraiser. If three appraisers are
selected, each party shall bear the fees and expenses of the appraiser it
selects and one- half of the fees and expenses of the third appraiser.
(d) Common area charges shall continue to be determined and
payable as provided in Section 16 of this lease.
(e) Tenant shall have no right to extend the term beyond the
Extended Term. If Tenant is in default under this lease at the date of delivery
of Tenant's notice of exercise to Landlord, then at Landlord's option such
notice shall be of no effect and this lease shall expire at the end of the
Initial Term; provided, however, (and without limiting any of Landlord's rights
and remedies under this lease) this prohibition shall not apply to a
non-monetary default that is not curable.
(f) All rights granted to Tenant pursuant to this Section are
personal to Tenant and may not be transferred or assigned, except pursuant to an
assignment or sublease consented to by Landlord (or an assignment or sublease
not requiring Landlord's consent) as provided in Section 19 of this lease.
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(g) Notwithstanding anything in this Section to the contrary,
Tenant's exercise of this option shall be subject to Landlord's review and
approval of Tenant's net worth, current ratio and working capital reserves, at
the time Tenant exercises this option and notwithstanding Tenant's rights
hereunder Landlord shall have no obligation to extend the term of this lease
unless Tenant's financial condition at the time of exercise is reasonably
acceptable to Landlord; provided, however, if Tenant's net worth determined in
accordance with generally accepted accounting procedures (GAAP) at such time is
equal to or exceeds Tenant's net worth as specified in Tenant's most recent
financial statements prior to the date of execution of this lease, this
subsection (g) shall be of no force or effect.
57. FIRST RIGHT TO PURCHASE
Landlord hereby grants to Tenant the first right to purchase the
Project, subject to the following terms and conditions:
(a) If Landlord desires to sell the Project at any time during
the initial lease term, Landlord shall notify Tenant in writing of the terms and
conditions, including, but not limited to, price, under which Landlord will sell
the Project to Tenant ("Offer").
(b) Tenant shall have thirty (30) calendar days from the date the
Offer is given to Tenant to deliver to Landlord its written unconditional and
irrevocable acceptance of the Offer. In the event Tenant does not accept the
Offer in writing within the specified 30-day period, Landlord shall thereafter
be released from any further obligation to Tenant hereunder and shall be free to
negotiate with any number of third parties and to sell (without further
obligation to Tenant) the Project or any portion thereof upon any terms and
conditions that Landlord and such third party may agree, subject to subsection
(c) below, and this first right to purchase shall be of no further force or
effect; provided, however, if (i) the price to be offered to any such third
party will be less than ninety percent (90%) of the price stated in the Offer,
or (ii) there is a change to any material term which when added to the price
reduction would effectively, in the aggregate, reduce the purchase price by more
than ten percent (10%), Landlord shall first notify Tenant in writing ("Price
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Reduction Notice") of the reduced price and Tenant shall have ten (10) days
after receipt of the Price Reduction Notice to deliver its written acceptance of
the initial Offer at the reduced price and/or modified terms (all other terms
remaining the same).
(c) Notwithstanding subsection (b), if Landlord fails to enter
into a binding agreement to sell the Project within two hundred seventy (270)
days from the later of (i) the date of the Offer or (ii) the date of the Price
Reduction Notice, then this first right to purchase shall again apply.
(d) This first right to purchase shall be void and of no force
and effect and shall confer no rights on Tenant during any period in which
Tenant is in default under this lease; provided, however, (and without limiting
any of Landlord's rights and remedies under this lease) this prohibition shall
not apply to a non-monetary default that is not curable.
(e) All rights granted to Tenant pursuant to this Section are
personal to Tenant and may not be transferred or assigned except in connection
with an exempt transaction (as defined in Section 19 herein). If Landlord after
complying with the terms of this Section 57, sells the Premises or Project to a
person or entity that is not affiliated with or related to Landlord, this first
right to purchase shall lapse and be of no further force or effect.
58. LANDLORD'S RESTAURANT OPTION
(a) Landlord shall have the right at any time within one hundred
eighty (180) days after the date of lease execution to reduce the size of the
Premises on the first floor of the building by up to approximately seven
thousand (7,000) square feet as shown on Exhibit F-1 attached hereto for
restaurant purposes and such space in the Common Area and located on the lower
level to be used in conjunction with the Restaurant (e.g. storage and
refrigerator purposes or other legally permissible uses) as shown on Exhibit F-2
attached hereto (collectively, the "Restaurant Space"). In addition, Tenant
shall have the parking plan approval right described in Section 15 hereof. Any
sign rights granted in connection with such restaurant shall be limited as
follows: (i) no more than two (2) signs shall be placed on the exterior of the
Premises, one
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designating the entry and one visible from Highway 101, and (ii) any such signs
shall be no higher than the second (2nd) floor. In the event that Landlord
exercises its option hereunder, the Restaurant Space shall be deleted from the
Premises and the total rentable square footage of the Premises excluding the
space on the lower level shall be adjusted accordingly, with corresponding
adjustments to the basic rent and common area charges provisions to reflect the
reduction in the rentable square footage of the Premises. For purposes of such
reduction, only the first floor space shall be deemed rentable square footage,
the lower level space which is otherwise Common Area is excluded. Gas, water and
electricity provided to the Restaurant Space shall be separately metered and
tenant occupying such space shall be responsible for all such utilities provided
thereto.
(b) If at any time during the initial term or any extended term
of this Lease, the Restaurant Space is not used for restaurant purposes for a
period of twelve (12) months (and no restaurant construction or other
good-faith, productive activity designed to result in the use of the Restaurant
Space for a restaurant is then occurring), then Tenant shall have the right (at
any time, providing that such nonuse and inactivity are continuing and subject
to the limitation set forth below) to notify Landlord that Tenant desires to
recapture the portion of the Restaurant Space located on the first floor as part
of the Premises (the "Recapture Space"). In such event, Landlord shall promptly
return the Recapture Space to the shell condition required by Exhibit D hereto
and deliver the Recapture Space to Tenant, at which time the Recapture Space
shall once more become part of the Premises and shall be subject to the
then-current terms and conditions of this Lease and the total rentable square
footage of the Premises shall be adjusted accordingly, with corresponding
adjustments to the basic rent and common area charges provisions to reflect the
increase in the rentable square footage of the Premises. Landlord shall have the
right at any time, but not the obligation, to ask Tenant in writing if Tenant
desires to exercise such right. Within thirty (30) days thereafter, Tenant shall
notify Landlord in writing whether or not Tenant desires to exercise its right
of recapture. If Tenant responds in the affirmative, the procedure set forth
above concerning restoration to shell condition and delivery to Tenant subject
to the then-current terms and conditions of the Lease (and applicable
adjustments to square footage, basic rent and common
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area charges provisions) shall be followed. If Tenant responds in the negative
or fails to respond within such thirty (30)-day period, then Landlord shall have
the right to lease the Recapture Space to third parties (other than direct
competitors of Informix Corporation or Informix Software, Inc.) for general
office use or other uses not inconsistent with Tenant's permitted use of the
Premises and which is customarily found on the ground floor of class A office
buildings. Landlord and Tenant shall proceed with respect to parking and signage
for the Recapture Space as required herein with respect to Landlord's exercise
of its option under Section 58(a). If Landlord fails to lease the Recapture
Space within six (6) months after the earlier of (i) the date of Landlord's
receipt of Tenant's negative response to Landlord's inquiry described above or
(ii) the date of expiration of Tenant's thirty (30)-day response period without
Tenant's responding to such inquiry, or if the Recapture Space is leased but
then becomes vacant again, Tenant shall have the right to exercise its right to
recapture and the procedures set forth above shall be applicable.
(c) All rights granted to Tenant pursuant to this Section are
personal to Tenant and may not be transferred or assigned (except in connection
with an "exempt transfer" under Section 19).
59. REASONABLENESS
Except as limited elsewhere in this lease, whenever this lease
requires Landlord or Tenant to give its consent or approval to any action on the
part of the other, such consent or approval shall not be unreasonably withheld
or delayed.
60. LANDLORD'S REPRESENTATIONS
Landlord represents and warrants to Tenant that (i) Landlord has
the right to acquire the Land, and (ii) to Landlord's actual knowledge there are
no discretionary governmental approvals or other third party approvals (other
than financing) required to proceed with development of the Project as planned.
61. SIDEWALK EASEMENT
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Tenant acknowledges and agrees that Landlord has granted to the
adjacent project commonly known as McCandless Towers, Phase I, an easement
across the common area of the Project for purposes of providing access to
disabled persons in accordance with requirements of the Americans With
Disabilities Act and Tenant agrees that such rights shall continue in full force
and effect during the term of this lease and Tenant shall have no objection
related thereto.
62. EASEMENT
Landlord shall give Tenant reasonable easement rights for
purposes of installing and maintaining cabling between the Premises and other
properties which Tenant contemplates developing in the area. The location of the
easement shall be in Landlord's sole discretion. The installation of such
cabling shall be treated as an alteration and shall be subject to the provisions
of section 8 of this lease, including the restoration obligations specified
therein. Tenant shall be responsible for all costs associated with the
installation, maintenance, repair and restoration related to such cabling and
easement (including Landlord's attorneys fees) and shall indemnify and hold
harmless Landlord from and against all damages, claims, loss, liability or
expense arising out of or related to Tenant's use of such easement or activities
in connection therewith.
63. MCCANDLESS FITNESS CENTER
Landlord and Tenant acknowledge the existence of that certain
Agreement for Use of McCandless Fitness Center dated January 8, 1986 ("Fitness
Center Agreement") between McCandless Towers, Phase I and McCandless Towers,
Phase II, which provides for tenants in the office building to be built on the
Land (which would include the Premises) to have certain rights to use the Gym
located in the McCandless Towers, Phase I office building (as defined in the
Fitness Center Agreement). Notwithstanding any provision of the Fitness Center
Agreement to the contrary, Landlord and Tenant agree that Tenant shall have no
rights or obligations under the Fitness Center Agreement, Tenant shall have no
right to use the Gym and Tenant shall not be charged (directly or indirectly)
for any costs or expenses related thereto, including without limitation any
costs and expenses of operating the Gym for which Landlord may be liable under
the Fitness Center Agreement.
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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
lease on the date first above written.
Landlord: Tenant:
BIRK S. MCCANDLESS, LLC, INFORMIX CORPORATION,
a California limited a Delaware corporation
liability company
By:_______________________ By:___________________________
Name:_____________________ Name:_________________________
Title:____________________ Title:________________________
Date:_____________________ Date:_________________________
By:___________________________
Name:_________________________
Title:________________________
Date:_________________________
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EXHIBIT 21.1
NETWORKS ASSOCIATES, INC.
Consolidated Subsidiaries at December 31, 1997
1. McAfee (UK) Limited
2. Saber Software GmbH
3. McAfee France, S.A.
4. McAfee Europe B.V.
5. McAfee Development Centre GmbH
6. FSA Corporation
7. FSA Combination Corporation
8. FSA Subsidiary Corporation
9. McAfee Canada Software, Inc.
10. Pretty Good Privacy, Inc.
11. Network General Corporation
12. Network General Technology Corporation
13. Network General Barbados, Inc.
14. McAfee Compusul Consultoris e Comercio
15. Paradigm Agency Pty Ltd.
16. McAfee Do Brazil
17. McAfee Mexico
18. Network General Australia PTY Ltd
19. Network General Canada, Ltd
20. Network General Hong Kong
21. McAfee Japan KK
22. McAfee KK
23. Network General Japan KK
24. Network General singapore, Ltd
25. Network General Europe NV
26. Network General France SARL
27. Network General Italy SARL
28. Shuijers Holdings B.V.
29. McAfee Nederland
30. GoTech Europe B.V.
31. Network General Europe Holding B.V.
32. Network General NGC AG
33. Network General United Kingdom Ltd
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement on Form S-3 (File No. __________) of our report 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 financial statements of McAfee Associates, Inc.
(subsequently renamed Network Associates, Inc.). We also consent to the
references to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
San Jose, California
February 9, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated April 18, 1997
incorporated by reference and used in McAfee Associates, Inc.'s previously filed
Registration Statement on Form S-4 filed on October 31, 1997 (Registration
Statement File No. 333-39233) and to all references to our Firm included in this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
San Jose, California
February 9, 1998
