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As filed with the Securities and Exchange Commission on August 6, 1998
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
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)
3965 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
(408) 988-3832
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
WILLIAM L. LARSON
CHIEF EXECUTIVE OFFICER
NETWORKS ASSOCIATES, INC.
3965 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
(408) 988-3832
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------------
Copies to:
JEFFREY D. SAPER, ESQ.
KURT J. BERNEY, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
----------------------
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 offered pursuant to
dividend or interest reinvestment plans, 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. [X]
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. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SECURITY (1) PRICE (1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 238,019 $43.25 $10,294,321.75 $3,036.85
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</TABLE>
(1) The price of $43.25 per share, which was the average of the high and low
prices of the Registrant's Common Stock on the Nasdaq National Market on
August 6, 1998, is set forth solely for the purposes 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, as amended, or until this registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE> 3
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 August 6, 1998
238,019 SHARES
NETWORKS ASSOCIATES, INC.
COMMON STOCK
-----------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of 238,019 shares (the "Shares") of Common Stock, $0.01 par value
(the "Common Stock"), of Networks Associates, Inc. ("Network Associates" or the
"Company"). The Shares are outstanding shares of Company Common Stock that may
be sold from time to time by or on behalf of certain stockholders of the Company
or by pledges, 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 in private
transactions in which the Company acquired Anyware Seguridad Informatica, S.A.,
a corporation duly organized and existing under the laws of Spain ("Anyware")
and CSB Consulenza Software di Base S.r.l., a corporation duly organized and
existing under the laws of Italy ("CSB").
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").
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On August 6, 1998, the closing bid price of the Company's Common Stock on
the Nasdaq National Market was $42.25 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 7 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 August 6, 1998
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TRADEMARKS
This Prospectus contains trademarks of the Company, including CyberCop,
Gauntlet, McAfee, McAfee Total Service Desk, McAfee Total Virus Defense,
NetTools, PGP, PGP Total Network Security, Sniffer, Sniffer Total Network
Visibility and TIS. This Prospectus may contain trademarks of others.
-----------------------------
MCAFEE ASSOCIATES, INC./NETWORK GENERAL CORPORATION 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 & 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.
-----------------------------
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, 1997;
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
3. The Company's Current Report on Form 8-K filed on June 16, 1998,
as amended on July 1, 1998, and the Company's Current Reports on
Form 8-K filed on April 29, 1998, April 3, 1998, March 25, 1998,
February 25, February 12, 1998, February 10, 1998, December 11,
1997, November 24, 1997 and March 14, 1997; and
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4. 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.
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., 3965 Freedom Circle, Santa Clara, California 95054
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:
<TABLE>
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NET TOOLS
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NET TOOLS SECURE NET TOOLS MANAGER
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<S> <C> <C> <C>
McAfee Total Virus PGP Total Network Sniffer Total Network McAfee Total Service
Defense Security 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 3956 Freedom Circle, Santa
Clara, California 95054. Its telephone number at that address is (408) 988-3832.
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RECENT DEVELOPMENTS
Pending Acquisitions.
On July 30, 1998, the Company acquired Anyware Seguridad Informatica, S.A.
("Anyware"). The aggregate consideration payable in the acquisition was 228,204
shares of Company Common Stock in a transaction accounted for as a pooling of
interests. Anyware is a developer and distributor of anti-virus software
products based in Madrid, Spain.
On July 28, 1998, the Company announced that it had entered into a
definitive merger agreement to acquire CyberMedia Inc. ("CyberMedia"), a
publicly traded provider of desktop utility software. Under the terms of the
merger agreement, a subsidiary of the Company will commence a tender offer for
all outstanding shares of CyberMedia for an aggregate purchase price of
approximately $130 million. Following the completion of the tender offer, the
Company's subsidiary will be merged into CyberMedia in a transaction in which
any CyberMedia shares not tendered will be converted into the right to receive
the same per share cash price in the tender offer. Completion of the tender
offer is subject to customary conditions, including the tender of a majority of
the CyberMedia shares, receipt of necessary governmental approvals and the
expiration of applicable waiting periods under the Hart-Scott-Rodino Act.
On June 29, 1998, the Company acquired CSB Consulenza Software di Base
S.r.l. ("CSB"). The aggregate consideration payable in the acquisition was 9,815
shares of Company Common Stock in a transaction accounted for as a pooling of
interests. CSB is a reseller of software applications and services based in
Milan, Italy.
On June 9, 1998, the Company and Dr Solomon's Group Plc, a corporation duly
organized and existing under the laws of England and Wales ("Dr Solomon"),
agreed to the terms of the proposed acquisition of all the issued share capital
of Dr Solomon by Network Associates by means of a Scheme of Arrangement in
accordance with Section 425 of the Companies Act (as amended) of England and
Wales. Dr Solomon is a publicly traded company and a leading European-based
provider of anti-virus software products. Pursuant to the terms of the
transaction agreement, dated June 9, 1998, by and between Dr Solomon and the
Company, holders of Dr Solomon Ordinary Shares will receive 0.27625 shares of
Network Associates Common Stock for each Dr Solomon Ordinary Share. As one Dr
Solomon's American Depository Share ("ADS") represents three Dr Solomon Ordinary
Shares, this is equivalent to 0.82875 shares of Network Associates Common Stock
for each Dr Solomon ADS. Network Associates and Dr Solomon currently expect to
consummate the Dr Solomon acquisition on August 13, 1998, although there can be
no assurance to that effect. The Dr Solomon acquisition remains subject to
fulfillment of certain conditions, including clearance and the sanction of the
English High Court. The Dr Solomon acquisition will be accounted for as a
pooling of interests.
Recent Acquisitions.
On May 15, 1998, the Company acquired Secure Networks, Inc. ("Secure"). The
aggregate consideration payable in the acquisition was 567,000 shares of Company
Common Stock in a transaction accounted for as a pooling of interests. Secure is
a developer and licensor of network security auditing software based in Canada.
On April 28, 1998, the Company acquired Trusted Information Systems, Inc.
("TIS"), a publicly held provider of comprehensive security solutions for the
protection of computer networks, including global Internet-based systems,
internal networks and individual workstations and laptops, as well as firewall
and intrusion detection products. In the acquisition, a wholly owned subsidiary
of the Company merged with and into TIS; TIS became a wholly owned subsidiary of
the Company; each outstanding share of TIS Common Stock converted into the right
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to receive 0.4845 of a share of Company Common Stock. The TIS acquisition
broadened the Company's suite of network security products. The TIS acquisition
was qualified as a pooling of interests for financial reporting purposes in
accordance with generally accepted accounting principles.
On April 1, 1998, the Company acquired Magic Solutions International, Inc.
("Magic Solutions"), a privately held provider of internal help desk and asset
management solutions. In the acquisition, a wholly owned subsidiary of the
Company merged with and into Magic Solutions; Magic Solutions became a wholly
owned subsidiary of the Company; and the existing Magic Solutions stock and
option holders received approximately $110,000,000 in cash. The Magic Solutions
acquisition broadened the Company's suite of help desk product offerings. The
Magic Solutions acquisition is accounted for as a purchase.
On March 30, 1998, the Company acquired (subject to a right of repurchase)
a percentage interest in Nordic Lantools AB ("Nordic AB"). The aggregate
consideration payable in the acquisition was 4,594 shares of Company Common
Stock. Nordic AB is a distributor of software products based in Sweden.
On February 27, 1998, the Company acquired 100% of the issued share capital
of Nordic Lantools Oy ("Nordic Oy"). The aggregate consideration payable in the
acquisition was 41,167 shares of Company Common Stock in a transaction accounted
for as a pooling of interests. Nordic Oy is a distributor of software products
based in Finland.
On February 26, 1998, the Company acquired 100% of the issued share capital
of Syscon (Proprietary) Limited ("Syscon"). The aggregate consideration payable
in the acquisition was 1,845 shares of Company Common Stock in a transaction
accounted for as a pooling of interests. Syscon is a distributor of software
products and is based in South Africa.
Each of the pending acquisitions and the other recent acquisitions
(particularly the Magic Solutions and TIS acquisitions) is subject to a number
of risks, including the difficulties of assimilating the company's sales forces,
product offerings, marketing activities, research and development efforts and
technologies. These difficulties may be compounded in light of the integration
activities surrounding multiple acquisitions.
Common Stock Split. On May 29, 1998 the Company effected a 3-for-2 stock
split by means of a 50% stock dividend pursuant to which stockholders of record
on May 12, 1998 received one share of Company Common Stock for every two shares
of Company Common Stock held by them (with cash paid in lieu of fractional
shares).
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
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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 is 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 are 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."
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.
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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 Pending and 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 pending and recent acquisitions (including the acquisitions of
PGP, Helix, Magic Solutions and TIS). 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, Helix's utilities products, Magic Solution's help desk
products and TIS's firewall 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 and the quarter ended June 30, 1998, the Company incurred
significant non-recurring charges associated with the Network General
combination and the acquisitions of PGP, Helix, Magic Solutions and TIS. During
the third quarter of 1998, the Company expects to incur additional non-recurring
charges associated with the pending acquisition of Dr Solomon and CyberMedia.
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 Total Network Security, and Sniffer Total Network Visibility
and McAfee Total Virus Defense. These four product suites together form an
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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
certain of its Sniffer products -- meaning that the Company would no longer sell
the hardware components contained in these 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 is 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/TIS 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/TIS 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
Magic Solutions and TIS in April 1998, 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, Sweden, South Africa 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
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<PAGE> 14
or new products, or that such enhancements or new products will adequately
address the changing needs of the marketplace.
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
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<PAGE> 15
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.
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
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<PAGE> 16
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 and 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 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
14
<PAGE> 17
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, 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.
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<PAGE> 18
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.
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; Litigation. 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.
Network Associates has changed its legal name to "Networks Associates,
Inc." and has begun conducting business as "Network Associates." Two companies,
(Network Associates, Inc. in Kansas ("NAI-Kansas"); and Network Associates, Inc.
in Oregon ("NAI-Oregon")) and Ronald L. Meyers ("Myers"), a California resident
doing business as The Network Associates, have made unresolved claims (including
various trademark claims) or demands with respect to Network Associates' use of
the name Network Associates. On March 26, 1998, Network Associates commenced a
declaratory judgement action in the United States District Court, Northern
District of California against all three of the above-cited claimants. Network
Associates seeks a declaration that its use of the NETWORK ASSOCIATES title does
not violate the federal, state or common law rights of any of the defendants.
Defendants NAI-Oregon and NAI-Kansas have since been granted extensions of time
in which to respond to the Complaint; defendant Myers has not yet been served.
NAI Kansas has moved to dismiss the claims against it for lack of personal
jurisdiction.
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On April 24, 1997, Network Associates 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 Network
Associates. Symantec alleges that Network Associates' 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 Network Associates' "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 Network Associates 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 Network Associates' current PC Medic product. On April
1, 1998, Symantec filed an amended complaint including additional allegations of
trade secret misappropriation, unfair competition, interference with economic
advantage and contractual relations and violations of the Racketeer Influenced
and Corrupt Organization Act ("RICO"), in connection with the alleged use by
Network Associates employees of proprietary Symantec customer information. On
April 10, 1998, Network Associates moved to dismiss the RICO claims. Symantec
also filed a motion for a preliminary injunction relating to these new
allegations which is scheduled for hearing on June 5, 1998. Trial is currently
set for September 1998. On August 10, 1998, the Court will hear a motion by
Symantec to vacate the trial date provided to it by Network during 1997.
Network is opposing the motion.
On June 9, 1998, the Court dismissed Symantec's unfair competition claim
regarding allegations concerning source code with prejudice and dismissed
Symantec's racketeering claim without prejudice. On June 15, 1998, the Court
entered a stipulated preliminary injunction prohibiting Network Associates from
making use of any Symantec customer list data.
On May 13, 1997, Trend Micro, Inc. ("Trend") filed suit in United States
District Court for the Northern District of California against both Network
Associates and Symantec. Trend alleges that Network Associates' "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, Network Associates filed its answer denying any infringement. Network
Associates also filed counterclaims 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 Network Associates from its action against Symantec. Network
Associates 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 Network Associates'
recommendation regarding a joint hearing on patent claim interpretation. As a
result of the Court's decision, Trend's actions against Network Associates and
Symantec will proceed separately. The Court has set the date for the joint
patent claim interpretation hearing for September 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 Network Associates 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
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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.
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 Network Associates as
defendant. On March 2, 1998, the court granted PGP's motion to stay the federal
patent action.
On April 15, 1998, RSA filed a patent infringement lawsuit against Network
Associates in the United States District Court for the Northern District of
California, alleging that Network Associates has infringed the same patent as in
the earlier lawsuit against PGP. Counsel for RSA has orally indicated that RSA
will stipulate to stay this lawsuit on the same basis as the prior lawsuit
against PGP. The Court has scheduled an initial status conference in both cases
for May 11, 1998.
On May 13, 1998, RSA filed a copyright infringement suit in the United
States District Court for the Northern District of California seeking an
injunction against Network Associates and its Trusted Information Systems
subsidiary from using certain RSA software.
All four of the above RSA cases were settled on May 29, 1998, and were
dismissed in June, 1998.
On September 15, 1997, Network Associates was named as a defendant in a
patent infringement action filed by Hilgraeve Corporation ("Hilgraeve") in the
United States District Court for the Eastern District of Michigan. Hilgraeve
alleges that Network Associates' VirusScan 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. Discovery is presently
scheduled to be completed by December 15, 1998. There is a status conference
scheduled for September 22, 1998. A trial date has been set for June, 1999.
Although Network Associates 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.
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
18
<PAGE> 21
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. 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 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.
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, with that
percentage increasingly significantly if the pending Dr Solomon acquisition is
consummated. 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 encryption products. See "-- Risks Relating to Cryptography
Technology."
19
<PAGE> 22
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.
Risk of Sabotage. Given the Company's high profile in the security software
market, the Company has been a target of computer "hackers" who have, among
other things, created viruses to sabotage its products or otherwise attack the
Company's products. While to date these efforts have been discovered quickly and
their adverse impact has been limited, there can be no assurance that similar
viruses or efforts will not be created or replicated 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 with viruses.
Risk of False Detection of Viruses and of Actual or Perceived Security
Breaches. 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.
Similarly, while a well-publicized actual or perceived breach of network or
computer security could trigger a heightened awareness of computer abuse
(resulting in a potential increase in demand for security products) an actual or
perceived breach of network or computer security at one of the Company's
customers, regardless of whether such breach is attributable to the Company's
products, could adversely affect the market's perception of them and their
financial condition or results of operations.
Risks Relating to Cryptography Technology. Certain of the Company's PGP/TIS
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 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.
Certain of the Company's PGP/TIS 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
20
<PAGE> 23
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 network security and 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. In early April 1998, Messrs. Leslie
Denend, David Carson and John Stringer resigned from their positions as
executive officers of the Company. Mr. Denend will remain a director of the
Company. 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. 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."
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<PAGE> 24
Risks of Doing Business with the U.S. Government. As a result of its recent
acquisition of TIS, the Company expects that, in the near term, a meaningful
portion of its revenues will result from existing and future research and
development contracts with agencies of the U.S. government.
Network Associates believes that the awarding to it of future government
contracts will in part be dependent upon the continued favorable reaction of
government agencies to the Company's research, development and consulting
capabilities. There can be no assurance that Network Associates will be able to
procure additional government contracts. Minimum fee awards for government
contracts are usually 3% to 7% of the contract costs, but may be as low as 1% of
the contracts costs, and the contracts are subject to cancellation for the
convenience of the governmental agencies. Although the Company has been awarded
contract fees of more than 1% in the past and there have been no terminations of
its government contracts in the past, there can be no assurance that minimum fee
awards or cancellations will not occur in the future. Reductions or delays in
federal funds available for projects the Company is performing could also have
an adverse impact on its government business. Contracts involving the U.S.
government are also subject to the risks of disallowance of costs upon audit,
changes in government procurement policies, the necessity to participate in
competitive bidding and, with respect to contracts involving prime contractors
or government-designated subcontractors, the inability of such parties to
perform under their contracts. Any of the foregoing events could have a material
adverse effect on the Company's financial condition or 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
22
<PAGE> 25
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.
Effect of Certain Provisional 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 of action by its
stockholders. The rights of the holders of Company Common Stock is 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 a 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 in the best interest of certain stockholders. There is no assurance
that such provisions will not have an adverse effect on the market value of the
Company's Common Stock.
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders and the number of shares
of the Company's Common Stock which each owned or had the right to acquire as of
August 6, 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, (i) the Company's acquisition of 100% of the issued
share capital of Anyware (the "Anyware Acquisition"), and (ii) the Company's
acquisition of 100% of the issued share capital of CSB (the "CSB Acquisition").
The Anyware Acquisition was accomplished pursuant to the terms of a Stock
Purchase Agreement, dated as of July 30, 1998, whereby the Company acquired all
of the issued and outstanding share capital of Anyware in exchange for 228,204
shares of Company Common Stock. The CSB Acquisition was accomplished pursuant to
the terms of a Share Purchase Agreement, dated as of June 29, 1998, whereby the
Company acquired all of the issued and outstanding share capital of CSB in
exchange for 9,815 shares of Company Common Stock.
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 180 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.
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<PAGE> 26
The Shares offered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:
<TABLE>
<CAPTION>
Number of Shares of Common
Stock Beneficially Owned
Name of Selling Stockholder Prior to the Offering Percentage of Outstanding Shares
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Carlos Jimenez Suarez 114,102 *
Javier Perea Romero 114,102 *
Massimo Santini 3,533 *
Valentino Zullo 3,140 *
Giovanni Fracasso 3,140 *
</TABLE>
- ---------------
* Less than 1%
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
24
<PAGE> 27
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.
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 Second Restated Certificate of Incorporation, as amended,
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 Restated 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.
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<PAGE> 28
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, 1997 and
1996 and the consolidated statements of operations, stockholders equity and
cash flows for each of the three years in the period ended December 31, 1997,
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, have been incorporated herein by
reference in reliance upon the report of PricewaterhouseCoopers, LLP,
independent accountants, given on the authority of such firm as experts in
accounting and auditing.
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.
26
<PAGE> 29
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Trademarks 3
McAfee Associates, Inc./Network General 3
Corporation Merger
Available Information 3
Information Incorporated by Reference 3
Forward-Looking Statements 4
The Company 5
Risk Factors 7
Selling Stockholders 23
Plan of Distribution 24
Use of Proceeds 25
Indemnification of Directors and Officers 25
Legal Matters 26
Experts 26
</TABLE>
238,019 SHARES
NETWORKS ASSOCIATES, INC.
Common Stock
------------------
August 6, 1998
-------------------
27
<PAGE> 30
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>
<S> <C>
Securities and Exchange Commission Registration Fee....... $ 3,352.80
NASDAQ Filing Fee......................................... $ 4,760.38
Legal Fees and Expenses................................... $10,000.00
Accounting Fees........................................... $ 2,000.00
Miscellaneous............................................. $ 386.82
Total................................................ $20,500.00
</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, as amended (the "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.
II-1
<PAGE> 31
Article Sixth of the Company's Certificate and Article VIII, Section 1 of
the Company's Restated 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.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -----------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, NA Combination
Company, Inc., a Delaware corporation and wholly-owned subsidiary of
Networks Associates, Inc. and Anyware Seguridad Informatica S.A., a
corporation organized and existing under the laws of Spain.
2.2 Share Purchase Agreement, dated as of June 29, 1998, by and between FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation and Messrs.
Santini, Zullo and Fracasso.
3.1 Second Restated Certificate of Incorporation of Networks Associates,
Inc., as amended on December 1, 1997, incorporated by reference to the
Registrant's Registration Statement on Form S-4, filed with the
Commission on March 25, 1998.
3.2 Bylaws of Networks Associates, Inc., incorporated by reference to the
Registrant's Registration Statement on Form S-4, filed with the
Commission on March 25, 1998.
3.3 Certificate of Designation of Series A Preferred Stock of Networks
Associates, Inc., incorporated by reference to Exhibit 3.3 of the
Registrant's Form 10-Q for the Quarter ended September 30, 1996.
4.1 Registration Rights Agreement, dated as of August 30, 1996, by and
among Networks Associates, Inc., FSA Combination Corp. and FSA
Corporation, incorporated by reference to the Registrant's Report on
Form 8-K as filed with the Securities and Exchange Commission on
September 24, 1996.
4.2 Registration Rights Agreement, dated January 13, 1997, by and between
Networks Associates, Inc. and the shareholders of Jade, incorporated by
reference to the Registrant's Report on Form 8-K, as filed with the
Securities and Exchange Commission on March 14, 1997.
4.3 Registration Rights Agreement, dated as of February 28, 1997, by and
between Networks Associates, Inc. and shareholders of Schuijers,
incorporated by reference to the Registrant's Report on Form 10-K, for
the year ended December 31, 1996.
4.4 Registration Rights Agreement, dated as of December 1, 1997, by and
between Networks Associates, Inc. and shareholders of Helix Software
Company, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on February 12, 1998.
4.5 Registration Rights Agreement, dated December 9, 1997 between the
Registrant and certain of the shareholders of PGP, incorporated by
reference to the Registrant's Registration Statement on Form S-3, filed
with the Commission on February 12, 1998.
4.6 Registration Rights Agreement, dated as of February 13, 1998, by and
between Networks Associates, Inc. and Morgan Stanley & Co.
Incorporated, incorporated by reference to the Registrant's
Registration Statement on Form S-3, filed with the Commission on May 6,
1998.
4.7 Indenture dated as of February 13, 1998 between Networks Associates,
Inc. and State Street Bank and Trust Company of California, N.A., as
Trustee, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on May 6, 1998.
4.8 Registration Rights Agreement, dated February 26, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and Brenda Joyce
Crook, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on May 26, 1998.
4.9 Registration Rights Agreement, dated March 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and Irina Karlsson
and Jarmo Rouvinen, incorporated by reference to the Registrant's
Registration Statement on Form S-3, filed with the Commission on May
26, 1998.
4.10 Registration Rights Agreement, dated May 8, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and certain
stockholders of Secure Networks, Inc., a corporation duly organized and
existing under the laws of Alberta, Canada, incorporated by reference
to the Registrant's Registration Statement on Form S-3, filed with the
Commission on May 26, 1998.
4.11 Registration Rights Agreement, dated July 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and certain
stockholders of Anyware Seguridad Informatica S.A., a corporation
organized and existing under the laws of Spain.
4.12 Registration Rights Agreement, dated as of June 29, 1998, by and
between Networks Associates, Inc., a Delawre corporation and certain
stockholders of CSB Consotenza Software di Base Sr.l., a corporation
duly organized and existing under the laws of Italy.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Change of Control Agreement, dated May 12, 1998, by and between the
Registrant and Zachary Nelson, incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on May 15, 1998.
21.1 Subsidiaries of Networks Associates, Inc., incorporated by reference to
the Registrant's Registration Statement of Form S-3, filed with the
Commission on February 12, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on pg. II-5 of this Registration Statement
under the caption "Signatures").
</TABLE>
II-2
<PAGE> 32
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 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:
II-3
<PAGE> 33
(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-4
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 6th day of
August, 1998.
NETWORKS ASSOCIATES, INC.
By: /s/ William L. Larson
---------------------------------
William L. Larson
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William L. Larson, his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendment to this Registration Statement on Form S-3, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on August 6, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William L. Larson Chairman and Chief Executive Officer
- --------------------------
William L. Larson
/s/ Prabhat K. Goyal Chief Financial Officer, Vice President Finance
- -------------------------- and Administration, Secretary and Treasurer
Prabhat K. Goyal
/s/ Leslie G. Denend Director
- --------------------------
Leslie G. Denend
/s/ Virginia Gemmell Director
- --------------------------
Virginia Gemmell
/s/ Edwin L. Harper Director
- --------------------------
Edwin L. Harper
</TABLE>
II-5
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -----------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of July 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, NA Combination
Company, Inc., a Delaware corporation and wholly-owned subsidiary of
Networks Associates, Inc. and Anyware Seguridad Informatica S.A., a
corporation organized and existing under the laws of Spain.
2.2 Share Purchase Agreement, dated as of June 29, 1998, by and between FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation and Messrs.
Santini, Zullo and Fracasso.
3.1 Second Restated Certificate of Incorporation of Networks Associates,
Inc., as amended on December 1, 1997, incorporated by reference to the
Registrant's Registration Statement on Form S-4, filed with the
Commission on March 25, 1998.
3.2 Bylaws of Networks Associates, Inc., incorporated by reference to the
Registrant's Registration Statement on Form S-4, filed with the
Commission on March 25, 1998.
3.3 Certificate of Designation of Series A Preferred Stock of Networks
Associates, Inc., incorporated by reference to Exhibit 3.3 of the
Registrant's Form 10-Q for the Quarter ended September 30, 1996.
4.1 Registration Rights Agreement, dated as of August 30, 1996, by and
among Networks Associates, Inc., FSA Combination Corp. and FSA
Corporation, incorporated by reference to the Registrant's Report on
Form 8-K as filed with the Securities and Exchange Commission on
September 24, 1996.
4.2 Registration Rights Agreement, dated January 13, 1997, by and between
Networks Associates, Inc. and the shareholders of Jade, incorporated by
reference to the Registrant's Report on Form 8-K, as filed with the
Securities and Exchange Commission on March 14, 1997.
4.3 Registration Rights Agreement, dated as of February 28, 1997, by and
between Networks Associates, Inc. and shareholders of Schuijers,
incorporated by reference to the Registrant's Report on Form 10-K, for
the year ended December 31, 1996.
4.4 Registration Rights Agreement, dated as of December 1, 1997, by and
between Networks Associates, Inc. and shareholders of Helix Software
Company, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on February 12, 1998.
4.5 Registration Rights Agreement, dated December 9, 1997 between the
Registrant and certain of the shareholders of PGP, incorporated by
reference to the Registrant's Registration Statement on Form S-3, filed
with the Commission on February 12, 1998.
4.6 Registration Rights Agreement, dated as of February 13, 1998, by and
between Networks Associates, Inc. and Morgan Stanley & Co.
Incorporated, incorporated by reference to the Registrant's
Registration Statement on Form S-3, filed with the Commission on May 6,
1998.
4.7 Indenture dated as of February 13, 1998 between Networks Associates,
Inc. and State Street Bank and Trust Company of California, N.A., as
Trustee, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on May 6, 1998.
4.8 Registration Rights Agreement, dated February 26, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and Brenda Joyce
Crook, incorporated by reference to the Registrant's Registration
Statement on Form S-3, filed with the Commission on May 26, 1998.
4.9 Registration Rights Agreement, dated March 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and Irina Karlsson
and Jarmo Rouvinen, incorporated by reference to the Registrant's
Registration Statement on Form S-3, filed with the Commission on May
26, 1998.
</TABLE>
II-6
<PAGE> 36
<TABLE>
<S> <C>
4.10 Registration Rights Agreement, dated May 8, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and certain
stockholders of Secure Networks, Inc., a corporation duly organized and
existing under the laws of Alberta, Canada, incorporated by reference
to the Registrant's Registration Statement on Form S-3, filed with the
Commission on May 26, 1998.
4.11 Registration Rights Agreement, dated July 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and certain
stockholders of Anyware Seguridad Informatica S.A., a corporation
organized and existing under the laws of Spain.
4.12 Registration Rights Agreement, dated as of June 29, 1998, by and
between Networks Associates, Inc., a Delawre corporation and certain
stockholders of CSB Consotenza Software di Base Sr.l., a corporation
duly organized and existing under the laws of Italy.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Change of Control Agreement, dated May 12, 1998, by and between the
Registrant and Zachary Nelson, incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q, filed with the Commission
on May 15, 1998.
21.1 Subsidiaries of Networks Associates, Inc., incorporated by reference to
the Registrant's Registration Statement of Form S-3, filed with the
Commission on February 12, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included on pg. II-5 of this Registration Statement
under the caption "Signatures").
</TABLE>
II-7
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
NETWORKS ASSOCIATES, INC.,
NA COMBINATION COMPANY, INC.,
AND THE SHAREHOLDERS OF ANYWARE SEGURIDAD INFORMATICA, S.A.
JULY 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I........................................................................................1
1. Definitions.......................................................................1
ARTICLE II.......................................................................................5
2. Purchase and Sale of Company Shares...............................................5
(a) Basic Transaction..........................................................5
(b) Purchase Price; Registration of Shares.....................................5
(c) The Closing................................................................5
(d) Deliveries at the Closing; Transfer of Title...............................5
(e) Escrow Deposit.............................................................6
ARTICLE III......................................................................................7
3. Representations and Warranties Concerning the Transaction.........................7
(a) Representations and Warranties of the Sellers..............................7
(b) Representations and Warranties NAI and Buyer...............................8
ARTICLE IV.......................................................................................9
4. Representations and Warranties Concerning the Company and the Sellers.............9
(a) Organization, Qualification, and Corporate Power..........................10
(b) Capitalization............................................................10
(c) Noncontravention..........................................................10
(d) Brokers? Fees.............................................................11
(e) Title to Assets...........................................................11
(f) Subsidiaries; Investments.................................................11
(g) Financial Statements......................................................11
(h) Events Subsequent to Most Recent Fiscal Year End..........................11
(i) Undisclosed Liabilities...................................................13
(j) Legal Compliance..........................................................13
(k) Tax Matters...............................................................14
(l) Real Property.............................................................15
(m) Intellectual Property.....................................................16
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(n) Tangible Assets...........................................................18
(o) Inventory.................................................................18
(p) Contracts.................................................................18
(q) Notes and Accounts Receivable.............................................19
(r) Powers of Attorney........................................................19
(s) Insurance.................................................................19
(t) Litigation................................................................20
(u) Product Warranty..........................................................20
(v) Product Liability.........................................................21
(w) Employees.................................................................21
(x) Employee Benefits.........................................................21
(y) Guaranties................................................................22
(z) Environmental, Health, and Safety Matters.................................22
(aa) Certain Business Relationships with the Company...........................22
(bb) Disclosure................................................................22
(cc) Bank Accounts.............................................................22
(dd) Materiality...............................................................23
(ee) Solvency..................................................................23
(ff) Predecessor Status........................................................23
(gg) Minute Books..............................................................23
(hh) Sellers Disclosure Schedule...............................................23
(ii) Source Code...............................................................23
ARTICLE V.......................................................................................24
5. Post-Closing Covenants...........................................................24
(a) General24
(b) Litigation Support........................................................24
(c) Transition................................................................24
(d) Confidentiality...........................................................24
ARTICLE VI......................................................................................25
6. Conditions to Obligation to Close................................................25
(a) Conditions to Obligation of NAI and Buyer.................................25
(b) Conditions to Obligation of the Sellers...................................26
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VII.....................................................................................27
7. Remedies for Breaches of This Agreement..........................................27
(a) Survival of Representations and Warranties................................27
(b) Indemnification Provisions................................................27
(c) Escrow Arrangements.......................................................27
(d) Limitation on Liability...................................................33
(e) Valuation of Escrowed NAI Common Stock....................................33
ARTICLE VIII....................................................................................33
8. Miscellaneous....................................................................33
(a) Press Releases and Public Announcements...................................33
(b) Entire Agreement..........................................................34
(c) Succession and Assignment?s Parties in Interest...........................34
(d) Counterparts..............................................................34
(e) Headings..................................................................34
(f) Notices34
(g) Governing Law.............................................................36
(h) Amendments and Waivers....................................................36
(i) Severability..............................................................36
(j) Expenses..................................................................36
(k) Construction..............................................................36
(l) Incorporation of Exhibits and Schedules...................................36
(m) Arbitration...............................................................36
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exhibit A--Financial Statements
Exhibit B-1--Form of Registration Rights Agreement
Exhibit B-2--Form of Investor Representation Certificate
Exhibit B-3--Form of General Release
Exhibit B-4--Form of Affiliate Agreement
Exhibit B-5--Form of Noncompetition and Waiver of Labor Rights Agreement
Exhibit B-6--Form of Transfer Deed
Exhibit B-7--Intellectual Property Transfer Document
Sellers Disclosure Schedule
NAI Disclosure Schedule
</TABLE>
<PAGE> 6
STOCK PURCHASE AGREEMENT
This Agreement is entered into as of July 30, 1998, by and among Networks
Associates, Inc., a Delaware corporation ("NAI"), NA Combination Company, Inc.
("BUYER"), Mr. Carlos Jimenez Suarez ("MR. JIMENEZ"), Spanish citizen, with
domicile at Nunez de Balboa, 91, Madrid, and Identification Card Number
5.202.903-B and Mr. Javier Perea Romero ("MR. PEREA"), Spanish citizen, with
domicile at Sector Literatos, 42, 28760 Tres Cantos (Madrid) and Identification
Card Number 4.573,576-A, (each a "SELLER" and collectively, the "SELLERS"). NAI
and Buyer, collectively a "PARTY," and the Sellers, collectively a "PARTY," and
together with NAI and Buyer the "PARTIES."
RECITALS
A. The Sellers in the aggregate own 10,000 ordinary shares of Anyware
Seguridad Informatica, S.A., a corporation organized and existing under the laws
of Spain ("ASI" or the "COMPANY"), constituting one hundred percent (100%) of
the outstanding Company's share capital.
B. This Agreement contemplates a transaction in which Buyer will
purchase (the "PURCHASE") from the Sellers, and the Sellers will sell to Buyer,
all of the ordinary shares of the Company held by the Sellers (the "PURCHASED
SHARES") in exchange for the Purchase Price (as set forth herein) to be paid to
the Sellers by Buyer.
C. The Parties agree that a specified portion of the Purchase Price
paid by NAI shall be placed in escrow, the release of which shall be contingent
on certain events and conditions.
D. NAI and the Sellers desire to make certain representations and
warranties and other agreements in connection with the Purchase.
E. NAI and Buyer desire that ASI become the wholly-owned subsidiary of
Buyer and that to further such action NAI shall deliver to Buyer that number of
shares of NAI Common Stock representing the Purchase Price.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I
1. Definitions.
"AFFILIATE" shall mean with respect to any Person, (a) any other Person at
the time directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person, (b) any Person of which such person at
the time owns or has the right to acquire, directly or indirectly, twenty
percent (20%) or more of any class of the capital stock or beneficial interest,
(c) any other Person which at the time owns, or has the right to acquire,
directly or indirectly, twenty percent (20%) or more of any class of capital
stock or beneficial interest of such Person, (d) any executive officer or
director of such
<PAGE> 7
person, (e) with respect to any partnership, joint venture or
similar entity, any general partner thereof and (f) any individual's immediate
family or family trust.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"CLOSING" has the meaning set forth in Section 2(c) below.
"CLOSING DATE" has the meaning set forth in Section 2(c) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL DOCUMENTS" shall mean Exhibit B-1 to B-7.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY SHARE" means any ordinary share of the Company, each with a face
value of 1.000 PTAS.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of NAI, Buyer, the Company and the Sellers that is not already
generally available to the public.
"DETERMINED PRICE" shall mean $48.875 per share of NAI Common Stock.
"EMPLOYEE BENEFIT PLAN" means any (a) deferred compensation or retirement
plan or arrangement, (b) defined contribution retirement plan or arrangement,
(c) defined benefit retirement plan or arrangement, or (d) material fringe
benefit or other retirement, bonus, or incentive plan or program.
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all national,
provincial, regional, federal, state, local and foreign statutes, regulations,
ordinances and other provisions having the force or effect of law, all judicial
and administrative orders and determinations, all contractual obligations and
all common law concerning public health and safety, worker health and safety,
and pollution or protection of the environment.
"FINANCIAL STATEMENT" has the meaning set forth in Section 4(g) below.
"GAAP" means Spanish generally accepted accounting principles as in effect
from time to time.
"GENERAL ESCROW AMOUNT" shall mean a number of shares of NAI Common Stock
which has an aggregate value (valued at the Determined Price, as defined herein)
of $1,065,426 (USD) and placed in escrow on the Closing Date in accordance with
the provisions of Article 2(e) and Article VII of this Agreement.
-2-
<PAGE> 8
"GENERAL ESCROW FUND" has the meaning set forth in Article VII.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means actual knowledge after due investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
4(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section 4(g)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 4(g)
below.
"NAI" has the meaning set forth in the preface above.
"NAI COMMON STOCK" shall mean the common stock, par value $0.01 (USD) per
share, of NAI.
"NAI DISCLOSURE SCHEDULE" has the meaning set forth in Section 3(b) below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the preface above.
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<PAGE> 9
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, limited liability
company, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PROPORTIONATE ESCROW INTEREST" applicable to each Seller shall mean 50%
multiplied by the General Escrow Amount or Special Escrow Amount, as applicable.
"PURCHASE" has the meaning set forth in the preface above.
"PURCHASE PRICE" has the meaning set forth in Section 2(b) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SELLER(S)" has the meaning set forth in the preface above.
"SELLERS DISCLOSURE SCHEDULE" has the meaning set forth in Section 4
below.
"SPECIAL ESCROW AMOUNT" shall mean a number of shares of NAI Common Stock
(valued at the Determined Price, as defined below) which has an aggregate value
of $1,500,000 (USD) and placed in escrow on the Closing Date in accordance with
the provisions of Article 2(e) and Article VII of this Agreement.
"SPECIAL ESCROW FUND" has the meaning set forth in Article VI.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any national, provincial, regional, federal, state, local, or
foreign income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not.
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"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
ARTICLE II
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions
of this Agreement, Buyer agrees to purchase (the "PURCHASE") from each of the
Sellers, and each of the Sellers agrees to sell to Buyer, all Company Shares
owned by him, in the amount set forth in Schedule I hereto, for the
consideration specified below in this Article II, which Company Shares shall in
the aggregate comprise the Purchased Shares. Solely with respect to this
Agreement and the transactions contemplated hereby, NAI (i) assumes all
responsibilities, obligations, and liabilities of Buyer as if NAI were in fact
Buyer and (ii) will cause Buyer to perform its obligations hereunder.
(b) Purchase Price; Registration of Shares. Subject to Section
2(e) and Article VII, NAI hereby delivers to the Sellers at the Closing the
number of shares of NAI Common Stock equal to (i) $10,654,255 (USD) divided by
(ii) the Determined Price (the "PURCHASE PRICE") allocated among the Sellers as
set forth in Schedule I hereto. The shares of NAI Common Stock paid in respect
of the Purchase Price shall be registered under the United States Securities Act
of 1933, as amended, in accordance with the provisions of the Registration
Rights Agreement attached hereto as Exhibit B-1.
(c) The Closing. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of B Cremades Y
Asociados, Goya 18, Madrid, Spain or such other place as NAI and Sellers
mutually determine, upon the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as NAI and the Sellers may mutually
determine (the "CLOSING DATE).
(d) Deliveries at the Closing; Transfer of Title. At the Closing,
(i) the Sellers will deliver to NAI the various certificates, instruments, and
documents referred to in Section 6(a) below, (ii) NAI will deliver to the
Sellers the various certificates, instruments, and documents referred to in
Section 6(b) below, (iii) each of the Sellers will deliver to Buyer stock
certificates representing the number of his Company Shares set forth in Schedule
I hereto, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) NAI will deliver to the Sellers the number of shares of NAI
Common Stock as set forth in Section 2(b) above. The full and unrestricted
ownership and title to the Shares shall pass from the Sellers to Buyer upon the
execution of this Agreement by each Party. To that extent, the Sellers shall
sign before the notary public and then deliver the Transfer Deed in the form
attached as Exhibit B-6, as well as all other documents, if any, required for
the valid and effective transfer and registration of the title to the Shares in
the name of Buyer. It is understood that the Transfer Deed is signed only in
order to implement the present transaction according to art. 17 of the Spanish
Foreign Investment Act and that for whatever not provided in the Transfer Deed
and the provisions of this Agreement, the provisions of this Agreement shall
prevail. In addition, subject to Article II and
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Article VII hereof, the full unencumbered ownership and title to the shares of
NAI Common Stock to be issued pursuant to this Agreement shall pass to Sellers
upon the execution of this Agreement by each Party.
(e) Escrow Deposit. At the Closing, from the Purchase Price
otherwise payable pursuant to this Article II, NAI shall deposit on behalf of
Sellers each of the General Escrow Amount and the Special Escrow Amount into
separate escrow accounts pursuant to Article VII hereof. The portion of such
escrowed amounts contributed on behalf of each Seller shall be in proportion to
such Seller's Proportionate Escrow Interest.
(f) Purchase Price Adjustment. The Purchase Price will be subject
to adjustment as follows:
(i) Closing Balance Sheet. As soon as practicable following
the Closing, the Company will, at the expense of NAI and Buyer, prepare and
cause to be audited by Coopers & Lybrand L.L.P., or its successor, if any,
independent accountants, and the Company will deliver to NAI and each of the
Sellers, 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
GAAP consistent with the basis of accounting and procedures and methods employed
by the Company in its Financial Statements, as defined in Section 4(g) below.
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 NAI, the Sellers and the Company, and the independent
auditors will answer such questions as NAI or the Sellers may have and provide
such additional schedules and materials as NAI or the Sellers 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), 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) determined in accordance with GAAP and the considerations
specified in Section 4(g) of the Sellers Disclosure Schedule. For purposes of
determining Tangible Net Worth, all reserves in respect of bad debts or doubtful
accounts shall be excluded from (i.e., will not reduce) Tangible Net Worth.
(iii) Disputes. At any time within 30 days following the
delivery of the Closing Balance Sheet to NAI and each of the Sellers (the
"REVIEW PERIOD"), NAI or both Sellers 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 2(f)(i); each of NAI and both Sellers will notify the other in writing
of each such disputed item, and will specify the amount thereof in dispute, not
later than the expiration of the Review Period. If NAI and the Sellers are able
to resolve all the disputed items, then the Closing Balance Sheet agreed upon by
NAI and the Sellers will be final, binding and conclusive on the parties hereto.
If NAI and the Sellers are unable to resolve any disputed
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<PAGE> 12
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, then within 10 days thereafter either NAI or both Sellers may
elect that the items remaining in dispute be submitted for resolution to a "Big
Five" accounting firm in Spain (excluding NAI's and Company's independent
accountants and 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 NAI and the
Sellers (or failing such agreement, appointed by the American Arbitration
Association) (the "ACCOUNTANTS"). The Accountants will, within 30 days after
submission, determine, based solely on presentations by NAI and the Sellers (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 General Escrow Fund established under
Article VII if the Tangible Net Worth amount finally determined pursuant to this
Section 2(f)(i) shall be more than $25,000 (USD) below the Tangible Net Worth
amount reflected on the Closing Balance Sheet originally submitted pursuant to
Section 2(f)(i) hereof, or (b) will be borne by NAI if the Tangible Net Worth
amount finally determined pursuant to this Section 2(f)(i) is less than $25,000
(USD) below the Tangible Net Worth amount reflected on the Closing Balance Sheet
originally submitted pursuant to Section 2(f)(i) hereof. NAI and the Sellers
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 is
less than PTAS 226,250,000 (or the equivalent amount of US dollars determined
according to the representative rate of exchange on the second full trading day
immediately prior to the closing of the Purchase as published in the Spanish
Official State Gazette), then the Purchase Price shall be reduced (based on the
Determined Price), and the amounts payable to the Sellers shall be reduced, to
the extent of such deficiency. NAI shall provide written notice of such
deficiency to the Escrow Agent pursuant to the provisions of Article VII, and
the deficiency shall be payable to the NAI from the General Escrow Account as an
escrow claim thereunder (pursuant to the procedure set forth in such Article
VII, except that no objection may be made by Sellers to a claim submitted
following the resolution of a dispute pursuant to Section 2(f)(iii)).
ARTICLE III
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the
Sellers severally (but not jointly) represents and warrants to NAI and Buyer
that the statements contained in this Section 3(a) are correct and complete as
of the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this
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<PAGE> 13
Agreement throughout this Section 3(a)) with respect to himself, except as set
forth in the Sellers Disclosure Schedule attached hereto.)
(i) Authorization of Transaction. Each Seller has full power
and authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each Seller, enforceable in accordance with its
terms and conditions. None of the Sellers need give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which any Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which any Seller is a party or by which he is bound or to which any of his
assets is subject.
(iii) Brokers' Fees. None of the Sellers has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement or the
Collateral Documents for which NAI or Buyer could become liable or
obligated.
(iv) Company Shares. Each Seller holds of record and owns
beneficially the number of Company Shares set forth next to his name on
Schedule I, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. None of the Sellers is a party
to any option, warrant, purchase right, or other contract or commitment
that could require any Seller to sell, transfer, or otherwise dispose of
any capital stock of the Company (other than this Agreement). None of the
Sellers is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company. Each Seller is solvent.
(b) Representations and Warranties of NAI and Buyer. Each of NAI
and Buyer represents and warrants to each of the Sellers that the statements
contained in this Section 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b)).
(i) Organization of NAI and Buyer. Each of NAI and Buyer is
a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation.
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<PAGE> 14
(ii) Authorization of Transaction. Each of NAI and Buyer has
full power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligations of NAI and Buyer, enforceable in accordance with its terms and
conditions. Except as set forth in Section 3 of the Disclosure Schedule
delivered by NAI to the Sellers (the "NAI DISCLOSURE SCHEDULE"), NAI and
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which NAI or Buyer is
subject or any provision of its charter or bylaws.
(iv) NAI Common Stock. The shares of NAI Common Stock to be
issued to the Sellers pursuant to this Agreement, 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 and Spanish securities laws. The shares of NAI
Common Stock to be issued to the Sellers pursuant to this Agreement, shall
become available for sale in the public market in connection with sales
made on Form S-3 pursuant to the Registration Rights Agreement of even
date herewith attached hereto as Exhibit B-1.
(v) Brokers' Fees. Neither NAI nor Buyer has any Liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement or
the Collateral Documents for which any Seller could become liable or
obligated.
ARTICLE IV
4. Representations and Warranties Concerning the Company and the
Sellers. The Sellers jointly and severally represent and warrant to NAI and
Buyer that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the disclosure schedule delivered by the Sellers to NAI on the date
hereof and initialed by the Parties (the "SELLERS DISCLOSURE SCHEDULE"). Nothing
in the Sellers Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
Sellers Disclosure Schedule identifies the exception with particularity and
describes the relevant facts in detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). The Sellers
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<PAGE> 15
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) Organization, Qualification, and Corporate Power. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Spain. The Company is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required. The Company has full corporate power and authority and all licenses,
permits and authorizations necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section 4(a) of the Sellers Disclosure Schedule
lists the directors and officers of the Company. The Sellers have delivered to
NAI correct and complete copies of the charter and bylaws of the Company (as
amended to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete. The Company is not in default under or in
violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the
Company consists of 10,000 Company Shares, of which 10,000 Company Shares are
issued and outstanding and no Company Shares are held in treasury. All of the
issued and outstanding Company Shares have been duly authorized, are validly
issued, fully paid, and nonassessable. The Purchased Shares are held of record
by the respective Sellers as set forth in Section 4(b) of the Sellers Disclosure
Schedule. There are no outstanding or authorized options, warrants, purchase
rights, rights of first refusal, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to any of the voting of the capital stock of the
Company.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement and the Collateral Documents, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Company is subject or any provision of the charter or bylaws of the Company
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Company is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets). Except as set forth
in Section 4(c) of the Sellers Disclosure Schedule, the Company is not required
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
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(d) Brokers' Fees. The Company has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement or the Collateral Documents.
(e) Title to Assets. The Company has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) Subsidiaries; Investments. The Company has no direct or
indirect equity participation in any corporation, partnership, trust, or other
business association (including any such entity or association that would be a
Subsidiary of the Company).
(g) Financial Statements. Attached hereto as Exhibit A are the
following financial statements (collectively the "FINANCIAL STATEMENTS"): (i)
unaudited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the years ended December 31, 1996 and 1997
(with December 31, 1997 being the "MOST RECENT FISCAL YEAR END") for the
Company; and (ii) unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "MOST RECENT FINANCIAL STATEMENTS") as
of and for the month ended April 30, 1998 (the "MOST RECENT FISCAL MONTH END")
for the Company. Except as set forth in Section 4(g) of the Sellers Disclosure
Schedule, the Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete and are consistent with the books and records of the
Company (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Except as
set forth in Section 5(h) of the Sellers Disclosure Schedule (indicating by
relevant subparagraph), since the Most Recent Fiscal Year End, there has not
been any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company. Without
limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $10,000 (USD) or outside
the Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts,
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<PAGE> 17
leases, and licenses) involving more than $10,000 (USD) to which the
Company is a party or by which it is bound;
(iv) the Company has not imposed or has not had imposed upon
it any Security Interest upon any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than $10,000
(USD) or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and acquisitions)
either involving more than $10,000 (USD) or outside the Ordinary Course of
Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$10,000 (USD) singly or $25,000 (USD) in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims)
either involving more than $10,000 (USD) or outside the Ordinary Course of
Business;
(x) the Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired
any of its capital stock;
(xiv) the Company has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to its property;
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<PAGE> 18
(xv) the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers,
and employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment
terms for any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xx) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liabilities (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) Legal Compliance. The Company has complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of national, provincial,
federal, state, regional, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply. Section 4(j) of the Sellers Disclosure
Schedule accurately lists each 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
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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 or hold any interest in its properties or
assets.
(k) Tax Matters.
(i) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed or incurred by the Company (whether or not shown
on any Tax Return) at the time of Closing have been paid or are properly
accrued. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by
an authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(iii) No Seller and to the best of the Sellers' knowledge, no
director or officer (or employee responsible for Tax matters) of the
Company expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Company either (A) claimed or raised
by any authority in writing or (B) as to which any of the Sellers and the
directors and officers (and employees responsible for Tax matters) of the
Company has Knowledge based upon personal contact with any agent of such
authority. Section 4(k) of the Sellers Disclosure Schedule lists all
national, provincial, federal, state, regional, local, and foreign income
Tax Returns filed with respect to the Company for taxable periods with
respect to which the applicable statute of limitations has not expired
(including as a result of any action by the applicable Tax authority)
indicates those Tax Returns that have been audited, and indicates those
Tax Returns that currently are the subject of audit. The Sellers have
delivered to NAI correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company with respect to the foregoing taxable periods.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Most
Recent Financial Statements (rather than in any notes thereto) and (B) do
not exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the
Company in filing its Tax Returns.
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(l) Real Property.
(i) Except as set forth in Section 4(l) of the Sellers
Disclosure Schedule, the Company does not own or has not agreed or is not
otherwise committed to purchase any real property.
(ii) Section 4(l)(ii) of the Sellers Disclosure Schedule
lists and describes briefly all real property leased to the Company. No
properties are subleased to the Company. The Sellers have delivered to NAI
correct and complete copies of the leases (as amended to date) listed in
Section 4(l)(ii) of the Sellers Disclosure Schedule. With respect to each
lease listed in Section 4(l)(ii) of the Sellers Disclosure Schedule:
(A) the lease is legal, valid, binding, enforceable,
and in full force and effect;
(B) the lease 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) no party to the lease is in breach or default, and
no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(D) no party to the lease has repudiated any provision
thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease;
(F) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold;
(G) to Seller's Knowledge, all facilities leased
thereunder have received all approvals of governmental authorities
(including licenses and permits) required in connection with the
operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(H) to Seller's Knowledge, all facilities leased
thereunder are supplied with utilities and other services necessary
for the operation of said facilities; and
(I) to Seller's Knowledge, the owner of the facility
leased has good and marketable title to the parcel of real property,
free and clear of any Security Interest, easement, covenant, or
other restriction, except for installments of special easements not
yet delinquent and recorded easements, covenants, and other
restrictions which do not impair the current use, occupancy, or
value, or the marketability of title, of the property subject
thereto.
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<PAGE> 21
(m) Intellectual Property.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the business of the Company as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to
the Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Company has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company has ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the
Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of the Company.
(iii) Section 4(m)(iii) of the Sellers Disclosure Schedule
identifies each patent or registration which has been issued to the
Company with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which the
Company has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Company
has granted to any third party with respect to any of its Intellectual
Property (together with any exceptions). The Sellers have delivered to NAI
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and have made available to NAI correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable)
of each such item. Section 4(m)(iii) of the Sellers Disclosure Schedule
also identifies each trade name or unregistered trademark used by the
Company in connection with its business. With respect to each item of
Intellectual Property required to be identified in Section 4(m)(iii) of
the Sellers Disclosure Schedule:
(A) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, enforceability,
use, or ownership of the item; and
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<PAGE> 22
(D) the Company has never agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m)(iv) of the Sellers Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and that the Company uses pursuant to license, sublicense, agreement, or
permission. The Sellers have delivered to NAI correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended
to date). With respect to each item of Intellectual Property required to
be identified in Section 4(m)(iv) of the Sellers Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full
force and effect;
(B) the license, sublicense, agreement, or permission
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 (including the assignments and
assumptions referred to in Section 2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through
(D) above are true and correct with respect to the underlying
license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
(v) To the Knowledge of any of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
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<PAGE> 23
Intellectual Property rights of third parties as a result of the continued
operation of its business as presently conducted and as presently proposed
to be conducted.
(vi) As of the Closing Date, all Intellectual Property which
has been, is or will be used by the Company or its predecessors in the
conduct of its businesses has been validly transferred to the Company free
and clear of all Security Interests or other claims.
(n) Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each such tangible asset is free from defects
(patent and latent) and Security Interests, has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for which it
presently is used and presently is proposed to be used.
(o) Inventory. The inventory of the Company consists of purchased
goods and finished goods, all of which are merchantable and fit for the purpose
for which they were procured and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory write down set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
(p) Contracts. Section 4(p) of the Sellers Disclosure Schedule
lists the following contracts and other agreements to which any of the Company
is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $10,000 (USD) per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a material loss to the Company, or involve consideration in
excess of $10,000 (USD);
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$10,000 (USD) or under which it has imposed a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with any of the Sellers and their
Affiliates (other than the Company);
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<PAGE> 24
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 (USD) or providing severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business; or
(xi) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company.
The Sellers have delivered to NAI a correct and complete copy of each written
agreement listed in Section 4(p) of the Sellers Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4(p) of the Sellers Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement 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) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts
receivable of the Company are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
(r) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company other than those identified in
Section 4(r) of the Sellers Disclosure Schedule.
(s) Insurance. Section 4(s) of the Sellers Disclosure Schedule
sets forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
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 year:
(i) the name, address, and telephone number of the agent;
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<PAGE> 25
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
Section 5(s) of the Sellers Disclosure Schedule properly identifies each current
insurance policy. With respect to each such current 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 4(s) of the Sellers Disclosure Schedule describes any
self-insurance arrangements affecting the Company.
(t) Litigation. Section 4(t) of the Sellers Disclosure Schedule
sets forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4(t) of the Sellers Disclosure Schedule
could result in any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. None of the Sellers and to the best of the Sellers' knowledge none of
the directors and officers (and employees with responsibility for litigation
matters) of the Company has any Basis to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against the
Company.
(u) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and to the Knowledge of Sellers there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
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<PAGE> 26
Except as set forth in Section 4(u) of the Sellers Disclosure Schedule, no
product manufactured, sold, leased, or delivered by the Company is subject to
any guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 4(u) of the Sellers Disclosure Schedule
includes (i) copies of the standard terms and conditions of sale or lease for
the Company (containing applicable guaranty, warranty, and indemnity provisions)
and (ii) copies of all contracts which have nonstandard terms and conditions of
sale or lease with such nonstandard terms identified in reasonable detail.
(v) Product Liability. The Company has no Liability (and to the
Sellers' Knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company.
(w) Employees. Except as set forth in Section 4(w) of the Sellers
Disclosure Schedule, the Company is not a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practice. None of the Sellers and to
the best of the Sellers' knowledge none of the directors and officers (and
employees with responsibility for employment matters) of the Company has any
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of the Company.
(x) Employee Benefits. Section 4(x) of the Sellers Disclosure
Schedule lists each Employee Benefit Plan that the Company maintains or to which
the Company contributes or has any obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of all
applicable laws.
(B) All required reports and descriptions have been
timely filed and distributed appropriately with respect to each such
Employee Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Benefit
Plan or accrued in accordance with the past custom and practice of
the Company. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan.
(D) There have been no prohibited transactions with
respect to any such Employee Benefit Plan. No fiduciary has any
Liability for breach of fiduciary duty
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<PAGE> 27
or any other failure to act or comply in connection with the
administration or investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing, or investigation
with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or threatened. None of the Sellers and the
directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(y) Guaranties. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
(z) Environmental, Health, and Safety Matters.
(i) The Company has complied and is in compliance with all
Environmental, Health, and Safety Requirements.
(ii) The Company has not received any written or oral notice,
report or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
(iii) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company will prevent,
hinder or limit continued compliance with Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental, Health, and Safety
Requirements, or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
(aa) Certain Business Relationships with the Company. Except as set
forth in Section 4(aa) of the Sellers Disclosure Schedule, none of the Sellers
and their Affiliates has been involved in any business arrangement or
relationship with the Company since June 30, 1993, and none of the Sellers and
their Affiliates owns any asset, tangible or intangible, which is used in the
business of any of the Company.
(bb) Disclosure. The representations and warranties contained in
this Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(cc) Bank Accounts. Section 4(cc) of the Sellers Disclosure
Schedule contains a true, correct and complete list as of the date hereof of all
banks, trust companies, savings and loan
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<PAGE> 28
associations and brokerage firms in which the Company has an account or safe
deposit box and the names of all persons authorized to draw thereon or with
access thereto.
(dd) 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 be adverse to the
Company.
(ee) Solvency. As of the execution and delivery of this Agreement,
the Company is, and, as of the Closing Date, will be solvent.
(ff) Predecessor Status. Set forth in Section 4(ff) of the Sellers
Disclosure Schedule is a listing of all predecessor companies of the Company and
the names of any entities from which, since June 30, 1993, 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.
(gg) Minute Books. The minute books of the Company made available
to counsel for NAI are the only minute books of the Company and reference all
material transactions approved by the directors (or committees thereof) and
stockholders since the time of incorporation of the Company required to be
minuted in accordance with Spanish law.
(hh) Sellers Disclosure Schedule. The Sellers Disclosure Schedule
has been prepared and executed by the Sellers and dated and delivered on the
date of this Agreement. The Sellers shall endeavor to disclose in the Sellers
Disclosure Schedule each item of information in each separate section in which
such item may reasonably be required to be disclosed.
(ii) Source Code. The Sellers have caused the Company to appear
before a Spanish Notary Public and deposit with him or her one or more CD-Rom(s)
containing true and correct copies of the Company's source code together with
all relevant documentation and roadmaps, for each of its current products and
products under development (collectively, the "COMPANY SOURCE CODE") to be held
by such Spanish Notary Public pending the consummation of the Purchase. Such
deposit, made on behalf and for the exclusive benefit of the Company, shall be
conclusive evidence vis-a-vis third parties of the ownership by the Company of
all and any Intellectual Property Rights connected with the Company Source Code.
The Sellers have caused the Company to deliver to such Spanish Notary Public an
irrevocable of letter of instruction, in form and substance satisfactory to NAI,
instructing such Spanish Notary Public at his or her offices to provide NAI
access to the Company Source Code (as provided below) and to deliver the Company
Source Code to NAI or its designated representatives on the Closing Date. The
Sellers shall cause the Company to instruct such Spanish Notary Public to
provide NAI sufficient access to the Company Source Code to reasonably ensure
that the Company Source Code is what it purports to be.
Nothing in this Section 4(ii) shall entitle NAI to request or take the
originals or any copies of the Company Source Code or any part thereof prior to
the Closing Date.
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<PAGE> 29
ARTICLE V
5. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further
action is necessary or desirable to vest Buyer with full right, title and
possession to the Purchased Shares or otherwise carry out the purposes of this
Agreement and the Collateral Documents (including the transfer to the Company of
any Intellectual Property used or purported to be used by the Company in the
conduct of its business prior to the Closing Date), each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Article VII below). Further, the
officers and directors of the Company are fully authorized in the name of the
Company or otherwise to take, and will take, all such lawful and necessary
and/or desirable action so long as such action is consistent with this
Agreement.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Article VII below).
(c) Transition. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing.
(d) Confidentiality. Each of the Sellers, NAI and Buyer will treat
and hold as such all of the Confidential Information, refrain from using any of
the Confidential Information except in connection with this Agreement and the
Collateral Documents, and deliver promptly to the other Party or destroy, at the
request and option of the other Party, all tangible embodiments (and all copies)
of the Confidential Information which are in his or its possession. In the event
that any of the Parties is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, then the party receiving such request will notify the other Party
promptly of the request or requirement so that the other Party may seek an
appropriate protective order or waive compliance with the provisions of this
Section 5(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Parties is, on the advice of counsel, compelled to
disclose any Confidential
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<PAGE> 30
Information to any tribunal or else stand liable for contempt, that Party may
disclose the Confidential Information to the tribunal; provided, however, that
the disclosing Party shall use his or its reasonable best efforts to obtain, at
the reasonable request of the other Party, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the other Party shall designate.
Notwithstanding the foregoing, (i) the obligation of the Sellers hereunder shall
relate to Confidential Information of the Company, NAI and Buyer and (ii) the
obligations of NAI and Buyer hereunder shall relate to Confidential Information
of the Sellers.
ARTICLE VI
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of NAI and Buyer. The obligations of
NAI and Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3(a) and Section 4 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with all
of their covenants hereunder in all material respects through the Closing;
(iii) the Company shall have procured all of the third party
consents;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any national, provincial, federal, regional, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation
of any of the transactions contemplated by this Agreement, (B) cause any
of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of the Buyer to own
the Company Shares and to control the Company, or (D) affect adversely the
right of the Company to own its assets and to operate its business (and no
such injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Sellers shall have delivered to NAI a certificate to
the effect that each of the conditions specified above in Section
6(a)(i)-(v) is satisfied in all respects;
(vi) the relevant parties shall have entered into Collateral
Documents in form and substance as set forth in EXHIBITS B-1 through B-6
attached hereto and the same shall be in full force and effect;
(vii) NAI and its counsel shall be satisfied with the status
of the Company's existing and previous arrangements pursuant to which such
entity distributes or distributed third party products or services;
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(viii) the Company and the other parties thereto shall have
executed the Intellectual Property Transfer Document in the form of
EXHIBIT B-7 and such document shall be in full force and effect and the
Company shall have terminated all royalty payment arrangements; and
(ix) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form
and substance to the NAI; and
(x) Sellers shall have delivered to NAI and its counsel a
public deed evidencing that Sellers have fully paid in all share capital
of the Company.
NAI and Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3(b) above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) NAI and Buyer shall have performed and complied with all
of their covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any national, provincial, federal, state, local, or foreign jurisdiction
or before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) NAI shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in Section
6(b)(i)-(iii) is satisfied in all respects;
(v) the relevant parties shall have entered into the
Collateral Documents in form and substance as set forth in EXHIBITS B-1
through B-7 and each of the same shall be in full force and effect;
The Sellers may waive any condition specified in this Section 6(b) if they
execute a writing so stating at or prior to the Closing.
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ARTICLE VII
7. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
covenants, representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty or covenant at
the time of Closing) and continue in full force and effect until March 31, 1999.
The foregoing shall not limit the provisions with respect to the Special Escrow
Fund.
(b) Indemnification Provisions. The indemnification provisions
contained herein are in addition to, and not in derogation of, any statutory,
equitable, or civil law remedy under Spanish law (including without limitation
any such remedy arising under Environmental, Health, and Safety Requirements)
any Party may have with respect to the Company, or the transactions contemplated
by this Agreement. Each of the Sellers hereby agrees that he or it will not make
any claim for indemnification against the Company by reason of the fact that he
or it was a director, officer, employee, or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by NAI or Buyer against
such Seller (whether such action, suit, proceeding, complaint, claim, or demand
is pursuant to this Agreement, applicable law, or otherwise).
(c) Escrow Arrangements.
(i) Escrow Funds.
(A) General. As provided in Section 2(f), at Closing,
on behalf of the Sellers, NAI shall deposit with Greater Bay Trust
Company, as Escrow Agent (the "ESCROW AGENT"), the General Escrow
Amount, which shall constitute a general escrow fund (the "GENERAL
ESCROW FUND") and the Special Escrow Amount, which shall constitute
a special escrow fund (the "SPECIAL ESCROW FUND") each to be
governed by the terms set forth herein (the General Escrow Fund and
the Special Escrow Fund together the "ESCROW FUNDS"). The portion of
the General Escrow Amount and the Special Escrow Amount contributed
by NAI on behalf of each Seller, as applicable, shall correspond to
such Seller's Proportionate Escrow Interest. Each Seller shall be
entitled to all voting rights with respect to any NAI Common Stock
held in escrow on his behalf.
(B) General Escrow Fund. The General Escrow Fund shall
be available to compensate NAI and its Subsidiaries for (i) any
claim, loss, expense, liability or other damage, including
reasonable attorneys' fees, costs of investigation and disbursements
in connection with any action, suit or proceeding, to the extent of
the amount of such claim, loss, expense, liability or other damage
(collectively "LOSSES") that NAI and its Subsidiaries or any of
their affiliates
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<PAGE> 33
has incurred (or, in the case of an extension of the General Escrow
Period pursuant to Section 7(c)(ii), reasonably anticipates
incurring), by reason of the breach by the Sellers of any
representation, warranty, covenant or agreement of the Sellers
contained herein or in any Collateral Document or the Sellers
Disclosure Schedule; (ii) any accounts receivable that are
outstanding as of the Closing Date as determined in the Closing
Balance Sheet that are uncollected subsequent to the Closing Date;
and (iii) payment of any Losses otherwise agreed to be paid by
Sellers (including as set forth in the Sellers Disclosure Schedule);
provided, however, that (x) solely for purposes of determining
whether a breach of any representation or warranty or covenant has
occurred, and the amount of any Losses attributable to any such
breach, any qualification as to materiality set forth therein shall
not be given effect; and (y) claims for Losses incurred as a result
of a breach by a Seller of any of the representations set forth in
Section 3(a) shall be satisfied out of such Seller's Proportionate
Interest of the General Escrow Fund until such Proportionate Escrow
Interest is exhausted, and then shall be satisfied out of the
General Escrow Fund in accordance with this Agreement.
Notwithstanding the foregoing, with respect to Losses contemplated
in clause (i) above, NAI and its Subsidiaries shall not be entitled
to receive any disbursement or cause any amount to be retained in
the General Escrow Fund with respect to any Losses arising in
respect of any individual occurrence or circumstance unless the
amount of such Losses shall exceed $10,000 (USD), provided that in
the event that the aggregate amount of such Losses of NAI and its
Subsidiaries shall exceed $40,000 (USD) (without regard to the
foregoing $10,000 (USD) limitation), then NAI or its Subsidiaries
shall be entitled to recover from the General Escrow Fund all such
Losses (without regard to the individual $10,000 (USD) limitations).
(C) Special Escrow Fund. The Special Escrow Fund shall
be available to compensate NAI and its Subsidiaries for any Losses
("SPECIAL LOSSES") that NAI and its Subsidiaries or any of their
affiliates has incurred (or in the case of an extension of the
Special Escrow Period pursuant to Section 7(c)(ii), reasonably
anticipates incurring) by reason of the Special Tax Matters.
"SPECIAL TAX MATTERS" means the Company's Intellectual Property
license arrangements in place prior to the Closing Date and
terminated on the Closing Date pursuant to Section 6(a)(viii) in
connection with (i) both the royalty payments and the definitive
transfer of said Intellectual Property; (ii) the Value Added Tax, if
any, payable in connection with the Company's royalty payments; and
(iii) any withholding taxes or other personal income taxes as well
as any corporate tax impact thereof in connection with the amounts
paid to the Company's employees including but not limited to those
paid as out-of-pocket and travel expenses.
(ii) Escrow Periods; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the General Escrow Fund
shall remain in existence until March 31, 1999 (the "GENERAL ESCROW
PERIOD") and the Special Escrow Fund shall remain in existence until the
lapsing of the applicable statute of limitations in respect of relevant
Taxes attributable to the Special Tax Matters (the "SPECIAL ESCROW
PERIOD"), in each case, subject to extension as set forth below. At the
expiration of the General Escrow Period, the General Escrow Fund shall be
released from escrow to the Sellers, in an amount equal to the entire
initial General Escrow Fund less an amount equal to the sum of (i) all
amounts theretofore paid out of
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the General Escrow Fund to NAI and its Subsidiaries pursuant to this
Article VII, (ii) an amount equal to such portion of the General Escrow
Fund which, in the reasonable judgment of NAI, subject to the objection of
both Sellers (and the subsequent arbitration of the matter in the manner
provided in Section 7(c)(vii) hereof), is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore
delivered to the Escrow Agent prior to the end of the General Escrow
Period (which amount shall remain in the General Escrow Fund (and which
shall cause the General Escrow Fund shall remain in existence) until such
claims have been resolved). At the expiration of the Special Escrow
Period, the Special Escrow Fund shall be released from escrow to the
Sellers, in an amount equal to the entire initial Special Escrow Fund less
an amount equal to the sum of (i) all amounts theretofore paid out of the
Special Escrow Fund to NAI and its Subsidiaries pursuant to this Article
VII, (ii) all amounts theretofore paid out of the Special Escrow Fund to
Sellers pursuant to Section 7(c)(iii) below and (iii) an amount equal to
such portion of the Special Escrow Fund which, in the reasonable judgment
of NAI, subject to the objection of both Sellers (and the subsequent
arbitration of the matter in the manner provided in Section 7(c)(vii)
hereof), is necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate theretofore delivered to the Escrow Agent prior to
the end of the Special Escrow Period (which amount shall remain in the
Special Escrow Fund (and which shall cause the Special Escrow Fund shall
remain in existence) until such claims have been resolved). As soon as all
such claims have been resolved following the end of the General Escrow
Period and the Special Escrow Period, as applicable, the Escrow Agent
shall deliver to the eligible Sellers the remaining portion of the General
Escrow Fund and Special Escrow Fund, as applicable, not required to
satisfy such claims. Deliveries of escrowed amounts to the Sellers
pursuant to this Section shall be made according to each Seller's
Proportionate Escrow Interest as certified to the Escrow Agent by the
Sellers.
(iii) Interim Distributions from Special Escrow Fund. Promptly
following each of the dates set forth on Schedule 7(c)(iii), the Escrow
Agent shall cause to be paid to the eligible Sellers (in accordance with
their Proportionate Escrow Interest) an amount equal to the entire initial
Special Escrow Fund less an amount equal to the sum of (i) the minimum
Special Escrow Amount indicated on Schedule 7(c)(iii) in respect of such
indicated date and (ii) the aggregate amount of all unsatisfied good faith
claims by NAI and its Subsidiaries against the Special Escrow Fund
(subject to arbitration of the matter in the manner provided in Section
7(c)(vii)) not yet paid by the Escrow Agent prior to such date to the
extent and amount of any Tax dispute or challenge. Notwithstanding the
foregoing, (without duplication) no distribution shall be payable with
respect to any particular date if, the Company or the Sellers shall have
been notified of, any Tax investigation, dispute or challenge related to
the relevant Tax Period and related Special Tax Matters or any act by the
applicable tax authority which could serve to toll the expiration of the
applicable statute of limitations.
(iv) Protection of Escrow Funds. The Escrow Agent shall hold
and safeguard the Escrow Funds during the applicable escrow period, shall
treat such fund as a trust fund in accordance with the terms of this
Agreement and not as the property of NAI and shall hold and dispose of the
Escrow Funds only in accordance with the terms hereof.
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(v) Claims Upon Escrow Funds. Upon receipt by the Escrow
Agent at any time on or before the last day of the General Escrow Period
or Special Escrow Period, as applicable, of a certificate signed by any
officer of NAI (an 'OFFICER'S CERTIFICATE'): (A) stating that NAI or its
Subsidiaries has incurred and paid or properly accrued Losses or Special
Losses, as applicable (or reasonably anticipates that it may have to pay
or accrue Losses or Special Losses, as applicable), and (B) specifying in
reasonable detail the individual items of Losses or Special Losses, as
applicable, included in the amount so stated, the date each such item was
incurred and paid or properly accrued, or the basis for such anticipated
liability, and in the case of Losses the nature of the misrepresentation,
breach of warranty or claim to which such item is related, the Escrow
Agent shall, subject to the provisions of Section 7(c)(vi) and 7(c)(vii)
hereof, deliver, as promptly as practicable, to NAI or its Subsidiaries
out of the General Escrow Fund or Special Escrow Fund, as applicable, such
amounts held in the applicable Escrow Fund equal to such Losses or Special
Losses. NAI shall submit an Officer's Certificate only in good faith.
Claims in respect of Special Losses shall be made in accordance with the
additional provisions set forth in Section 7(c)(v) of the NAI Disclosure
Schedule. NAI or its Subsidiaries will only make claims against the
Special Escrow Fund based on any provisional or definitive Tax assessment
by the applicable Spanish Tax authorities. NAI and its Subsidiaries
further agrees not intentionally initiate or prompt such an investigation
or assessment.
(vi) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, Escrow Agent or NAI shall
promptly notify each of the Sellers via facsimile pursuant to Section 8(f)
below and a duplicate copy of such certificate shall be delivered to each
of the Sellers, and for a period of twenty (20) days after such delivery
the Escrow Agent shall make no delivery to NAI or its Subsidiaries of any
General or Special Escrow Amount(s) specified in such Officer's
Certificate unless the Escrow Agent shall have received written
authorization from each of the Sellers to make such delivery. After the
expiration of such twenty (20) day period, the Escrow Agent shall make
delivery of an amount from the applicable Escrow Fund in accordance with
such Officer's Certificate and Section (c)(v) hereof, provided, that, no
such payment or delivery may be made if both Sellers 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 twenty (20) day period. The Sellers will only submit an
objection in good faith.
(vii) Resolution of Conflicts; Arbitration.
(A) In case both Sellers shall so object in writing to
any claim or claims made in any Officer's Certificate, the Sellers
and NAI shall attempt, within sixty (60) days from such written
objection, in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Sellers and NAI
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 signed by NAI and the Sellers and distribute amounts from
the Escrow Funds in accordance with the terms thereof.
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(B) If no such agreement can be reached after good
faith negotiation, then after such sixty (60) day period either NAI
or both Sellers 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 or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. NAI and both Sellers
shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator (who shall be affiliated
with a Big Five accounting firm or any successor thereto (other than
Price Waterhouse, Coopers & Lybrand or Arthur Andersen)). Failing
agreement on the appointment of the third arbitrator, such third
arbitrator shall be appointed by the American Arbitration
Association. The arbitrators shall, within ten (10) business days
after the last day of any hearings on any motion, issue a definitive
ruling on such motion. The arbitrator shall also, within twenty (20)
business days from the last day of any hearings regarding the
issuance of any awards, issue a definitive ruling on the issuance of
any such award in such arbitration. The arbitrators shall also
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 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 Article VII hereof, the Escrow Agent
shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund(s) in 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.
(C) In no event may punitive or exemplary damages be
awarded in any arbitration, and arbitration between the parities
shall be final and binding. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any
such arbitration shall be held in Madrid, Spain. Each party to any
arbitration pursuant to this Section 7(c)(vii) shall pay its own
expenses; the fees of each arbitrator and any administrative fee of
the sponsoring arbitration entity, if any, shall be borne equally by
NAI, on the one hand, and the Sellers, on the other.
(viii) Third-Party Claims. In the event NAI or its
Subsidiaries become aware of a third-party claim which NAI or its
Subsidiaries believe may result in a demand against the Escrow Funds, NAI
shall promptly notify each of the Sellers of such claim shall deliver to
each of the Sellers a copy of such claim, complaint or demand, and the
Sellers who have monies in
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the escrow shall be entitled, at their expense, to participate in any
defense of such claim. NAI shall consult with the Sellers prior to the
settlement of any such claim and discuss with the Sellers in good faith
any input regarding the claim and potential settlement the Sellers may
have prior to any settlement. After such consultation, NAI shall have the
right in its sole discretion to settle any such claim. The foregoing
provisions with respect to the Sellers' participation at their expense
shall in no event entitle the Sellers to initiate or conduct any
negotiations with respect to any third party claims (including any claims
with respect to Special Losses) without the physical presence and
participation of NAI's representatives. Notwithstanding any provision to
the contrary, in defending any Special Tax Matter, NAI agrees to retain,
and maintain for so long as such counsel performs to NAI's reasonable
satisfaction, Diaz-Arias as its Spanish tax counsel.
(ix) Escrow Agent's Duties.
(A) 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 NAI and the Sellers, 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 written advice
of counsel shall be conclusive evidence of such good faith.
(B) 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.
(C) 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.
(D) 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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(E) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to NAI and each of
the Sellers; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent
which shall be accomplished as follows: NAI and the Sellers shall
use their best efforts to mutually agree upon a successor escrow
agent within thirty (30) days after receiving such notice. If the
parties fail to agree upon a successor escrow agent within such
time, NAI shall have the right to appoint a successor escrow agent
(which, in such case, shall be a financial institution with assets
of at least $1 billion (USD)). 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.
(x) Fees. All fees of the Escrow Agent for performance of
its duties hereunder shall be paid by NAI. It is understood that the fees
and usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by the
Agreement.
(d) Limitation on Liability. Notwithstanding any other provision
of this Agreement to the contrary, absent fraud or bad faith, the liability of
each Seller with respect to any claim for a breach of any representation,
warranty, covenant or agreement contained in this Agreement, the Collateral
Documents or the Sellers Disclosure Schedule shall be limited to the amount of
the sum of the General Escrow Fund and the Special Escrow Fund with all claims
being made, as applicable, first against such Seller's Proportionate Escrow
Interest in the General Escrow Fund and Special Escrow Fund.
(e) Valuation of Escrowed NAI Common Stock. In accordance with the
requirements of pooling of interests accounting, for the purposes of satisfying
claims made against the General Escrow Fund and the Special Escrow Fund, shares
of NAI Common Stock held in such escrow shall be valued at the Determined Price.
ARTICLE VIII
8. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement prior to the Closing without the prior written approval of NAI
and the Sellers; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its best efforts to advise the other Parties
prior to making the disclosure) or immediately thereafter if prior advise is not
possible.
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(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements (including, but not limited to
the Letter of Intent dated May 27, 1998), or representations by or among the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(c) Succession and Assignment's Parties in Interest. This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of NAI and the Sellers;
provided, however, that NAI or Buyer may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates and (ii) designate one or
more of its Affiliates to perform its obligations hereunder (in any or all of
which cases NAI or Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder). Nothing in this Agreement,
express or implied, is intended to or shall confer upon any third-party Person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers:
Carlos Jimenez Suarez
Nunez de Balboa
91 Madrid Spain
and
Javier Perea Romero
Plaza Ciudad de Viena
6 Tres Cantos Madrid Spain
With a Copy to:
Garrigues & Andersen
Jose Abascal, 41
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<PAGE> 40
28003 Madrid Spain
Attention: George S. Hunter, Esq.; Ramon Bustillo, Esq.
Telephone: 34-91-514-52-00
Telecopier: 34-91-399-24-08
If to the Escrow Agent:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
Palo Alto, CA 94301
Attention: Ana Paivah
Telephone No.: 650-614-5720
Facsimile No.: 650-473-1326
If to NAI or Buyer:
Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051-0963
Attention: Richard Hornstein, Esq.
Gregory P.G. Wharton, Esq.
Telephone: (408) 988-3832
Telecopier:
With a Copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper, Esq.
Kurt J. Berney, Esq.
Telephone: (650) 493-9300
Telecopier: (650) 493-6811
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
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(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of Spain without giving effect to
any choice or conflict of law provision or rule (whether of Spain or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than Spain.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by NAI
and each of the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(i) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(j) Expenses. Each of the Parties and the Company will bear his or
its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that the Company has not borne and will not bear any of the
Sellers' costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(k) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any national, provincial,
federal, regional, state, local, or foreign statute or law shall be deemed also
to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word 'including' shall mean including without
limitation. The Parties intend that each representation, warranty, and covenant
contained herein shall have independent significance. If any Party has breached
any representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating to
the same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(l) Incorporation of Exhibits and Schedules. The Exhibits, and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(m) Arbitration.
(i) Without limitation, and except to the extent provided
for in Article VII with respect to the resolution of conflicts related to claims
upon the Escrow Funds in the event of any
-36-
<PAGE> 42
dispute arising in connection with this Agreement it shall be settled by
arbitration under the Rules of Arbitration of the International Chamber of
Commerce. Each Party shall appoint one arbitrator and the two so appointed shall
appoint a third who shall act as President of the arbitral tribunal: If either
Party fails to appoint an arbitrator within 30 days of its receipt of notice of
the other Party's nomination or the two arbitrators appointed by the parties
fail to appoint a third arbitrator within thirty days of the appointment of the
second arbitrator, then, at the request of either Party the default in
appointment shall be made good by an appointment under the procedure established
under Article VII of the abovementioned Rules. The proceedings shall be held in
the English language unless the parties to the dispute otherwise agree. The
arbitration shall take place in Madrid. The parties irrevocably submit
themselves to the award of the arbitrators under this provision in lieu of
judicial proceedings in any jurisdiction whatsoever .
(ii) The arbitral tribunal shall apply the laws of Spain. The
award made by the arbitrators shall be final and binding upon the parties to the
arbitration and may be enforced in any court of competent jurisdiction. Costs
shall follow the award.
*****
-37-
<PAGE> 43
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
NETWORKS ASSOCIATES, INC.
a Delaware corporation
By:______________________________________
Its:_____________________________________
NA COMBINATION COMPANY, INC.
a Delaware corporation
By:______________________________________
Its:_____________________________________
SELLERS
CARLOS JIMENEZ SUAREZ
_________________________________________
JAVIER PEREA ROMERO
_________________________________________
Accepted and agreed as to the provisions of Article II and Article VII as they
relate to the duties and responsibilities of the Escrow Agent:
ESCROW AGENT
By:______________________________
Its:_____________________________
<PAGE> 1
EXHIBIT 2.2
S H A R E P U R C H A S E A G R E E M E N T
THIS SHARE PURCHASE AGREEMENT, entered into on this 29th day of June, 1998, by
and among Massimo Santini ("Santini"), Valentino Zullo ("Zullo") and Giovanni
Fracasso ("Fracasso") (each, individually a "Seller" and collectively, the
"Sellers") and FSA Combination Corporation, a corporation organized and existing
under the laws of Delaware, United States of America, having its principal
office at 3965 Freedom Circle, Santa Clara, California 95054, United States of
America (the "Purchaser"). The Purchaser is a one hundred percent (100%)
subsidiary of Networks Associates, Inc. ("NAI"), a corporation organized and
existing under the laws of Delaware, United States of America.
WITNESSETH:
WHEREAS, the Sellers own one hundred per cent (100 %) of the issued and
outstanding ownership quotas in CSB Consulenza Software di Base Srl, an Italian
company engaged in the business of reselling software applications and services,
having its registered office in Milan, Italy (the "Company"), distributed as
follows:
<TABLE>
<CAPTION>
QUOTA %
----- -
<S> <C> <C>
Santini 7,200,000 36
Zullo 6,400,000 32
Fracasso 6,400,000 32
</TABLE>
WHEREAS, the Purchaser is willing to acquire all of the issued and outstanding
shares in the Company and the Sellers are willing to sell and transfer such
shares to the Purchaser subject to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, the Parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, unless expressly otherwise stated or
evident in the context, the following terms shall have the following
meanings, the singular (where appropriate) shall include the plural
and vice versa and references to Schedules and Sections shall mean
Schedules and Sections of this Agreement:
1.1 "ACCOUNTS" shall mean the statutory profit and loss
statement and balance sheet of the
Company including the notes thereto as
at the Accounts Date, together with the
accompanying management's report ,
attached hereto as SCHEDULE 1.1.
1.2 "ACCOUNTS DATE" shall mean April 30, 1998.
1.3 "AGREEMENT" shall mean this Share Purchase Agreement
and the Schedules hereto.
<PAGE> 2
2
1.4 "ACCOUNTING PRINCIPLES" shall mean the Italian GAAP (Principi
Contabili del Consiglio Nazionale dei
Dottori Commercialisti)
1.5 "BUSINESS" shall mean the business of Company as
presently carried out by the Company,
including the assets and rights of
whatever nature, relating to such
business.
1.6 "CLOSING" shall mean the consummation of the
transaction as contemplated in Section
5.
1.7 "CLOSING ACCOUNTS" shall mean the profit and loss statement
and balance sheet of the Company as at
the Closing Date, , to be prepared in
accordance with the Accounting
Principles and as provided in Section
3.3.
1.8 "CLOSING ACCOUNTS shall mean the Closing Date.
DATE"
1.9 "CLOSING DATE" shall mean June 29, 1998 or such later
date as specified in Section 5.1.
1.10 "COMPANY" shall mean CSB Consulenza Software di
Base Srl, an Italian company entered in
the Trade Register under No.293622.
1.11 "ORDINARY COURSE OF shall mean the ordinary course of
BUSINESS" business of the Company consistent with
past customs and business practices and
always in accordance with good and sound
business practice.
1.12 "PARTY" shall mean the Purchaser or the Sellers,
as the context may require, and
"PARTIES" shall be construed
accordingly.
1.13 "PURCHASE PRICE" shall mean the aggregate purchase price
of the Shares in accordance with Section
3.
1.14 "PURCHASER" shall have the meaning as set out in the
introductory paragraph hereof.
1.15 "PURCHASER'S ACCOUNTANTS" shall mean Luciano Patelli of Coopers &
Lybrand, Milan.
1.16 "RELATED AGREEMENTS" shall mean the agreements referred to in
Section 9.1.
<PAGE> 3
3
1.17 "SELLER" shall have the meaning as set out in the
introductory paragraph hereof. When
there is any reference to the Sellers,
the reference shall be to each of the
Sellers, jointly and severally.
1.18 "SHARES" shall mean the quotas to be transferred
by the Sellers to the Purchaser as
contemplated herein, representing all of
the issued and outstanding quotas of the
Company.
1.19 "TRANSFER DEED" shall mean the agreement referred to in
Section 5.4 (a).
1.20 "TAXES" shall mean all income tax, value added
tax and any other taxes and similar
charges (including, in particular,
social security charges) imposed by any
authority, including all penalties and
interest.
2. OBJECT OF THE TRANSACTION
Upon the terms and subject to the conditions set forth herein, and in
reliance upon the representations, warranties, assurances and
undertakings made herein by each Party to the other Party, the Sellers
hereby agree to sell and the Purchaser hereby agrees to purchase the
Shares as of the Closing Date.
3. PURCHASE PRICE
3.1 PURCHASE PRICE
(a) The purchase price for the Shares (the "Purchase Price") shall
be Italian lira Eight Hundred million (800,000,000 lire),
allocated among the Sellers in proportion to their respective
participation in the Company, as below indicated.
(b) The Purchase Price shall be paid by the delivery to the
Sellers of the number identified in 3.1.(c) below of shares of
common stock of Network Associates, Inc.
("NAI-Shares").
The NAI-Shares shall be allocated among the Sellers as
follows:
<TABLE>
<S> <C>
Santini: thirty-six per cent (36 %) of the NAI-Shares equal to 3180 shares
Fracasso: thirty-two per cent (32 %) of the NAI-Shares equal to 2827 shares.
Zullo: thirty-two per cent (32 %) of the NAI-Shares equal to 28 27 shares
</TABLE>
(c) For the purpose of calculating the number (rounded in
aggregate to the nearest whole share) of the Purchaser's
shares constituting the NAI-Shares as defined in Section 3.1.
(b) above, the Parties agree to divide the Purchase Price by
the closing bid price of an NAI-share as quoted on the NASDAQ
for a day ending on the 2nd to last day prior to the Closing.
<PAGE> 4
4
For the purpose of determining the number of shares, the
Purchase price is deemed to be worth USD 451,440 by applying a
USD/ILT exchange rate equal to 0.05643.
(d) At the Closing, from the NAI-Shares otherwise deliverable
pursuant to this Section 3.1, Purchaser shall deposit 981
shares corresponding to 10% of the Purchase Price calculated
as stated in 3.1.(c) above into escrow pursuant to the escrow
agreement ("Escrow Agreement") substantially in the form
attached hereto as SCHEDULE 3.1.(d).
3.2 [DELETED]
3.3 CLOSING ACCOUNTS
(a) As promptly as practicable, and in any event not more than
thirty (30) days following the Closing Accounts Date, the
Sellers shall prepare and deliver to the Purchaser and the
Purchaser's Accountants the Closing Accounts.
(b) The Purchaser's Accountants shall verify the Closing Accounts
and shall for such purpose have access to all the records and
book-keeping material relating to the Company to the extent
required for the purposes of such verification. The Purchaser
may dispute the Closing Accounts by notifying the Sellers in
writing of the amount(s) in dispute and the basis for such
dispute within thirty (30) days from the receipt of the
Closing Accounts.
(c) The Purchaser and the Sellers shall in good faith endeavour to
resolve any dispute under Section 3.3 (b) above within thirty
(30) days from the date of receipt by the Sellers of the
Purchaser's written notice of dispute, failing which the
matter shall be finally resolved by a certified public
accountant selected by the Parties, provided that if the
parties are unable to agree, the choice made by Coopers &
Lybrand, Milan, shall govern. Such person is hereby jointly
appointed by the Parties as sole and exclusively Arbitrator,
which shall determine the issue by arbitration in accordance
with Section 10.9.
4. TRANSFER OF TITLE
The full and unrestricted ownership and title to the Shares shall pass
from the Sellers to the Purchaser at the Closing on the Closing Date
simultaneously with the fulfilment and completion of the Closing
procedures set forth in Section 5.
5. CLOSING
5.1 THE CLOSING
The Closing shall take place on the Closing Date starting at 10.00 p.m.
at the offices of Baker & McKenzie, 3 Piazza Meda, 20121 Milan, Italy.
<PAGE> 5
5
The Closing Date shall be June 29, 1998, or, subject to Section 5.5, as
soon thereafter as practicable when all the conditions precedent for
the Closing as set forth in this Section 5. have been fulfilled.
5.2 PURCHASER'S CONDITIONS PRECEDENT
The obligation of the Purchaser to close hereunder shall be subject to
the fulfilment, on or before the Closing Date, of each of the following
conditions (to the extent not waived by the Purchaser) and all of which
that require documentation shall be in form and substance satisfactory
to the Purchaser and its counsel in their reasonable judgement:
(a) New Information
The Purchaser shall not have become aware of any new information
between the date hereof and the Closing Date which in the Purchaser's
reasonable judgement would have a material adverse effect on the
Company or the Business.
(b) Board of Directors
The present members of the Board of Directors of the Company shall, to
the extent required by the Purchaser, as of the Closing Date have been
substituted with new members designated by the Purchaser.
(c) Authority Approvals
The Purchaser, the Sellers or the Company, as the case may be, shall
have obtained all necessary authorizations, approvals and consents from
all relevant authorities in Italy, the European Union or elsewhere, as
the case may be, required for the lawful and valid consummation of the
transactions contemplated hereunder.
(d) Board Approval
The Board of Directors of the Purchaser shall have approved the
consummation of the transactions contemplated hereby.
(e) Corporate Action
All corporate action necessary for the lawful and valid consummation of
the transactions contemplated hereby shall have been duly taken by the
Sellers and, as applicable, by the Company and shall be in full force
and effect. Without limiting the foregoing, a shareholders' meeting of
the Company has approved the transaction as described herein as
required by the current by-laws.
(f) Related Agreements
The Purchaser, the Sellers and, as appropriate, the Company and/or any
other relevant party shall have entered into the Related Agreements and
all the conditions precedent for the entry into force of such
agreements shall have been fulfilled.
<PAGE> 6
6
5.3 SELLERS'S CONDITIONS PRECEDENT
The obligation of the Sellers to close hereunder shall be subject to
the satisfaction, on or before the Closing Date, of each of the
following conditions (to the extent not waived by the Sellers) and all
of which that require documentation shall be in form and substance
satisfactory to the Sellers and their legal counsel in their reasonable
judgement:
(a) Warranties True
The representations, warranties and assurances given by the Purchaser
in Section 7. shall be true and correct on and as of the Closing Date
with the same effect as though such representations, warranties and
assurances had been made on and as of such date.
(b) Corporate Action
All corporate action necessary for the lawful and valid consummation by
the transactions contemplated hereby shall have been duly taken by the
Purchaser and shall be in full force and effect.
(c) Authority Approvals
The Purchaser, the Sellers or the Company, as the case may be, shall
have obtained all necessary authorizations, approvals and consents from
all relevant authorities in Italy, the European Union or elsewhere, as
the case may be, required for the lawful and valid consummation of the
transactions contemplated hereunder.
(d) Related Agreements
The Purchaser, the Sellers and, as appropriate, the Company and/or any
other relevant party shall have entered into the Related Agreements and
all the conditions precedent for the entry into force of such
agreements shall have been fulfilled.
5.4 DELIVERIES AT CLOSING
At the Closing
(a) the Sellers shall sell, transfer and convey to the Purchaser
the Shares by signing before the notary public and then
delivering the Transfer Deed in the form attached as SCHEDULE
5.4 (a), as well as all other documents, if any, required for
the valid and effective transfer and registration of the title
to the Shares in the name of the Purchaser. It is understood
that the Transfer Deed is signed only in order to implement
the present transaction according to art. 2479 of the Italian
Civil Code and that for whatever not provided in the Transfer
Deed, in case of any inconsistency between the Transfer Deed
and the provisions of this Agreement, the provisions of this
Agreement shall prevail;
(b) the Sellers shall convey to the Purchaser all the corporate
book and registers of the Company;
<PAGE> 7
7
(c) the Purchaser shall pay to each of the Sellers the
consideration referred to in Section 3.1 (b);
(d) a shareholders' meeting of the Company shall resolve upon the
appointment of a Board of Directors composed by the members
listed in SCHEDULE 5.4 (d);
(e) any other document, condition, amount or matter herein called
for to be produced, delivered, released, paid or fulfilled at
the Closing as a condition precedent shall be so produced,
delivered, released, paid and fulfilled.
5.5 BEST EFFORTS TO CLOSE
The Parties shall use their respective best efforts to cause all
necessary action to be taken in order to have all the conditions
precedent for the Closing to be fulfilled as promptly as practicable
and to have all deliveries made timely and properly as provided in
Section 5.4. Unless the Closing has taken place by June 29, 1998,
either Party may cancel this Agreement upon written notice to the other
party.
6. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF THE SELLERS
The Sellers acknowledge that the Purchaser is entering into this
Agreement in reliance on the representations, warranties and assurances
(the "Warranties") hereby given by the Sellers to the Purchaser being
true and correct both on the date hereof and on the Closing Date and
consequently the Sellers hereby represent, warrant and assure that the
statements set out in this Section 6. are true and correct both on the
date hereof and at the Closing.
6.1 ORGANIZATION, GOOD STANDING
The Company is a corporation duly organized, validly existing and in
good standing under the laws of Italy, and has full power to carry on
the Business as now being conducted.
6.2 RECORDS AND DOCUMENTATION
(a) True, complete and current copies of the Articles of
Association and registration certificates of the Company are
attached hereto as SCHEDULE 6.2 (a).
(b) All corporate documentation of the Company, including, without
limitation, share registers, minutes of the board of
directors' meetings and shareholders' meetings, exists and is
safely kept, correct, complete and up-to-date.
(c) The Company has not failed to file its annual reports with the
relevant authorities, as required.
(d) The books and records relating to the purchase of materials
and supplies, manufacture or processing of products or
services, sales of products and services, dealings with
customers, invoices, customer lists, inventories, supplier
lists,
<PAGE> 8
8
personnel records and taxes of the Company are accurate and
have been maintained consistent with good business practices
and are in the possession of the Company.
6.3 TITLE AND AUTHORITY TO TRANSFER THE SHARES; CAPITALIZATION
(a) The authorized capital stock of the Company consists of quotas
for 20,000,000 ITL. The Stock is held by the persons and in
the amounts set forth in the Recitals to this Agreement.
Sellers own all the shares of the Company and have full power,
capacity and authority to sell and transfer the Shares and to
perform all other undertakings set forth in this Agreement and
the Related Agreements. The Shares are freely transferable to
the Purchaser and are free and clear of all restrictions on
the ability to vote the Shares. The Shares are not subject to
claims, options, liens, charges and other encumbrances of any
kind.
(b) The execution of this Agreement and the Related Agreements and
the consummation of the transaction contemplated herein and
the fulfilment of the terms hereof, will not result in a
breach of any judgment, decree or order of any court or
governmental body, any applicable law or the Articles of
Association of the Sellers or the Company or any contract
binding on the Sellers or the Company.
(c) The Shares have been duly authorized, legally and validly
issued and are fully paid and non-assessable. There are no
outstanding obligations, warrants, options, depository
receipts, calls, subscriptions, pre-emptive rights, contracts
or agreements to which the Sellers or the Company are bound,
providing for the issuance of any additional shares of the
Company or obligating the Company to issue, deliver, sell,
repurchase or redeem any interest in 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, call, right, commitment or agreement. As a
result of the transactions contemplated by this Agreement, NAI
will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital
stock of the Company.
(d) The Company does not own any interest, directly or indirectly,
in any corporation, partnership or other legal entity and does
not have any branch office.
6.4 THE ACCOUNTS
The Accounts are, and the Closing Accounts in due course will be,
complete and correct in all respects and truly and correctly reflect
the results of operation, the financial condition, the assets and
liabilities of the Company as at the relevant date(s) and have been
prepared in conformity with the Accounting Principles.
In particular, the Accounts, and the Closing Accounts in due course
will, include provision in full for all liabilities which the Company
has or may incur in the future deriving from any event, act or
occurrence before the Accounts Date or the Closing Date, as the case
may be (including, without limitation, any liabilities for vacation
salaries and
<PAGE> 9
9
premiums, taxes, pension, retirement or similar obligations); they do
not overstate the value of any assets; and they include provision for
all warranty claims and for bad and doubtful debts.
6.5 ASSETS AND PROPERTIES
(a) The Company owns no real property. The Company has exclusive
title to all the other assets recorded in the Accounts except
for such assets that have been sold at ordinary market terms
in the Ordinary Course of Business after the Accounts Date.
None of the assets are subject to any liens, mortgages,
charges or other encumbrances, except as noted in the
Accounts.
(b) The Company owns or leases, and will following the
consummation of the transactions contemplated herein continue
to own and lease all the assets and rights, including
intellectual property, and produces all services required to
conduct the Business as currently conducted on a stand alone
basis and without the necessity to acquire additional assets
or services not provided in this Agreement or the Related
Agreements at additional cost.
(c) All the stock and inventory of the Company, are within
specifications and of merchantable quality.
(d) All land and buildings used or occupied by the Company are
specified in SCHEDULE 6.5 (d) attached hereto.
The present use of such properties is not restricted by any
material restriction or condition and conform to planning
regulations, fire and safety regulations, including Law
626/94, to the requirements of the relevant local authorities
and to all statutes governing the property or use thereof. All
requisite permissions have been obtained and are valid and
subsisting for all developments or alterations to or other
works on or in relation to any of the properties and all
conditions or restrictions imposed in or by any such
permissions have been complied with and nothing further
remains to be done thereunder.
6.6 INTELLECTUAL PROPERTY
(a) SCHEDULE 6.6 (a) lists all Italian and foreign patents, patent
applications and patent licenses; copyrights and copyright
licenses, including regarding software; know-how licenses;
trademarks and applications, registrations and licenses
therefor; trade names and applications, registrations and
licenses therefor; recipes, blending formulas and product
descriptions; owned or used by the Company in the operation of
its business (the "Intellectual Property"), as well as
Intellectual Property licensed by the Company to others. The
Company owns all intellectual property necessary to produce
the services presently produced, and to distribute and sell
such products and services in any country where business
presently is conducted.
(b) SCHEDULE 6.6 (b) also identifies all of the Intellectual
Property used by the Company which is owned or controlled by
any director, officer or employee of
<PAGE> 10
10
the Company. All such Intellectual Property is licensed to the
Company on a perpetual, irrevocable, fully paid up, royalty
free basis by its owner.
(c) The Intellectual Property comprises all such rights necessary
to permit the operation of the Business as now being
conducted. None of the Intellectual Property is subject to any
outstanding order, judgement, lien, encumbrance or attachment.
There are no pending or, to the best knowledge of Sellers,
threatened proceedings, litigation or other adverse claims
affecting any part of the Intellectual Property, and no person
or entity is infringing the Company's rights to the
Intellectual Property.
(d) There is no claim of infringement, violation or breach by the
Company of any domestic or foreign patents, trademarks,
copyrights or other intellectual property rights owned or
controlled by others (collectively "Others' Intellectual
Property"). There is no basis upon which a claim can
successfully be asserted against the Company for infringement,
violation or breach of any part of Others' Intellectual
Property.
(e) No Seller or, to the best knowledge of Sellers, any employee
of the Company is employed in violation of any non-disclosure
or non-competition agreement.
6.7 ACCOUNTS RECEIVABLE
All of the receivables of the Company are good and fully collectible
within one hundred and eighty (180) days from the date when they become
due and payable at the recorded amounts together with interest thereon.
6.8 PRICING OF CONTRACTS
All the tenders and contracts binding on the Company have been priced
as required by good and sound business practice and allowing for a
reasonable profit.
6.9 COMPLIANCE
(a) All authorizations and approvals necessary for the due conduct
of the Business have been duly obtained and are in full force
and effect, and the entry into and the consummation of this
Agreement will not cause any termination, revocation,
suspension or modification thereof, nor has there been any
violation of any such authorizations or approvals of any terms
thereof.
(b) The Company has been and is in full compliance with all laws
and regulations applicable to it, including terms and
conditions set in any authorizations and approvals, and with
the requirements of all applicable agencies and authorities,
and the Company has obtained all applicable authorizations and
approvals which are required under all of such laws.
<PAGE> 11
11
6.10 INSURANCE
Attached hereto as SCHEDULE 6.10 are true and complete list of all the
insurance policies, currently in effect and maintained by the Company
in respect of the Business and the Assets (the "Insurance Policies")
and details thereof. The Insurance Policies provide the types and
amounts of insurance coverage normal and customary for similar
companies in Italy.
6.11 AGREEMENTS, CONTRACTS AND COMMITMENTS
Except as set forth in Schedules 6.11. (a) to (c), whereby the
exceptions shall be supported by the relevant documents or contractual
instruments to be attached under the same schedules, :
(a) The Company is not a party to, or bound by:
(i) any option, joint venture, co-operation, license,
agency, distribution, lease or any other material
agreement;
(ii) any consultancy agreement, contract, understanding or
relationship with any officer, employee or individual
or any such agreement, contract, understanding or
relationship that contains any severance or
termination pay liabilities or obligations, except
for employment agreements for which severance
obligations are limited to the extent of mandatory
provision of Italian labour laws;
(iii) any agreement or contract outside the Ordinary Course
of Business which involves the payment of cash or
other property, an unperformed commitment, or goods
or services;
(iv) any power of attorney or any agency agreement or
arrangement with any person pursuant to which such
person is granted the authority to act for or on
behalf of the Company;
(v) any loan or credit arrangement or guarantee providing
for the borrowing or potential borrowing by the
Company or the guarantee by the Company of any sum.
(b) All agreements or contracts to which the Company is a party
are valid, binding and enforceable in accordance with their
respective terms they are not subject to change of control
clauses, and their expiration date, if falling within 6 months
after the Closing, is indicated in the Schedule 6.11 (b). The
Company is not in default in any material respect in the
performance of any of its obligations under any agreement or
contract and no event has occurred which (whether with or
without notice, lapse of time, or both) would constitute a
default thereunder by the Company.
(c) All contracts, agreements, understandings or other
arrangements regarding the provision of goods and/or services
between the Company and the Sellers or any
<PAGE> 12
12
other company in the Sellers's group of companies or any
Sellers' relatives up to the 4th degree according to the
Italian Civil Code are described in SCHEDULE 6.11 (c). The
terms and conditions on which goods and/or services are
rendered pursuant to such arrangements are at arms' length.
6.12 EMPLOYMENT AND PENSION AGREEMENTS
(a) A true, complete and current list of all employments of the
Company indicating level of employment, category and
seniority, as well as the salaries, wages and fringe benefits
paid or granted to the employees of the Company at the date
hereof are set forth in SCHEDULE 6.12 (a) and there have been
no increases in salaries, wages and fringe benefits of such
employees after the Accounts Date, except as may be required
by collective bargaining agreements. All employees are
employed for indefinite duration and according to the laws and
applicable collective agreements. There are no other employees
or individuals who can claim to be employees of the Company
except for those listed in SCHEDULE 6.12 (a) (i).
(b) No employee having management responsibility has announced his
or her termination of his or her position or employment with
the Company.
(c) Full provision has been made in the Accounts and will, in due
course, be made in the Closing Accounts, for the full amount
of all present and future liabilities in respect of employment
severence compensation (T.F.R.) or pension undertakings to be
paid to current or former directors, officers or other
employees of the Company.
(d) The Company is not in breach of any labour laws and has not
received notice, which notice remains current, of any claim
that it has not complied with any employment, labour or
related laws. All social security obligations and withholding
obligations with respect to any employee, officer or director
has always been complied with by the Company and will be
complied until the Date of Closing.
(e) The Company has neither signed, nor is it liable under any
policy of, any life or alike personal insurances in excess of
compulsory insurances, nor do any of the employees of the
Company enjoy any other benefits in excess of benefits
provided by mandatory law, except as stated in SCHEDULE 6.12
(e).
(f) There are no pending or current and, to the best knowledge of
Sellers, no threatened claims or labour litigation in respect
of the Company. No negotiations are required to be held by the
Company with trade unions under collective bargaining
agreements or otherwise as a result of the transaction
contemplated by this Agreement and no information relating
thereto is required to be conveyed to such trade unions under
collective bargaining agreements or otherwise.
<PAGE> 13
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6.13 CLAIMS; LITIGATION
The Company has not been served with any summons or notice to arbitrate
and there are no actions, arbitrations or other legal proceedings
pending or, to the best knowledge of sellers, threatened against the
Company or by the Company against any other person or entity.
6.14 ORDINARY COURSE OF BUSINESS
(a) During the period from signature hereof and until the Closing
the Sellers will ensure that the Company does not take any
action or measure which is outside the Ordinary Course of
Business, unless such action or measure is directly related to
the transactions contemplated herein or has been approved in
writing by the Purchaser.
(b) There has not since the Accounts Date been
(i) any adverse deviation by the Company from the Ordinary
Course of Business;
(ii) any adverse change in the relationship with the
customers, suppliers or employees of the Company or
with any authorities supervising the Company;
(iii) any destruction or loss of or damage to any
significant property of the Company whether or not
covered by insurance;
(iv) any additional long term debt or any additional
current liability, except in the Ordinary Course of
Business, incurred by the Company;
(v) any agreement or transaction for the sale or
acquisition of any significant assets by the Company
except in the Ordinary Course of Business;
(vi) any change in the accounting systems, policies,
principles or practices of the Company or material
change in the financial condition of the Company;
(vii) any distribution by the Company of dividends or other
distribution of any assets to its shareholder;
(viii) any other action, contract or transaction by the
Company that could have a material adverse effect on
the assets or financial conditions of the Company;
[ix] any salary increase not mandatorily set forth by the
applicable national collective bargaining agreement,
nor any increase of any consultant or directors fees.
<PAGE> 14
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6.15 TAX WARRANTIES
(a) The Company has filed with the appropriate tax authorities all
tax returns and reports in respect of any and all Taxes
required to be filed with such tax authorities and provision
in full has been made for any tax liability in the Accounts
and will, in due course, be made in the Closing Accounts.
(b) The Company has paid to the appropriate tax authorities all
Taxes required to be paid to them. The Company is not in
default in respect of nor will be liable for any Taxes for any
year or part thereof of the Company's taxable years until the
Closing Date.
(c) There are no tax audits currently pending or, to the best
knowledge of Sellers, threatened against the Company.
6.16 PRODUCT WARRANTY AND LIABILITY
No claims in respect of any product, manufactured or sold or any
service delivered by the Company is unsettled or is subject to any
dispute between the Company and any third party.
6.17 COMPETITION PRACTICES AND COMPETITION CLAUSES
(a) The Company is not bound by any non-competition undertakings
or other contractual restrictions, limitations or conditions
on the type or scope of the Business.
(b) There are no pending or, to the best knowledge of Sellers,
threatened proceedings or investigations regarding unfair
competition practices of the Company and all agreements,
practices and alike are in accordance with all applicable
competition laws and regulations and have been notified to the
relevant competition authorities when so required.
6.18 LEGAL AND OTHER COSTS
The Sellers shall bear its own fees and expenses in connection with the
preparation for and completion of the transactions contemplated hereby,
including but not limited to all fees and expenses of agents, brokers,
investment bankers, advisers, representatives, counsels and
accountants, and the Sellers shall not, directly or indirectly, charge
the Company, or otherwise seek reimbursement from the Company, for said
fees and expenses.
6.19 COMPUTER PROGRAMS
The computer equipment and the computer software programs used by the
Company are the unencumbered property of the Company and are fit and
sufficient for the purpose for which they are being used and provide
sufficient processing and storage capacity for the Business and the
Company will following the Closing be able to continue the use of said
<PAGE> 15
15
computer equipment and software free from any restrictions and without
incurring any additional costs.
6.20 NO UNDISCLOSED LIABILITIES
There are and will be no liabilities of the Company, whether existing,
future, contingent or otherwise, which relate to any fact, occurrence
or event before the Closing and which will not be reflected in full in
the Closing Accounts.
6.21 NATURE OF DISCLOSURE
Neither the Warranties nor any certificates or documents furnished or
to be furnished to the Purchaser by the Sellers or the Company, contain
or will contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in
the light of the circumstances in which they are made, not misleading.
There is no fact known to the Sellers which may now or in the future
materially and adversely affect the Business or the operations of the
Company as contemplated in the material heretofore disclosed by the
Sellers to the Purchaser.
6.22 OVERDRAFT FACILITIES
As of June 29, 1998 the Company has used the bank overdraft facilities
according to the extent indicated in SCHEDULE 6.22.
7. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF THE PURCHASER
The Purchaser hereby represents, warrants and assures
(i) that it is duly organized, validly existing and in good
standing in the jurisdiction of its incorporation; and
(ii) that all corporate action of the Purchaser required for the
lawful and valid consummation of the transactions contemplated
herein have been duly taken; and
(iii) that the Purchaser has the authority to execute, deliver and
perform this Agreement.
8. INDEMNITY
8.1 INDEMNITY OF THE SELLERS
If any of the Sellers are in breach of any of the Warranties
contained in Section 6. hereof or of any other provision contained
herein, the Sellers, jointly and severally, shall indemnify and hold
the Purchaser harmless for a period of twelve (12) months against all
damage, loss, liability or expense (including, without limitation,
reasonable expenses of investigation and attorneys' fees).
<PAGE> 16
16
No claim shall be made by Purchaser under this indemnification against
any of the Sellers until the aggregate claims hereunder exceed USD
45,000; provided, however, that in the event that the aggregate amount
of such claims exceeds USD 45,000 then Purchaser shall have the right
to recover hereunder for the full amount of such claim; and further
provided that this sentence shall not limit the recourse of Purchaser
under the Escrow described in Section 3.1 (d) which is available
regardless of any threshold except that amounts recovered thereunder
with respect to any claim shall be credited against any amount
recovered hereunder with respect to such claim. The indemnity
obligation shall in any case not exceed the aggregate amount of ITL
800,000,000 (eight hundred millions Italian Lira). The aforementioned
limitation to the indemnity obligation of Sellers hall in any event not
apply to breach of the representations and warranties contained in
Articles 6.3.
The indemnification shall occur in accordance with the following
provisions:
(a) The amount for which the Purchaser is entitled to be
indemnified hereunder shall be the full amount of the damage,
loss, liability or expense suffered by the Company and/or the
Purchaser as a result of the breach of the Warranties.
(b) Any damage, loss, liability or expense for which the Purchaser
is entitled to be indemnified hereunder shall be treated as a
reduction of the Purchase Price and shall be settled primarily
by way of deduction from any portion of the Purchase Price
that remains unpaid and to the extent any such damage, loss,
liability or expense cannot be satisfied out of such unpaid
part of the Purchase Price, the Sellers agree to reimburse the
Purchaser in cash promptly on request.
(c) Upon any payment in full to Purchaser by the Sellers pursuant
to the provisions of this Section 8., and not prior to the
payment in full, Sellers shall be subrogated to all rights to
reimbursement or indemnification against third parties
relating to the amount so paid. The Parties agree that they
will take all such steps as may be necessary or appropriate to
effect such subrogation.
(d) Any payment to be made by the Sellers under this Section 8.
will carry interest at the lesser of the maximum rate
permitted by applicable or ten per cent (10%) per annum, from
the date on which the Company and/or Purchaser defrayed said
disbursement until the date of payment.
9. ADDITIONAL AGREEMENTS
9.1 RELATED AGREEMENTS
The Sellers and the Purchaser agree to cause the following agreements
(the "Related Agreements") to be entered into before and as a condition
for Closing by the respective parties thereto:
(a) Consultancy Agreement between the Company and SI.MA S.a.s. di
Valentino Zullo;
<PAGE> 17
17
(b) Consultancy Agreement between the Company and RATIO S.a.s. di
Massimo Santini;
(c) Consultancy Agreement between the Company and INFO.TRC di
Giovanni Fracasso;
(d) Escrow Agreement;
(e) Investor Representations/Accredited Investor Questionnaire;
(f) General Release;
(g) Registration Rights Agreement;
(f) Affiliate Agreement.
9.2 NON-COMPETITION AND SECRECY
(a) The Sellers each hereby undertake for a period of one (1) year
from the Closing Date not, without the written consent of the
Purchaser, in the territory of Italy, including without
limitation, San Marino, and Vatican City to directly or
indirectly engage in, assist or have any active interest in,
own any assets or shares in or act as an agent or as an
advisor or consultant to any person, corporation or business
entity, which is or is about to become engaged in any business
competing with the Business. The foregoing agreement is in
addition to any agreements contained in any Consultancy
Agreement between a Seller and the Company.
(b) The Sellers hereby undertakes at any time whether before or
after the Closing Date not without the written consent of the
Purchaser to divulge or use, whether directly or indirectly,
for its own benefit or for the benefit of any person,
corporation or business entity other than the Purchaser or the
Company, as the case may be, any information or knowledge
concerning the operations of the Company, not in the public
domain or generally known.
(c) In case of any breach of the non-competition obligation
contained in Section 9.2 (a), which breach has not been
remedied within sixty (60) days from the receipt of a written
notice thereof, the Sellers agree to pay to the Purchaser
immediately at request by means of liquidated damages an
amount of Four Hundred Million Italian lira (400,000,000 lira)
or an amount corresponding to the aggregate sales of any
products or services in violation of Section 9.2 (a),
whichever is higher. Where the actual damages suffered by the
Purchaser or the Company as a result of such breach are
greater than the amount of liquidated damages, the Purchaser
is entitled to receive compensation for the full amount of
damages so suffered.
9.3 INTER COMPANY LIABILITIES
The Sellers shall cause any and all loans, guarantees or undertakings
given by the Company to or in favour of the Sellers and/or any other
company belonging to the
<PAGE> 18
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Sellers's group of companies to be repaid or released, as the case may
be, with effect from the Closing Date.
10. MISCELLANEOUS
10.1 NOTICES
All notices, demands or other communication, which all shall be in the
English language, to or upon the respective Parties hereto shall be
deemed to have been duly given or made when delivered by mail, telefax
or cable to the Party in question as follows:
If to the Sellers:
address: Via Brescia, 28 - Pal D/1
Cernusco s/N
20063 Milano - Italy
telefax: 011-39-2-92.14.16.44
attention: Valentino Zullo, Managing Director
with copy to: Negri - Clementi, Montinari e Savi
address: Via Montenapoleone 12, Milan
telefax: 0039 02 783091
attention: Mr. Federico Zucconi Galli Fonseca
If to the Purchaser:
address: 3965 Freedom Circle
Santa Clara, California USA 95054
telefax: 408-346-3038
attention: Richard Hornstein, Vice President
with copy to: Network Associates, Inc.
address: 4099 McEwen Road, 5th Floor
Dallas, Texas USA 75244
telefax: 972-855-2796
attention: Kent H. Roberts
or at such other address as the respective Party hereto may hereafter
specify in writing to the other Party.
10.2 SCHEDULES INCORPORATED
Each Schedule to which reference is made herein and which is attached
hereto shall be deemed to be incorporated in this Agreement by such
reference.
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19
10.3 HEADINGS
The headings of this Agreement are for convenience of reference only
and shall not in any way limit or affect the meaning or interpretation
of the provisions of this Agreement.
10.4 ASSIGNMENT
This Agreement and the rights and obligations specified herein shall be
binding upon and inure to the benefit of the Parties hereto and shall
not be assignable by either Party hereto except, in the case of the
Purchaser, to any directly or indirectly owned subsidiary or to any
other company belonging to the same group of companies provided,
however, that the Purchaser shall remain liable for the payment of the
Purchase Price as provided hereunder.
10.5 INTEGRATION
This Agreement represents the entire understanding and agreement
between the Parties with respect to the subject matter hereof and
supersedes all prior negotiations, understandings and agreements
relating to the subject matter hereof.
10.6 NO WAIVER
Failure by any Party at any time or times to require performance of any
provisions of this Agreement shall in no manner affect its right to
enforce the same, and the waiver by any Party of any breach of any
provision of this Agreement shall not be construed to be a waiver by
such Party of any succeeding breach of such provision or waiver by such
Party of any breach of any other provision hereof.
10.7 STAMP DUTY - NOTARY FEES
The stamp duty levied on the purchase of the Shares as well as the
notary fees incident to the closing of this agreement shall be borne by
the Purchaser.
10.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of Italy.
10.9 ARBITRATION
Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or invalidity thereof shall be
finally settled by arbitration in accordance with the International
Rules of the National and International Arbitration Chamber of Milan,
which the parties acknowledge to know and accept. The selection of the
arbitrators shall be in accordance with such rules, except as set forth
in Article 3.3 (c). The arbitration shall be held in Milan and the
arbitration proceedings shall be conducted in the language the
arbitrators will choose as most appropriate.
<PAGE> 20
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10.10 AMENDMENTS
Any amendments to this Agreement shall be in writing and shall have no
effect before signed by the duly authorized representatives of both
Parties.
10.11 PROVISIONS SEVERABLE
If any part of this Agreement is held to be invalid or unenforceable
such determination shall not invalidate any other provision of this
Agreement; however, the Parties hereto shall attempt, through
negotiations in good faith, to replace any part of this Agreement so
held to be invalid or unenforceable. The failure of the Parties to
reach an agreement on a replacement provision shall not affect the
validity of the remaining part of this Agreement.
10.12 PUBLICITY
Save as required for the payment of stamp duty or otherwise by law,
governmental decree, applicable stock exchange rules, any other
applicable regulations or any official action, the contents of this
Agreement, except for the transfer of the title to the Shares from the
Sellers to the Purchaser, shall remain secret indefinitely. All press
releases and other public relations activities of the Parties with
regard to the transfer of the Shares shall be mutually approved by the
Purchaser and the Sellers in advance.
10.13 COUNTERPARTS OF THE AGREEMENT
This Agreement has been executed in three (3) identical counterparts,
one (1) for the Purchaser, one (1) for the Sellers and one (1) for the
Company.
10.14 Purchaser shall take any reasonable effort to have Sellers released by
the guarantee obligation under the personal guarantees listed in
SCHEDULE 10.14. Accordingly Purchaser shall hold harmless Sellers from
any claims thereunder caused by actions taken by Purchaser or Company's
Management after Closing.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of
the day and year first above written.
FSA NA COMBINATIONCORPORATION
By: Mr. Eric Borrmann
Title: Attorney in fact
Signature:
Valentino Zullo
Massimo Santini
Giovanni Fracasso
<PAGE> 1
EXHIBIT 4.11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of July 30, 1998, by and
between Networks Associates, Inc., a Delaware corporation (the "COMPANY"), and
the undersigned shareholders (the "SHAREHOLDERS") of Anyware Seguridad
Informatica, S.A., a corporation organized under the laws of Spain ("ASI").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, NA
Combination Company, Inc., a Delaware corporation and wholly-owned subsidiary of
the Company ("NAC"), the Shareholders and Greater Bay Trust Company are entering
into a Stock Purchase Agreement on the date hereof (the "PURCHASE AGREEMENT")
which provides for the purchase (the "PURCHASE") of all of the issued and
outstanding shares of ASI by NAC in exchange for shares of Company Common Stock;
WHEREAS, as an inducement to the Shareholders to enter into the Purchase
Agreement, as of the Closing Date, the shares of Company Common Stock that are
issued to the Shareholders pursuant to the Purchase Agreement shall 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 Purchase 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 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 Shareholders in accordance
with the terms and conditions of the Purchase Agreement and any securities of
the Company issued as a dividend on or other distribution with respect to, or in
exchange for or replacement of, such common stock.
<PAGE> 2
(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 soon as reasonably possible:
(a) Prepare and file with the SEC as soon as reasonably
possible, but in no event later than 180 days after the Closing Date, a
registration statement on Form S-3, or other available form of registration
statement with respect to such Registrable Securities (hereinafter referred to
as the "Registration Statement") and use its reasonable best efforts to cause
such registration statement to become effective as soon as reasonably possible
thereafter, and, subject to the provisions below, use its reasonable best
efforts to, keep such registration statement effective for a period of 180 days
or, if earlier, until the Shareholders have sold all of the Registrable
Securities. If at any time after a registration statement becomes effective, the
Company advises the Shareholders in writing that due to the existence of
material information that has not been disclosed to the public and included in
the registration statement it is necessary to amend the registration statement,
the Shareholders shall suspend any further sale of Registrable Securities
pursuant to the Registration Statement until the Company advises the
Shareholders that the registration statement has been amended. In such event,
the Company shall cause the registration statement to be amended forthwith,
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 Shareholders to recommence
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 Shareholders are suspended as provided above, the 180-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.
(c) Furnish to the Shareholders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Shareholders may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other (U.S.)
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Shareholders, provided that the Company shall not be required
in
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<PAGE> 3
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 Shareholders. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of the Shareholders that
the Shareholders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, 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 the Shareholders,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the Company
shall be borne by the Company; provided, however, that the Company shall not be
required to pay any professional fees of the Shareholders other than the fees of
one counsel to both Shareholders (not to exceed $2,000).
1.5 Indemnification. In the event any Registrable Securities are
included in the Registration Statement under this Section 1:
(a) The Company will indemnify and hold harmless the
Shareholders, each of their directors, officers, trustees or beneficiaries, if
applicable and each person, if any, who controls a non-individual shareholder
within the meaning of the Act against any losses, claims, damages, or
liabilities (joint or several) to which the Shareholders 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 the Registration Statement,
including any preliminary prospectus or final prospectus con tained 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 mis leading, 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 the
Shareholders as incurred any legal or other expenses reasonably incurred by the
Shareholders 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 in writing expressly for use in connection
with such registration by the Shareholders seeking
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<PAGE> 4
indemnification hereunder. 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 the
Shareholders prior to the pertinent sale or sales by the Shareholders.
(b) Each 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 such Shareholder expressly for use in connection with such
registration; and such 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 such Shareholder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 1.5(b) by such Shareholder exceed the gross
proceeds from the offering received by such 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 represen
tation of such indemnified party by the counsel retained by the indemnifying
party would be inappropri ate 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 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
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<PAGE> 5
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 the Shareholders
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 both
Shareholders, make publicly available other information so long as necessary to
permit sales of the Shareholders' securities pursuant to Rule 144 and 144A. The
Company covenants that it will take such further action as the Shareholders may
reasonably request, all to the extent required from time to time to enable the
Shareholders 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)).
2. Miscellaneous.
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 trans mission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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<PAGE> 6
(1) if to the Company:
Networks Associates, Inc.
3956 Freedom Circle
Santa Clara, CA 95054
Attention: Richard Hornstein, Esq.
Facsimile No.: (408) 346-3068
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Kurt J. Berney, Esq.
Facsimile No.: (650) 493-6811
(2) if to the Shareholders, to:
Carlos Jimenez Suarez
Nunez de Balboa
91 Madrid Spain
and
Javier Perea Romero
Plaza Ciudad de Viena
6 Tres Cantos Madrid Spain
with a copy to:
Garrigues & Anderson
Jose Abascal 41
28003 Madrid Spain
Attention: George S. Hunter, Esq.; Ramon Bustillo, Esq.
Facsimile No.: 34-91-399-24-08
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
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<PAGE> 7
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 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 the
Company may assign its rights and obligations hereunder to an affiliate of the
Company provided that the Company 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 provi sion to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the par ties 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.
2.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
* * * *
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETWORKS ASSOCIATES, INC.
By:
-----------------------------------------------
Richard Hornstein, Vice President of Taxation
and Legal Affairs
Address: 2805 Bowers Avenue
Santa Clara, California 95051-0963
SHAREHOLDERS
--------------------------------------------------
CARLOS JIMENEZ SUAREZ
JAVIER PEREA ROMERO
--------------------------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 4.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of May 28, 1998, by and
between Networks Associates, Inc., a Delaware corporation with registered office
located at 3965 Freedom Circle, Santa Clara, California 95054, United States of
America (the "COMPANY"), represented by Mr. Eric Borrmann, and the undersigned
shareholders of CSB Consulenza Software di Base Srl, an Italian corporation with
registered office in via Brescia, 28 - Pal. D/1, Centro Dir. Summit, 20063
Cernusco S/N (Milan), Italy, Mr. Giovanni Fracasso, Mr. Massimo Santini and Mr.
Valentino Zullo (the "SHAREHOLDERS").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, NA Combination,
Inc. (a wholly owned subsidiary of the Company) and the Shareholders are
entering into a Share Purchase Agreement (the "PURCHASE AGREEMENT") which
provides for the purchase (the "PURCHASE") of all of the issued and outstanding
shares of CSB Consulenza Software di Base Srl by the Company in exchange for
shares of Company Common Stock;
WHEREAS, as an inducement to the Shareholders to enter into the
Purchase Agreement, as of the Closing Date, the holders of the shares of Company
Common Stock that are issued to the Shareholders pursuant to the Purchase
Agreement shall 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 Purchase 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,
enacted by the United States of America.
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended, enacted by the United States of America.
(c) The term "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and
the declaration or ordering of effectiveness of such
registration statement or document.
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<PAGE> 2
(d) The term "Registrable Securities" means the Common Stock of
the Company ("Common Stock") issued to the Shareholders in
accordance with the terms and conditions of the Purchase
Agreement and any securities of the Company issued as a
dividend on or other distribution with respect to, or in
exchange for or replacement of, such common stock.
(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 soon as reasonably possible:
(a) Prepare and file with the SEC as soon as reasonably possible,
but in no event later than 180 days after the Closing Date, a
registration statement on Form S-3, or other available form of
registration statement with respect to such Registrable
Securities (hereinafter referred to as the "Registration
Statement") and use its reasonable best efforts to cause such
registration statement to become effective as soon as
reasonably possible thereafter, and, subject to the provisions
below, use its reasonable best efforts to, keep such
registration statement effective for a period of 180 days or,
if earlier, until the Shareholders have sold all of the
Registrable Securities. If at any time after a registration
statement becomes effective, the Company advises the
Shareholders' Agent (defined below) in writing that due to the
existence of material information that has not been disclosed
to the public and included in the registration statement it is
necessary to amend the registration statement, the
Shareholders shall suspend any further sale of Registrable
Securities pursuant to the Registration Statement until the
Company advises the Shareholders' Agent that the registration
statement has been amended. In such event, the Company shall
cause the registration statement to be amended forthwith,
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
Shareholders to recommence 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 Shareholders are suspended as
provided above, the 180-day period during which a registration
statement
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<PAGE> 3
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.
(c) Furnish to the "Shareholders' Agent" to be designated by
Shareholders such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements
of the Act, and such other documents as the Shareholders may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other (U.S.)
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Shareholders, 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 Shareholders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section
1 with respect to the Registrable Securities of the Shareholders that
the Shareholders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, 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 the Shareholders, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for
the Company shall be borne by the Company; provided, however, that the
Company shall not be required to pay any professional fees of the
Shareholders.
1.5 Indemnification. In the event any Registrable Securities are included
in the Registration Statement under this Section 1:
3
<PAGE> 4
(a) The Company will indemnify and hold harmless the Shareholders,
each of their directors, officers, trustees or beneficiaries,
if applicable and each person, if any, who controls a
non-individual shareholder within the meaning of the Act
against any losses, claims, damages, or liabilities (joint or
several) to which the Shareholders 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 the
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
the Shareholders as incurred any legal or other expenses
reasonably incurred by the Shareholders 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 in writing expressly for use in
connection with such registration by the Shareholders seeking
indemnification hereunder. 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 the
Shareholders' Agent prior to the pertinent sale or sales by
the Shareholders.
(b) Each 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
4
<PAGE> 5
conformity with written information furnished by such
Shareholder expressly for use in connection with such
registration; and such 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 such Shareholder, which
consent shall not be unreasonably withheld.
(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 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
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<PAGE> 6
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 the Shareholders 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
the Shareholders' Agent, make publicly available other information so
long as necessary to permit sales of the Shareholders' securities
pursuant to Rule 144 and 144A. The Company covenants that it will take
such further action as the Shareholders may reasonably request, all to
the extent required from time to time to enable the Shareholders 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)).
2. Miscellaneous.
2.1 Notices. Notice to the Shareholders' Agent shall constitute notice to
all the shareholders party hereto. 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):
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<PAGE> 7
a) if to the Company:
Networks Associates, Inc.
4099 McEwen Road, 5th Floor
Dallas, Texas 75244
Attention: Kent H. Roberts, Esq.
Facsimile No.: (972) 855-2796
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Greg Wharton, Esq.
Facsimile No.: (650) 493-6811
b) if to the Shareholders' Agent, to the address indicated by
shareholders
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 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 the Company may
assign its rights and obligations hereunder to an affiliate of the
Company provided that the Company 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.
7
<PAGE> 8
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.
2.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
* * * *
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETWORKS ASSOCIATES, INC.
By:
Prabhat K. Goyal, Chief Financial
Officer, Vice President of Finance
and Administration
Address: 3965 Freedom Circle
Santa Clara, California 95054
SHAREHOLDERS
MR. GIOVANNI FRACASSO
Address:
Via F. Resta Pallavicino, 12
Pozzuolo Martesana, Milan, Italy
MR. MASSIMO SANTINI
Address:
Via dell'Ontano, 5/23
Rodano, Milan, Italy
MR. VALENTINO ZULLO
Address:
Via S. Francesco, 1
Bussero, Milan, Italy
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
9
<PAGE> 1
Exhibit 5.1
August 6, 1998
Networks Associates, Inc.
3965 Freedom Circle
Santa Clara, CA 95054
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 or about August 6, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of a total of 238,019 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 legal counsel for Networks
Associates, Inc., 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 and any amendments to it.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<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, 1998, except for the
matters discussed in Notes 14 and 16 as to which the date is February 13, 1998,
on our audits of the financial statements of Network Associates, Inc. We also
consent to the references to our firm under the caption "Experts".
PricewaterhouseCoopers LLP
San Jose, California
August 3, 1998
