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As filed with the Securities and Exchange Commission on May 26, 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. [ ]
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
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
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 595,675 $64.095 $38,179,789.13 $11,569.62
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</TABLE>
(1) The price of $64.095 per share, which was the average of the high and low
prices of the Registrant's Common Stock on the Nasdaq National Market on
May 22, 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.
================================================================================
<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 MAY 26, 1998
595,675 SHARES
NETWORKS ASSOCIATES, INC.
COMMON STOCK
-----------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of 595,675 shares (the "Shares") of Common Stock, $0.01 par value
(the "Common Stock") of Networks Associates, Inc. (the "Company"). The Shares
are outstanding shares of Company Common Stock 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 Syscon (Proprietary) Limited, a
corporation duly organized and existing under the laws of South Africa
("Syscon"), Nordic Lantools Oy, a corporation duly organized and existing under
the laws of Finland ("Nordic Oy") and Secure Networks, Inc., a corporation duly
organized and existing under the laws of Alberta, Canada ("Secure").
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 May 22, 1998, the closing bid price of the Company's Common Stock on the
Nasdaq National Market was $63.31 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 May 26, 1998
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TRADEMARKS
This Prospectus contains trademarks of the Company, including CyberCop,
McAfee, McAfee Total Service Desk, McAfee Total Virus Defense, NetTools, PGP,
PGP Total Network Security, Sniffer and Sniffer Total Network Visibility. 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 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
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.
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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
- ---------------------------------------------------------------------------------------------------
<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.
5
<PAGE> 8
RECENT DEVELOPMENTS
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
to receive 0.323 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 and the Company
currently expects to incur during the second quarter of 1998 a charge to
earnings related to purchased in-process research and development of
approximately $90 million.
Each of the Magic Solutions acquisition and the TIS acquisition are subject
to a number of risks, including the difficulties of assimilating the two
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.
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 3,063 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 27,445 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 1,230 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.
Common Stock Split. On April 30, 1998, the Company's Board of Directors
announced a 3-for-2 Common Stock Split (the "3-for-2 Stock Split"). The 3-for-2
Stock Split will be effected through a stock dividend pursuant to which
stockholders of record as of the close of business on May 12, 1998, will be
entitled to receive as a
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dividend one share of Company Common Stock for every two shares of Company
Common Stock owned by them (with cash being paid in lieu of fractional shares
after aggregating all shares owned by such stockholder). Unless otherwise
indicated, references herein to numbers of shares do not give effect to the
3-for-2 Stock Split and the related stock dividend which is expected to be paid
on or about May 29, 1998.
Convertible Debentures. On February 13, 1998, the Company completed a
private placement of zero coupon convertible subordinated debentures due in 2018
(the "Debentures"). The debentures, with an aggregate face amount at maturity of
$885.5 million, generated net proceeds to the Company of approximately $346.3
million. The initial price to the public for the debentures was $391.06 per
$1,000 of face amount at maturity, which equates to a yield to maturity over the
term of the bonds of 4.75% (on a semi-annual bond equivalent basis). The
debentures are convertible into Common Stock at the rate of 8.538 shares per
$1,000 of face amount at maturity, which equates to an initial conversion price
of $45.80 per share. The Debentures are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) and effectively
subordinated in right of payment to all indebtedness and other liabilities of
the Company's subsidiaries. The Debentures may be redeemed for cash at the
option of the Company beginning on February 13, 2003. At the option of the
holder, the Company will purchase the Debentures on February 13, 2003 and
February 13, 2013 at purchase prices (to be paid in cash or Common Stock or any
combination thereof, at the election of the Company and subject to certain
conditions) equal to the initial issue price plus accrued original issue
discount to such dates. The Debentures may also be redeemed at the option of the
holder if there is a Fundamental Change (as defined) at a price equal to the
issue price plus accrued original issue discount to the date of redemption,
subject to adjustment.
RISK FACTORS
This Prospectus, including the documents incorporated by reference herein,
contains forward-looking statements that involve risks and uncertainties. The
statements contained in this Prospectus or incorporated by reference herein that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document or incorporated by reference herein are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in "Risk Factors" and elsewhere in this Prospectus.
Variability of Quarterly Operating Results. The Company's results of
operations have been subject to significant fluctuations, particularly on a
quarterly basis, and the Company's future results of operations could fluctuate
significantly from quarter to quarter and from year to year. Causes of such
fluctuations may include the volume and timing of new orders and renewals,
distributor inventory levels and return rates, Company inventory levels, the
introduction of new products, product upgrades or updates by the Company or its
competitors, changes in product mix, changes in product prices and pricing
models, seasonality, trends in the computer industry, general economic
conditions (such as the recent economic turbulence in Asia), extraordinary
events such as acquisitions or litigation and the occurrence of unexpected
events. The operating results of many software companies reflect seasonal
trends, and the Company's business, financial condition and results of
operations may be affected by such trends in the future. Such trends may include
higher net revenue in the fourth quarter as many customers complete annual
budgetary cycles, and lower net revenue in the summer months when many
businesses experience lower sales, particularly in the European market.
Although the Company has experienced significant growth in net revenue and
net income (before acquisition and other related costs) in absolute terms, the
Company's growth rate has slowed in recent periods. The Company
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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.
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.
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Risks Associated with Recent Acquisitions. In addition to risks described
under "-- Risks Associated with Acquisitions Generally," the Company faces
significant risks associated with its recent combination with Network General
and other recent acquisitions (including the acquisitions of PGP, 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, the Company incurred significant non-recurring charges
associated with the Network General combination and the acquisitions of PGP and
Helix. During the second quarter of 1998, the Company expects to incur
additional non-recurring charges associated with the acquisitions of Magic
Solutions and TIS. 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
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
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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 encryption products and Network General CyberCop product) into a
marketable suite of products and the development of a software only Sniffer
product. Success of the Company's Net Tools suite strategy will also depend, in
part, upon successful development and coordination of the Company's sales force;
on successful development of a national accounts sales force and an effective
indirect sales channel for the Company's Sniffer and PGP security products; and
on the development and expansion of an effective professional services
organization. See " -- Risks Associated with Recent Transactions," " -- Risks
Associated with Acquisitions Generally," " -- Need to Develop Enterprise and
National Accounts Sales Force and Security Products Sales Force; Risks Related
to Direct Sales Force," " -- Use of Indirect Sales Channels; Need to Develop
Indirect Sales Channel for Sniffer and PGP Security Products" and " -- Need to
Expand and Develop An Effective Professional Services Organization."
The foregoing factors, individually or in the aggregate, could materially
adversely affect the Company's operating results and could make comparison of
historic operating results and balances difficult or not meaningful.
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 acquisition of
Magic Solutions 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.
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Acquisitions by the Company may result in the incurrence or the assumption of
liabilities, including liabilities that are unknown or not fully known at the
time of acquisition, which could have a material adverse effect on the Company.
Furthermore, there can be no assurance that any products acquired in connection
with any such acquisition will gain acceptance in the Company's markets or that
the Company will obtain the anticipated or desired benefits of such
transactions.
Achieving the anticipated benefits of an acquisition will depend, in part,
upon whether the integration of the acquired business, products or technology is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. Moreover, successful acquisitions in the high technology
industry may be more difficult to accomplish than in other industries. Combining
a merged or acquired company requires, among other things, integration of
product offerings and coordination of sales and marketing and research and
development efforts. There can be no assurance that such an integration can be
accomplished smoothly or successfully. The difficulties of such integration may
be increased by the necessity of coordinating geographically separated
organizations, the complexity of the technologies being integrated, and the
necessity of integrating personnel with disparate business backgrounds and
combining two different corporate cultures. The integration of operations
following an acquisition requires the dedication of management resources that
may distract attention from the day-to-day business, and may disrupt key
research and development, marketing or sales efforts. The inability of
management to successfully integrate any acquisition could have a material
adverse effect on the business, operating results and financial condition of the
Company. In addition, as commonly occurs, during the pre-acquisition and
integration phases of technology company acquisitions, aggressive competitors
may undertake initiatives to attract customers and to recruit key employees
through various incentives.
Rapid Technological Change; Risks Associated with Product Development. The
network security and management market is highly fragmented and is characterized
by ongoing technological developments, evolving industry standards and rapid
changes in customer requirements. The Company's success depends upon its ability
to offer a broad range of network security and management software products, to
continue to enhance existing products, to develop and introduce in a timely
manner new products that take advantage of technological advances, and to
respond promptly to new customer requirements. While the Company believes that
it offers one of the broadest product lines in the network management and
security market, this market is continuing to evolve and customer requirements
are continuing to change. As the market evolves and competitive pressures
increase, the Company believes that it will need to further expand its product
offerings. There can be no assurance that the Company will be successful in
developing and marketing, on a timely basis, enhancements to its existing
products or new products, or that such enhancements or new products will
adequately address the changing needs of the marketplace.
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
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product introductions, performance or enhancements could have a material adverse
effect on the Company's business, financial condition and results of operation.
The Company's development efforts are impacted by the adoption or evolution
of industry standards related to its products and the environments in which they
operate. For example, no uniform industry standard has developed in the market
for encryption security products. As industry standards are adopted or evolve,
the Company may be required to modify existing products or develop and support
new versions of existing products. In addition, to the extent that no industry
standard develops, the Company's products and those of its competitors may be
incompatible if they use competing standards, which could prevent or
significantly delay overall development of the market for a particular product
or products. The failure of the Company's products to comply, or delays in
compliance, with existing or evolving industry standards could have a material
adverse effect on the Company's business, financial condition and results of
operation.
The Company's long-term success will depend on its ability on a timely and
cost-effective basis to develop upgrades and updates to its existing product
offerings, to modify and enhance acquired products, and to introduce new
products which meet the needs of current and potential customers. Future
upgrades and updates may, among other things, include additional functionality,
respond to user problems or address issues of compatibility with changing
operating systems and environments. The Company believes that the ability to
provide these upgrades and updates to users frequently and at a low cost is a
key to success. For example, the proliferation of new and changing viruses makes
it imperative to update anti-virus products frequently in order for the products
to avoid obsolescence. Failure to release such upgrades and updates on a timely
basis could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be successful in these efforts. In addition, future changes in Windows 95,
Windows NT, NetWare or other popular operating systems may result in
compatibility problems with the Company's products. Further, delays in the
introduction of future versions of operating systems or lack of market
acceptance of future versions of operating systems would result in a delay or a
reduction in the demand for the Company's future products and product versions
which are designed to operate with such future versions of operating systems.
The Company's failure to introduce in a timely manner new products that are
compatible with operating systems and environments preferred by desktop computer
users would have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Revenue from Flagship Anti-Virus and Sniffer Products. In
recent years, the Company has derived a substantial majority of its net revenue
from its flagship McAfee anti-virus software products and Sniffer network fault
and performance management products. These products are expected to continue to
account for a significant portion of the Company's net revenue for the
foreseeable future. Because of this concentration of revenue, a decline in
demand for, or in the prices of, these anti-virus and network management
products as a result of competition, technological change, a change in the
Company's pricing model for such products, the inclusion of anti-virus or
network management and analysis functionality in system hardware or operating
system software or other software or otherwise, or a maturation in the
respective markets for these products could have a material adverse effect on
the Company's business, financial condition and results of operations.
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
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network security, including the incorporation of management and security tools
into network operating systems. Therefore, even if network management and
network security tools gain broader market acceptance, there can be no assurance
that the Company's products will be chosen by organizations which acquire
network management and network security tools. Furthermore, to the extent that
either the network management or network security market does continue to
develop, the Company expects that competition will increase. See "--
Competition" and "-- Risk of Inclusion of Network Security and Management
Functionality in Hardware and Other Software."
Competition. The markets for the Company's products are intensely
competitive and the Company expects competition to increase in the near-term.
The Company believes that the principal competitive factors affecting the
markets for its products include performance, functionality, quality, customer
support, breadth of product line, frequency of upgrades and updates, integration
of products, manageability of products, brand name recognition, company
reputation and price. Certain of the criteria upon which the performance and
quality of the Company's anti-virus software products compete include the number
and types of viruses detected, the speed at which the products run and ease of
use. Certain of the Company's competitors have been in the network management
market longer than the Company, and other competitors, such as Symantec
Corporation ("Symantec"), Intel Corporation ("Intel"), Seagate Technology Inc.
("Seagate") and Hewlett-Packard Company ("HP"), are larger and have greater name
recognition than the Company. The Company will also need to develop name
recognition for its new name, "Network Associates." In addition, certain larger
competitors such as Intel, Microsoft and Novell Inc. ("Novell") have established
relationships with hardware vendors related to their other product lines. These
relationships may provide them with a competitive advantage in penetrating the
OEM market with their network security and management products. As is the case
in many segments of the software industry, the Company has been encountering,
and expects to further encounter, increasing competition. This increased
competition could reduce average selling prices and, therefore, profit margins.
Competitive pressures could result not only in sustained price reductions but
also in a decline in sales volume, which events would materially adversely
affect the Company's business, financial condition and results of operations. In
addition, competitive pressures may make it difficult for the Company to
maintain or exceed its growth rate.
Although there is a trend toward consolidation in the network security and
management market, the market is currently highly fragmented with products
offered by many vendors. The Company's principal competitor is the Peter Norton
Group of Symantec in the network security market and Intel's LanDesk in the
network management market. The Company's other competitors include Computer
Associates/Cheyenne Software, IBM, Seagate, the Dr. Solomon Group and Trend
Micro, Inc., as well as numerous smaller companies and shareware authors that
may in the future develop into stronger competitors or be consolidated into
larger competitors. In the encryption portion of the security market, the
Company's principal competitors are Security Dynamics Technologies, Inc., Cylink
Corporation, Entrust Technologies and VeriSign, Inc. The Company's principal
competitors in the help desk market are Remedy Corporation, Software Artistry
(recently acquired by Tivoli Systems/IBM) and Magic Solutions, Inc. The
Company's principal competitor in the software-based network fault and
performance management market is HP, with other competitors including Azure
Technologies Incorporated, Concord Communications, DeskTalk Systems, Kaspia
Systems, Shomiti Systems, Inc. and Wandel & Goltermann, Inc. The Company also
faces competition in the security market from Cisco, Security Dynamics
Technologies, Inc., Checkpoint Software and other vendors in the
encryption/firewall market. In addition, the Company faces competition from
large and established software companies such as Microsoft, Intel, Novell and HP
which offer network management products as enhancements to their network
operating systems. As the network management market develops, the Company may
face increased competition from these large companies, as well as other
companies seeking to enter the 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
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Windows NT platform, the Company will likely compete with large computer systems
management companies such as Tivoli Systems (TME) and Computer Associates
(Unicenter). There can be no assurance that the Company will continue to compete
effectively against existing and potential competitors, many of whom have
substantially greater financial, technical, marketing and support resources and
name recognition than the Company. In addition, there can be no assurance that
software vendors who currently use traditional distribution methods will not in
the future decide to compete more directly with the Company by utilizing
electronic software distribution.
The competitive environment for anti-virus software internationally is
similar to that in North America, although local competitors in specific foreign
markets present stronger competition and shareware authors control a more
significant portion of the European market. The international market for network
management software has developed more slowly than the North American market,
although larger competitors such as Intel and Symantec have begun to penetrate
European markets. Asian markets have lagged significantly behind North America
and Europe in their adoption of networking technology. There can be no assurance
that the Company will be able to compete successfully in international markets.
Need to Develop Enterprise and National Accounts Sales Force and Security
Products Sales Force; Risks Related to Direct Sales Force. In connection with
its recent acquisitions and as part of its evolving strategy of offering product
suites under the Net Tools umbrella, the Company has recently reorganized its
direct sales force into three tiers. The first tier focuses on the sale of the
full product suite under the Net Tools umbrella to enterprise and national
account customers. The second tier consists of four separate sales groups
focused on the sale of the individual product suites (i.e., McAfee Total Virus
Defense; PGP Total Network Security; Sniffer Total Network Visibility; or McAfee
Total Service Desk) to the departmental level. The third tier consists of four
separate outbound corporate telesales forces who actively market the Company's
individual product suites to customers with less than 1,000 nodes. The Company
historically has not had a large enterprise or national accounts sales force and
only recently developed a direct sales group focused on these larger accounts.
In addition, the Company has not historically had a separate sales force focused
on the sale of its suite of security products (many of which were only recently
acquired and are currently being engineered into a common suite). To succeed in
the direct sales channel for the enterprise and national accounts market and for
the sale of the separate security product suite, the Company will be required to
build a significant direct sales organization and will be required to attract
and retain qualified personnel, which personnel will require training about, and
knowledge of, product attributes for the Company's suite of products. There can
be no assurance that the Company will be successful in building the necessary
sales organization or in attracting, retaining or training these individuals.
Historically, the Company has sold its products at the departmental level. To
succeed in the enterprise and national accounts market will require, among other
things, establishing relationships and contacts with senior technology officers
at these accounts. There can be no assurance that the Company or its sales force
will be successful in these efforts.
The Company's sales organization structure may result in multiple customer
contacts by different Company sales representatives (particularly in
circumstances where the customer has multiple facilities and offices), a lack of
coordination between the Company's various sales organizations and a lack of
focus by the individual sales representatives on their designated customers or
products. The occurrence of these events could lead to customer confusion,
disputes in the sales force and lost revenue opportunities which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, while the development of a direct sales
channel reduces the Company's dependence on resellers and distributors, it may
lead to conflicts for the same customers and further customer confusion,
pressure by current and prospective customers for price reductions on products
and, consequently, in reductions in the Company's gross margin and operating
profit.
Use of Indirect Sales Channels; Need to Develop Indirect Sales Channel for
Sniffer and PGP Security Products. The Company markets a significant portion of
its products to end-users through distributors, resellers
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and VARs. The Company's distributors sell other products that are complementary
to, or compete with, those of the Company. While the Company encourages its
distributors to focus on its products through market and support programs, there
can be no assurance that these distributors will not give greater priority to
products of other suppliers, including competitors.
The Company does not have an extensive indirect sales channel for its
Network Sniffer products or its PGP security products. To succeed in the
indirect sales channel, the Company will be required to build a more extensive
network of distributors, resellers and VARs who will support and market these
products. These indirect channel participants will require significant training
about, and knowledge of, product attributes for these products and the related
product suites. There can be no assurance that the Company can successfully
establish such an indirect channel on a timely basis or at all or that such a
channel, once established, can be maintained.
The Company's agreements with its distributors provide for a right of
return. This right of return may be triggered by a number of events, including
returns to distributors by end users, inaccurate estimates of end user demand by
distributors, increased purchases by distributors in response to sales
incentives or transitions to new products or versions of products. As a result
of this right of return, revenue recognized by the Company upon sales to
distributors is subject to a reserve for returns. Returns could exceed reserves
as a result of distributors holding excessive Company product inventory. There
can be no assurance that current or future reserves established by the Company
will be adequate.
Need to Expand and Develop An Effective Professional Services Organization;
Risks Related to Third-Party Professional Services. As the Company's products
and computer networks become more complex, customers will increasingly require
greater professional assistance in the design, installation, configuration and
implementation of their networks and acquired products. To date, the Company has
relied on its limited professional services capabilities and increasingly on
outside professional service providers (including its distributors, resellers
and system integrators). There can be no assurance that third party service
providers can or will continue to be willing to provide adequate levels (both in
terms of time and quality) of professional services. Moreover, reliance on these
third parties reduces the Company's control over the provision of support
services for its products and places a greater burden on these third parties,
which, in turn, could delay the Company's recognition of product revenue, could
harm the Company's relationships or reputation with such third parties or the
end users of its products and could result in decreased future sales of, or
prices for, its products.
To more effectively service its customer's evolving needs, the Company
intends to significantly expand and develop its worldwide professional service
organization. There can be no assurance that the Company will be successful in
its efforts to expand and develop an effective professional services
organization. This will require that the Company hire and train additional
service professional who must be continually trained and educated to ensure that
they possess sufficient technical skills and product knowledge. In particular,
the market for qualified professionals is intensely competitive, making hiring
and retention difficult. The Company expects significant competition in this
market from existing providers of professional services and future entrants. The
Company must also properly price its services to attract customers, while
maintaining sufficient margins for its services. The Company expects that it
will have lower profit margins on its service revenues. The failure to develop
an effective professional services organization could have a material adverse
effect on the Company's business, financial condition and results of operations.
Reliance on Microsoft Technology. Although the Company intends to support
other operating systems, the Company's mission is to be the leading supplier of
network security and management products for Windows NT/Intel based networks.
Sales of the Company's products would be materially and adversely affected by
market developments which are adverse to the Windows operating environments,
including the failure of users and
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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. The Company's success is heavily
dependent upon proprietary software technology. The Company relies on a
combination of contractual rights, trademarks, trade secrets and copyrights to
establish and protect proprietary rights in its software. There can be no
assurance these protections will be adequate or that competitors will not
independently develop technologies or products that are substantially equivalent
or superior to the Company's products.
The Company does not typically obtain signed license agreements from its
corporate, government and institutional customers who license products directly
from it. The Company includes an electronic version of a "shrink-wrap" license
in all of its electronically distributed software and a printed license in the
box for its products distributed through traditional distribution channels in
order to protect its copyrights and trade secrets in those products. Since none
of these licenses are signed by the licensee, many authorities believe that such
licenses may not be enforceable under the laws of many states and foreign
jurisdictions. In addition, the laws of some foreign countries either do not
protect proprietary rights or offer only limited protection for those rights.
There can be no assurance that the steps taken by the Company to protect its
proprietary software technology will be adequate to deter misappropriation of
this technology. For example, the Company is aware that a substantial number of
users of its anti-virus products have not paid any registration or license fees
to the Company. Changing legal interpretations of liability for unauthorized use
of the Company's software, or lessened sensitivity by corporate, government or
institutional users to avoiding copyright infringement, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's principal assets are its intellectual property, and the
Company competes in an increasingly competitive market. There has been
substantial litigation regarding intellectual property rights of technology
companies. The Company has in the past been, and currently is, subject to
litigation related to its intellectual property (including a pending unfair
trade practice case and a patent infringement case involving Symantec and Trend
Micro Inc., respectively). There can be no assurance that there will be no
developments arising out of such pending litigation or any other litigation to
which the Company is or may become party which could have a material adverse
effect on the Company's business, financial condition and results of operation.
In addition, as the Company may acquire a portion of software included in
its products from third parties, its exposure to infringement actions may
increase because it must rely upon such third parties as to the origin and
ownership of any software being acquired. Similarly, exposure to infringement
claims exists and will increase to the extent that the Company employs or hires
additional software engineers previously employed by competitors,
notwithstanding measures taken by them to prevent usage by such software
engineers of intellectual property used or developed by them while employed by a
competitor. In the future, litigation may be necessary to enforce and protect
trade secrets and other intellectual property rights owned by the Company. The
Company may also be
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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.
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, Networks Associates commenced
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.
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 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
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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 clause in the License Agreement. PGP's motion was granted on October
9, 1997. The Court stayed the state court proceedings and ordered the action to
arbitration. The arbitration proceedings are in the preliminary stages.
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. A settlement conference has been scheduled for May 28, 1998. A
further status conference is scheduled for September 14, 1998, at which time RSA
may ask the court to lift the stay if the cases have not been arbitrated or
settled by that time.
On May 13, 1998, RSA filed a copyright infringement suit in the United
States District Court of Northern California enjoining Network Associates from
using certain RSA software. A preliminary injunction hearing is scheduled for
June 18, 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, 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 September 15, 1998, although Network Associates
intends to move for an extension of the discovery schedule. There is a status
conference scheduled for September 22, 1998. No trial date has been set.
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
18
<PAGE> 21
distributed through traditional distribution channels in order to protect its
copyrights and trade secrets in those products. Since none of these licenses are
signed by the licensee, many authorities believe that such licenses may not be
enforceable under the laws of many states and foreign jurisdictions. In
addition, the laws of some foreign countries either do not protect proprietary
rights or offer only limited protection for those rights. There can be no
assurance that the steps taken by the Company to protect its proprietary
software technology will be adequate to deter misappropriation of this
technology. For example, the Company is aware that a substantial number of users
of its anti-virus products have not paid any registration or license fees to the
Company. Changing legal interpretations of liability for unauthorized use of the
Company's software, or lessened sensitivity by corporate, government or
institutional users to avoiding copyright infringement, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's principal assets are its intellectual property, and the
Company competes in an increasingly competitive market. There has been
substantial litigation regarding intellectual property rights of technology
companies. The Company has in the past been, and currently is, subject to
litigation related to its intellectual property. 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. 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
19
<PAGE> 22
Asia), political instability in emerging markets and difficulties in staffing
and managing foreign operations. There can be no assurance that these factors
will not have a material adverse effect on the Company's future international
license revenue. Further, in countries with a high incidence of software piracy,
the Company may experience a higher rate of piracy of its products.
There are a number of additional risks related to the export of the
Company's PGP security products. See "-- Risks Relating to Cryptography
Technology."
In addition, a portion of the Company's international revenue is expected
to continue to be generated through independent agents. Since these agents will
not be employees of the Company and will not be required to offer the Company's
products exclusively, there can be no assurance that they will continue to
market the Company's products. Also, the Company is likely to have limited
control over its agents, limited access to the names of the customers to whom
the agents sell its products and limited knowledge of the information provided
by, or representations made by, these agents to its customers.
Risk of Sabotage. Given the Company's high profile in the anti-virus
software market, the Company has been a target of computer "hackers" who have
created viruses to sabotage its products. While to date these viruses have been
discovered quickly and their dissemination has been limited, there can be no
assurance that similar viruses will not be created in the future, that they will
not cause damage to users' computer systems and that demand for the Company's
software products will not suffer as a result. In addition, since the Company
does not control diskette duplication by distributors or its independent agents,
there can be no assurance that diskettes containing the Company's software will
not be infected.
Risk of False Detection of Viruses. The Company's anti-virus software
products have in the past and may at times in the future falsely detect viruses
that do not actually exist. Such "false alarms," while typical in the industry,
may impair the perceived reliability of the Company's products and may therefore
adversely impact market acceptance of the Company's products. In addition, the
Company has in the past been subject to litigation claiming damages related to a
false alarm, and there can be no assurance that similar claims will not be made
in the future.
Risks Relating to Cryptography Technology. Certain of the Company's PGP
network security products, technology and associated assistance are subject to
export restrictions administered by the U.S. Department of State and the U.S.
Department of Commerce, which permit the export of encryption products only with
the required level of export license. In addition, these U.S. export laws
prohibit the export of encryption products to a number of countries deemed
hostile by the U.S. government. U.S. export regulations regarding the export of
encryption technology require either a transactional export license or the
granting of Department of Commerce Commodity jurisdiction. As result of this
regulatory regime, foreign competitors facing less stringent controls on their
products may be able to compete more effectively than the Company in the global
market. While the Company has obtained approval from the Department of Commerce
to export to certain end users, there can be no assurance that the U.S.
government will approve pending or future export license requests. Further,
there can be no assurance that the list of products and countries for which
export approval is required, and the regulatory policies with respect thereto,
will not be revised from time to time. Failure to obtain the required licenses
or the costs of compliance could have a material adverse effect on the Company's
international revenues.
The Company's PGP network security products are dependent on the use of
public key cryptography technology, which depends in part on the application of
certain mathematical principles known as "factoring." The security afforded by
public key cryptography technology is predicated on the assumption that the
factoring of the
20
<PAGE> 23
composite of large prime numbers is difficult. Should an easy factoring method
be developed, then the security afforded by encryption products utilizing public
key cryptography technology would be reduced or eliminated. Furthermore, any
significant advance in techniques for attacking cryptographic systems could also
render some or all of the Company's existing products and services obsolete or
unmarketable. There can be no assurance that such developments will not occur.
Moreover, even if no breakthroughs in factoring or other methods of attacking
cryptographic systems are made, factoring problems can theoretically be solved
by computer systems significantly faster and more powerful than those presently
available. If such improved techniques for attacking cryptographic systems are
ever developed, it could have a material adverse effect on the Company's
business, operating results and financial condition.
Product Liability. The Company's anti-virus and network management software
products are used to protect and manage computer systems and networks that may
be critical to organizations and, as a result, the sale and support of these
products by the Company may entail the risk of product liability and related
claims. The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in these license agreements may not be effective under the
laws of certain jurisdictions, particularly in circumstances involving unsigned
licenses. A product liability claim brought against the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence upon Key Personnel. The success of the Company will depend to a
significant extent upon a number of key technical and management employees.
While employees are required to sign standard agreements concerning
confidentiality and ownership of inventions, Company employees are generally not
otherwise subject to employment agreements or to noncompetition covenants. The
loss of the services of any key employees could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company does not maintain life insurance policies on its key employees. The
ability of the Company to achieve its revenue and operating performance
objectives will depend in large part on its ability to attract and retain
technically qualified and highly skilled sales, consulting, technical, marketing
and management personnel. Competition for such personnel is intense and is
expected to remain so for the foreseeable future. There can be no assurance the
Company will be successful in retaining its existing key personnel and in
attracting and retaining the personnel it requires, and failure of the Company
to retain and grow its key employee population could adversely affect the
Company's business and operating results. 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
21
<PAGE> 24
affect key operations. Because of the potentially lengthy sales cycle and the
potentially large size of such orders, if orders forecasted for a specific
customer for a particular quarter are not realized or revenues are not otherwise
recognized in that quarter, the Company's operating results for that quarter
could be materially adversely affected. See "-- Variability of Quarterly
Operating Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. Although the Company
believes that its products and systems are Year 2000 compliant, the Company
utilizes third-party equipment and software that may not be Year 2000 compliant.
Failure of such third-party equipment or software to operate properly with
regard to the Year 2000 and thereafter could require the Company to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on the Company's business, operating results and financial
condition. The business, operating results and financial condition of the
Company's customers could be adversely affected to the extent that they utilize
third-party software products which are not Year 2000 compliant. Furthermore,
the purchasing patterns of customers or potential customers may be affected by
Year 2000 issues as companies expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase products and services such as those offered
by the Company, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Supplier Dependence; Third Party Manufacturing. Certain of the Company's
products contain critical components supplied by a single or a limited number of
third parties. The Company has been required to purchase and inventory certain
of the computer platforms around which it designs its network fault and
performance management products to ensure an available supply of the product for
its customers. Any significant shortage of these platforms or other components
or the failure of the third party supplier to maintain or enhance these products
could lead to cancellations of customer orders or delays in placement of orders
which could materially adversely affect the Company's results of operations. If
the Company's purchase of such components or platforms exceeds demand, the
Company could incur losses or other charges in disposing of excess inventory,
which could also materially adversely affect the Company's results of
operations.
The Company's manufacturing operations consist primarily of final assembly,
testing and quality control of materials, components, subassemblies and systems
for its Sniffer based products. The Company intends to outsource these
manufacturing operations in 1998. There can be no assurance that the Company
will be able to qualify and secure on commercially acceptable terms satisfactory
third party manufacturers on a timely basis or at all. In addition, reliance on
third party manufacturers will involve a number of risks, including the lack of
direct control over the manufacturing process, the absence or unavailability of
adequate capacity and reduced control over delivery schedules, quality control
and costs. In the event that, once initially secured, the Company's third party
manufacturers are unable or unwilling to continue to manufacture the Sniffer
based products in required volumes, on a cost effective basis, in a timely
manner or at all, the Company will have to secure additional manufacturing
capacity. Even if such additional capacity is available at commercially
acceptable terms, the qualification process could be lengthy and could create
delay in product shipments.
TIS Related Risks. There are certain other risks associated with the
business of TIS which are described in the Registration Statement on Form S-3
filed with the Commission in connection with the pending TIS acquisition.
22
<PAGE> 25
These additional risks are incorporated by reference herein and include risks
related to TIS's security products and risks of doing business with the U.S.
government.
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, the number of shares of
the Company's Common Stock which each owned or had the right to acquire as of
May 15, 1998. Because the Selling Stockholders may offer all or some of the
Shares which they hold pursuant to the offering contemplated by this Prospectus,
and because there are currently no agreements, arrangements or understandings
with respect to the sale of any of the Shares, no estimate can be given as to
the amount of Shares that will be held by the Selling Stockholders after
completion of this offering. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholders may offer the
Shares for resale from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholders were acquired from the
Company in connection with the Company's acquisition of (i) 100% of the issued
share capital of Syscon (the "Syscon Acquisition"), (ii) 100% of the issued
share capital of Nordic Oy (the "Nordic Oy Acquisition"), and (iii) 100% of the
issued share capital of Secure (the "Secure Acquisition"). The Syscon
Acquisition was accomplished pursuant to the terms of a Stock Purchase
Agreement, dated as of February 26, 1998, whereby the Company acquired all of
the issued and outstanding share capital of Syscon in exchange for 1,230 shares
of Company Common Stock. The Nordic Oy Acquisition was accomplished pursuant to
the terms of a Share Purchase Agreement, dated February 27, 1998, whereby the
Company acquired all of the issued and outstanding share capital of Nordic Oy in
exchange for an aggregate of 27,445 shares of Company Common Stock. The Secure
Acquisition was accomplished pursuant to the terms of a Share Purchase
Agreement, dated May 7, 1998, whereby the Company acquired all of the issued and
outstanding share capital of Secure in exchange for 567,000 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.
23
<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>
Brenda Joyce Crook 1,230 *
Irina Karlsson 15,644 *
Jarmo Rouvinen 11,801 *
Arthur Wong 9,185 *
Arthur Wong, Michael Tam and 105,916 *
Jason Chin as Trustees for the
Wong Family 1998 Trust
Michael Tam 4,082 *
Michael Tam, Arthur Wong and 46,664 *
Christopher Bailey as Trustees for
the Tam Family 1998 Trust
Kam Chun Tam 5,160 *
Kam Chun Tam, Michael Tam 59,252 *
and Mu Zhen Hu as Trustees for
the Kam Chun Tam Family 1998 Trust
Christopher Bailey 9,185 *
Christopher Bailey, Michael Tam 105,916 *
and Christopher Keim as Trustees for
the Bailey Family 1998 Trust
Alfred Huger 7,314 *
Alfred Huger, John Boletta and 84,029 *
Oliver Friedrichs as Trustees for
the Huger Family 1998 Trust
Oliver Friedrichs 3,856 *
Oliver Friedrichs, Alfred Huger 44,340 *
and Arthur Wong as Trustees for
the Friedrichs Family 1998 Trust
Jonathan Wilkins 10,149 *
Thomas Ptacek 10,149 *
Timothy Newsham 5,103 *
PRL Resources Inc. 56,700 *
</TABLE>
- ----------
* Less than 1%
24
<PAGE> 27
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling Stockholders
may be delivered and/or sold from time to time in transactions on the Nasdaq
National Market, in privately negotiated transactions, or by a combination of
such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. After the effectiveness of the Registration
Statement of which this Prospectus is a part, the Selling Stockholders may make
short sales of the Company's Common Stock and may use the Shares to cover the
resulting short positions. The Selling Stockholders may effect such transactions
by selling the Shares to or through broker-dealers and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). There is no assurance that any of the Selling Stockholders will
sell any or all of the Shares offered by them.
Any Selling Stockholder and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Each Selling
Stockholder may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company has agreed to indemnify in certain circumstances certain Selling
Stockholders against certain liabilities, including liabilities arising under
the Securities Act and Exchange Act. Certain Selling Stockholders have agreed to
indemnify in certain circumstances the Company and certain related persons
against certain liabilities, including liabilities arising under the Securities
Act and Exchange Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from a Selling Stockholder (and, if it acts as agent for the
purchase of such Shares, from such purchaser). Broker-dealers may agree with
such Selling Stockholder to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for such Selling Stockholder, to purchase as principal any
unsold Shares. Broker-dealers who acquire Shares as principal may thereafter
resell such Shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) on the
Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices, and in connection with such
resales may pay to or receive from the purchasers of such Shares commissions
computed as described above.
Each Selling Stockholder will be subject to applicable provisions of the
Exchange Act, and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the time of bids for and
purchases of shares of the Company's Common Stock by such Selling Stockholder.
Each Selling Stockholder will pay all commissions and other expenses
associated with the sale of the Shares by such Selling Stockholder. The Shares
offered hereby are being registered pursuant to contractual obligations of the
Company, and the Company has agreed to bear certain expenses in connection with
the registration and sale of the Shares being offered by every such Selling
Stockholder. The Company has not made any underwriting arrangements with respect
to the sale of Shares offered hereby.
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<PAGE> 28
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.
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.
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<PAGE> 29
EXPERTS
The consolidated balance sheets of the Company as of December 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 audited by Coopers & Lybrand
L.L.P., independent certified public accountants, and are incorporated herein by
reference in reliance upon the report of Coopers & Lybrand L.L.P., 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.
27
<PAGE> 30
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 25
Use of Proceeds 26
Indemnification of Directors and Officers 26
Legal Matters 26
Experts 27
</TABLE>
595,675 SHARES
NETWORKS ASSOCIATES, INC.
Common Stock
------------------
May 26, 1998
-------------------
28
<PAGE> 31
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 .......... $11,569.62
NASDAQ Filing Fee ............................................ $11,913.50
Legal Fees and Expenses ...................................... $ 8,500
Accounting Fees .............................................. $ 2,000
Miscellaneous ................................................ $ 4,000
Total ................................................... $37,983.12
</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> 32
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:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of February 26, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Brenda Joyce
Crook.
2.2 Share Purchase Agreement, dated as of March 30, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Irina
Karlsson and Jarmo Rouvinen.
2.3 Stock Purchase Agreement, dated as of May 7, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Secure
Networks, Inc. a corporation duly organized and existing under the laws
of Alberta, Canada.
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 Restated 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.
</TABLE>
II-2
<PAGE> 33
<TABLE>
<S> <C>
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.
4.9 Registration Rights Agreement, dated March 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, Irina Karlsson
and Jarmo Rouvinen.
4.10 Registration Rights Agreement, dated May 8, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and the stockholders
of Secure Networks, Inc., a corporation duly organized and existing
under the laws of Alberta, Canada.
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 Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on pg. II-6 of this Registration Statement
under the caption "Signatures").
</TABLE>
II-3
<PAGE> 34
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.
II-4
<PAGE> 35
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California on this 26th day of
May, 1998.
NETWORKS ASSOCIATES, INC.
By: /s/ William L. Larson
-------------------------------------
William L. Larson
President and 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, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 26, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
William L. Larson Chief Executive Officer and Chairman
----------------
William L. Larson
Prabhat K. Goyal Chief Financial Officer, Vice President Finance and
---------------- Administration, Secretary and Treasurer
Prabhat K. Goyal
Virginia Gemmell Director
----------------
Virginia Gemmell
Harry J. Saal Director
----------------
Harry J. Saal
Edwin L. Harper Director
----------------
Edwin L. Harper
</TABLE>
II-6
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Stock Purchase Agreement, dated as of February 26, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Brenda Joyce
Crook.
2.2 Share Purchase Agreement, dated as of March 30, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Irina
Karlsson and Jarmo Rouvinen.
2.3 Stock Purchase Agreement, dated as of May 8, 1998, among FSA
Combination Corp., a Delaware corporation and wholly-owned subsidiary
of Networks Associates, Inc., a Delaware corporation, and Secure
Networks, Inc. a corporation duly organized and existing under the laws
of Alberta, Canada.
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 Restated 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.
</TABLE>
II-7
<PAGE> 38
<TABLE>
<S> <C>
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.
4.9 Registration Rights Agreement, dated March 30, 1998, by and between
Networks Associates, Inc., a Delaware corporation, Irina Karlsson
and Jarmo Rouvinen.
4.10 Registration Rights Agreement, dated May 8, 1998, by and between
Networks Associates, Inc., a Delaware corporation, and the stockholders
of Secure Networks, Inc., a corporation duly organized and existing
under the laws of Alberta, Canada.
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 Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on pg. II-6 of this Registration Statement
under the caption "Signatures").
</TABLE>
II-8
<PAGE> 1
Exhibit 2.1
STOCK PURCHASE AGREEMENT
This Agreement is entered into as of February 26, 1998, by and among Networks
Associates, Inc., dba Network Associates, Inc. ("NAI"), a Delaware corporation;
FSA Combination Corporation, (the "BUYER"), a Delaware Corporation and Brenda
Joyce Crook, ID number 551121 0154 184 ("SELLER"). NAI, the Buyer and the
Seller are referred to collectively herein as the "PARTIES."
A. The Seller owns all of the entire issued share capital of the Company
Syscon (Proprietary) Limited (as defined below).
B. This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the entire
issued share capital stock of the Company in exchange for the Purchase
Price (as set forth herein).
The Parties agree that a specified portion of the Purchase Price paid and the
Buyer shall be placed in escrow, the release of which shall be contingent on
certain events and conditions.
It is the intent of the Parties that this be a tax-free transaction accounted
for as a pooling of interest transaction under U.S. GAAP.
The Parties agree as follows:
1. DEFINITIONS
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"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> 2
Page 2
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.
"CODE" means the U.S. Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning the businesses and
affairs of the Company that is not already generally available to the public.
"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 which, or (d) material fringe
benefit or other retirement, bonus, or incentive plan or program.
"FINANCIAL STATEMENTS" means the unaudited financial statements of the Company
for the 6 (six) months' ended 31 December 1997 which are attached to this
Agreement and initialled by the parties.
"ESCROW AMOUNT" means ten percent (10%) of the Purchase Consideration paid
pursuant to Section 2.5.
"GAAP (US)" means United States generally accepted accounting principles as in
effect from time to time.
"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.
"LOSS" means claims, losses, deficits, damages, costs, liabilities and expenses
incurred by the Buyer, the Company or any of the Subsidiaries including, without
limitation, settlement costs and any reasonable legal, accounting and other
expenses for investigation or defending any actions or threatened actions.
"MATERIAL ADVERSE CHANGE" means a change adverse to the relevant Party resulting
in a Loss of greater than US$5,000, with respect to the Company, which could
result in them not being solvent.
<PAGE> 3
Page 3
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the Most
Recent Financial Statements.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"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 or
agency thereof).
"SECURITIES ACT" means the United States federal Securities Act of 1933, as
amended.
"SECURITIES EXCHANGE ACT" means the United States federal 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 Texas 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.
"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.
"SOUTH AFRICA GAAP" means South Africa generally accepted accounting principles
as in effect from time to time.
"COMPANY" means Syscon (Proprietary) Limited, a company duly organized and
existing under the laws of South Africa, with its principal office in Sandown
and having the corporate identity number ("Registration Number") 84/05463/07.
<PAGE> 4
Page 4
"COMPANY SHARE" means any of the shares of the Capital Stock of the
Company, each having a par value of R1,00.
"TAX" means any state, regional, local, or foreign tax, Value Added
Tax, Regional Service Levies, Secondary Tax on Companies, donations
tax, customs duties or other taxes or levies whatsoever, social
security fees or similar fees or taxes, including any interest,
penalty, or addition thereto, whether disputed or not.
"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.
2. PURCHASE AND SALE OF COMPANY SHARES
2.1. Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the
Seller agrees to sell to the Buyer, the entire issued share capital of
the company ("COMPANY SHARES") for the consideration specified below
in this Article 2 (the "PURCHASE").
2.2. Consideration. The Buyer agrees to deliver to the Seller at the
Closing as consideration for the Company Shares an amount of
R400,000,00 in cash (the "PURCHASE CONSIDERATION").
2.3. The Closing. The closing of the transactions contemplated by this
Agreement (the "CLOSING") took place at the offices of Edward,
Nathan, & Friedland Inc., at 4th Floor, The Forum, 2 Maude Street,
Sandown, Sandton, 2196 on 26 February 1998 (the "CLOSING DATE").
2.4. Deliveries at the Closing. At the Closing the Seller delivered to
the Buyer stock certificates representing all of her Company Shares,
endorsed in blank and the share ledger of the Company and the Buyer
delivered to the Seller the consideration specified in Section 2.1
above.
2.5. Escrow Deposit. At the Closing, from the Purchase Consideration
otherwise payable pursuant to this Article 2, Buyer deposited the
Escrow
<PAGE> 5
Page 5
Amount into an escrow account pursuant to an escrow agreement(the
"ESCROW AGREEMENT").
2.6. Upon the satisfaction of all conditions and deliveries of the Closing
all rights and benefits of the Company shares shall be vested in NAI.
3. WARRANTIES CONCERNING THE TRANSACTION
3.1. Warranties of the Seller. The Seller warrants to the Buyer that the
statements contained in this Section 3 are correct and complete as of
the date of this Agreement and were correct and complete as of the
Closing Date with respect to herself.
3.1.1. Authorization of Transaction. The Seller has full authority to
execute this Agreement and to perform her obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Seller. The seller 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.
Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any statute, act, regulation, order or other
restriction of any government 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.
3.1.2. Shares. Seller holds of record and owns beneficially 100% (one
hundred percent) of Company Shares, free of any restrictions on
transfer, Taxes, Security Interests, options, warrants, purchase
rights, contracts, and demands. The Seller is not a party to any
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). The Seller is not a party to any voting
trust, proxy or other agreement or
<PAGE> 6
Page 6
understanding with respect to the voting of any capital stock of the
Company.
3.1.3. Warranties of the Buyer and NAI. Each of the Buyer and NAI jointly
and severally warrants to the Seller that the statements contained in
this Section 3 are correct and complete as of the date of this
Agreement and were correct and complete as of the Closing Date.
3.1.4. Organization of the Buyer and NAI. The Buyer and NAI are corporations
duly organized, validly existing, and in good standing under the laws
of the jurisdiction of their incorporation.
3.1.5. Authorization of Transaction. This Buyer and NAI have full authority
(including full corporate authority) to execute and deliver this
Agreement and to perform their obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer and
NAI. The Buyer or NAI 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, other than filings
required pursuant to the Securities Act and Securities Exchange Act.
3.1.6. Noncontravention. Neither the execution of this Agreement, nor the
consummation of the transactions contemplated hereby, will violate
any constitution, stature, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer or NAI are subject
or any provision of their charter or bylaws.
4. WARRANTIES CONCERNING THE COMPANY
4.1. The Seller warrants to the Buyer that the statements contained in this
Article 4 are correct and complete as of the date of this Agreement
and were correct and complete as of the Closing Date, namely -
4.1.1. the Company will be regularly incorporated as a private
company with limited liability according to the laws of the
Republic of South Africa;
4.1.2. the Seller will be entitled and able to give free and
unencumbered title of the Company Shares to the Buyer;
4.1.3. no person will have any right (including any option or right
of first refusal) to acquire any of the Company Shares or to
subscribe for, take up or acquire any of the unissued shares
in the capital of the Company, present or future;
4.1.4. the Seller will be the sole registered and beneficial owner
of the Company Shares and will be reflected in the register
of members of the Company as the sole owner thereof;
<PAGE> 7
Page 7
4.1.5 true and full copies of all the material contracts of the Company have
been furnished by the Seller to the Buyer in the course of the due
diligence investigation conducted by the Buyer and correctly reflect
any amendments which have been agreed to in respect thereof and will
be of full force and effect according to their terms and the Company
will have complied in all respects with its obligations under all such
contracts;
4.1.6. the Company's books and records will have been properly maintained
according to law and will accurately reflect, in accordance with
generally accepted and sound accounting principles and standards, all
of the transactions entered into by the Company or to which it is a
party;
4.1.7. the Company will have complied with all legislation, enactments,
proclamations, ordinances, by-laws and regulations which affect it
and, in particular, it will have complied with all the provisions of
the legislation affecting, regulating or providing for income or other
tax or duties and the employment of labour and also the provisions of
the South African Companies Act, 1973;
4.1.8. save as is disclosed in the Financial Statements, neither the Company
nor the assets of the Company will be subject to any hire purchase
agreement, lease, pledge, mortgage, lien, notarial bond, hire purchase
agreement, agreement which entails a future commitment for the
company, encumbrance or the like;
4.1.9. the Company will have no liabilities, whether contingently or
otherwise, and whether as surety, co-principal debtor, guarantor or
indemnitor, other than those disclosed in the Financial Statements;
4.1.10. the Company is not engaged in any litigation, income tax appeals,
arbitration or criminal proceedings (other than proceedings for the
collection of debts from trade debtors in the ordinary course of
business) nor is the Seller aware of any facts, matters or
circumstances which may give rise to any such litigation, income tax
appeals, arbitration or criminal proceedings;
4.1.11. all amounts owing by the Company in respect of income tax for periods
ended before the effective date and all amounts of income tax for
which the Company is or will become liable in respect of its income up
to that date will have been paid or are fully provided for in the
Financial Statements;
4.1.12. the Financial Statements fairly present the state of affairs of the
Company and its business as at 31 December 1997 and the results of the
Company for the period ended on that date
<PAGE> 8
Page 8
and were prepared in accordance with generally accepted and sound
accounting principles and the provisions of the South African
Companies Act, 1973 and any other relevant legislation and the
same accounting methods and bases as were hitherto used in the
preparation of the audited annual Financial Statements of the
Company were employed in preparing the Financial Statements;
4.1.13. the Seller has disclosed to the Purchaser all facts and
circumstances material to this transaction and which would be
material or would be reasonably likely to be material to a
purchaser of the Company shares and the purchase price payable in
respect thereof.
5. PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing Date namely -
5.1. General. Each of the Parties will use his or its best good faith efforts
to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement and
documents ancillary thereto.
5.2. Notices and Consents. The Seller will cause the Company to give any
notices to third parties, and will cause the Company to use its best
efforts to obtain any third party consents, that the Buyer may request.
5.3. Operation of Business. The Seller will not cause or permit the Company to
engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality
of the foregoing, the Seller will not cause or permit any of the Company
to (i) declare, set aside, or pay any dividend or make any distribution
with respect to its capital stock or redeem or otherwise acquire any of
its capital stock, (ii) take any action that would unreasonably jeopardize
the treatment of the transactions contemplated hereby as a pooling of
interests.
5.4. Preservation of Business. The Seller will cause the Company to keep its
business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees.
5.5. Full Access. Subject to applicable confidentiality undertakings by the
Buyer, the Seller will permit, and the Seller will cause the Company to
permit, representatives of the Buyer to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company, to all premises, properties, personnel, books,
records (including Tax records), contracts, and documents of or pertaining
to the Company.
<PAGE> 9
Page 9
5.6. Notice to Developments. The Seller will give prompt written notice to
the Buyer of any adverse development causing a breach of any of the
representations and warranties in Article 3 above. Each Party will give
prompt written notice to the others of any adverse development causing
a breach of any of his or its own representations and warranties in
Article 3 above. No disclosure by any Party pursuant to this Section
5.6., however, shall be deemed to amend or supplement or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
5.7. Exclusivity. Until the fulfillment of the condition precedent or
termination of this Agreement in accordance with its terms, none of the
Seller will (and the Seller will not cause or permit the Company to)
(i) solicit, initiate, or encourage the submission of any offer from
any Person relating to the acquisition of any capital stock or other
voting securities, or any substantial portion of the assets, of the
Company or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. The Seller will not
vote her Company Shares in favor of any such acquisition. The Seller
will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
6. POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing Date.
6.1. General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement 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 7 below). The Seller acknowledge
and agree that from and after the Closing the Buyer will be entitled
to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company and
its Subsidiary.
6.2. Litigation Support. In the event and for so long as any party actively
is contesting or defending against any claim or legal action in
connection with (i) any transaction contemplated under this Agreement
or (ii) any event (or failure to act) 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 defence, 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 defence, 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 B below).
<PAGE> 10
Page 10
6.3. Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of any 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. The
Seller will refer all customer inquiries relating to the businesses of
the Company to the Buyer from and after the Closing.
7. REMEDIES FOR BREACHES OF THIS AGREEMENT
7.1. Provisions for Benefit of the Buyer. Subject to the following
provisions of this Article, the Seller shall be liable and shall
indemnify and hold the Buyer harmless from and against all Losses
arising out of misrepresentation, breach of warranty or failure to
perform a covenant or any other breach of this Agreement on the part of
the Seller, provided that the liability of the seller in respect of all
losses of the Buyer so arising or so sustained shall under no
circumstances exceed the amount of the Purchase Price and the Buyer's
claim against the Seller shall accordingly be limited to the Purchase
Price.
7.2. Compensation for Losses. Compensation for Losses shall be first paid
out of the Escrow Fund as more specifically provided for in the Escrow
Agreement, and shall at the discretion of the Buyer be paid to the
Buyer, the Company insofar as the Company is affected by the
misrepresentation, breach of warranty or covenant. Without prejudice to
any right granted to the parties herein, compensation for Losses, as
defined, shall be considered a reduction of the Purchase Price.
7.3. Notification. in the event that the Buyer shall demand indemnification
hereunder, the Buyer shall notify the Seller without undue delay, but
the Buyer's failure to do so shall in no event preclude the Buyer from
receiving indemnification from the Seller hereunder.
7.4. Other Indemnification Provisions. Seller will make no claim for
indemnification against the Company by reason of the fact that he was a
director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, director, employee, or
agent of another entity with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
8. TAX MATTERS
The following provisions shall govern the allocation of responsibility as
between Buyer and Seller for certain tax matters following the Closing Date:
8.1. Cooperation on Tax Matters. Buyer and Seller shall cooperate fully, as
and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns and any audit, litigation or
other proceeding
<PAGE> 11
Page 11
with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on
a mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
Buyer and Seller shall further, upon request, provide the other party
with all information that either party may be required to report.
8.2 Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement shall be paid
by Buyer when due, and Buyer will, at its own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes
and fees.
9. BREACH
If any party breaches any material provision or term of this
Agreement (other than those which contain their own remedies or limit the
remedies in the event of a breach thereof) and fails to remedy such breach
within 14 (fourteen) days of receipt of written notice requiring it to do
so (or if it is not reasonably possible to remedy the breach within 14
(fourteen) days, within such further period as may be reasonable in the
circumstances), then the aggrieved party shall be entitled without notice,
in addition to any other remedy available to it at law or under this
agreement, including obtaining an interdict, to cancel this agreement or to
claim specific performance of any obligation whether or not the due date
for performance has arrived, in either event without prejudice to the
aggrieved party's right to claim damages.
10. MISCELLANEOUS
10.1 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 the Buyer and the Seller; 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).
10.2 Entire Agreement. This agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by
or among the Parties, written or oral, to the extent they related in
any way to the subject matter hereof.
<PAGE> 12
Page 12
10.3. Succession and Assignment's Parties in Interest. This
Agreement shall be binding upon and inure to the benefit of
the Parties 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 the Buyer and the
Seller; provided, however, that the 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 the 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 Person any right,
benefit or remedy under or by reason of this Agreement.
10.4. 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 Seller:
Brenda Joyce Crook
19 Concourse Crescent, Lonehill
Sandton, South Africa
Telephone: +27 11 7051472
Telecopier: +27 11 4651069
With a Copy to:
Workmans
Attention: Michael Silbar
Telephone: +27 11 488 0000
Telecopier: +27 11 464 3100
If to the Buyer or NAI:
Network Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
Attention: Richard Hornstein
Telephone: (408) 346-3063
Telecopier: (408) 346-3038
With a Copy to:
Edward Nathan & Friedland, Inc.
P.O. Box 783347
Sandton 2146
The Forum: 4th Floor
2 Maude Street
<PAGE> 13
Page 13
Sandown, Sandton 2196
Attention: Michael Katz
Telephone: + 27-11-269-7899
Telecopier: + 27-11-269-7600
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.
10.5. Amendments and Waivers. No amendment of any provision of
this Agreement is valid unless it is in writing and signed
by the Buyer and the Seller. 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.
10.6. 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.
10.7. Expenses. Each of the Parties and the Company, will bear his
or her or its own costs and expenses (including legal fees,
accounting costs and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby,
except that any expenses incurred for the use of the Seller'
professional advisers at the request of Buyer shall be
reimbursed to Seller by Buyer. The Seller agrees that the
Company has not borne or will not bear any of the Seller'
costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
10.8. 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,
the principle of interpretation "contra stipulatorem" shall
not apply. 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
warranty, or covenant contained herein in any
<PAGE> 14
Page 14
respect, the fact that there exists another 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
warranty, or covenant.
11. MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of South Africa.
11.2 Arbitration.
11.2.1 Save in respect of those provisions of the Agreement which
provide for their own remedies which would be incompatible
with arbitration, a dispute which arises in regard to -
(a) the interpretation of; or
(b) the carrying into effect of; or
(c) any of the parties' rights and obligations arising from;
or
(d) the termination or purported termination of or arising
from the termination of; or
(e) the rectification or proposed rectification of,
this Agreement, or out of or pursuant to this Agreement
shall be submitted to and decided by arbitration.
11.2.2 That arbitration shall be held at Johannesburg with only the
parties and their legal representatives present thereat.
11.2.3 It is the intention of the parties that the arbitration shall,
where possible, be held and concluded in 21 (twenty one)
working days after it has been demanded. The parties shall use
their best endeavours to procure the expeditions completion of
the arbitration.
11.2.4 The arbitration shall be subject to the arbitration
legislation for the time being in force in South Africa.
11.2.5 The arbitrator shall be an impartial practising attorney of
not less than 10 (ten) years standing appointed by the parties
or, failing agreement by the parties within 3 (three) days
after the arbitration as been demanded, at the request of
either of the parties shall be nominated by the President for
the time being of the Law Society of the Transvaal for its
successor in Gautengl. If that person falls or refuses to
make the nomination, either party may approach the High Court
of South Africa to make such
<PAGE> 15
Page 15
an appointment. To the extent necessary, the court is
expressly empowered to do so.
11.2.6. The parties shall keep the evidence in the arbitration
proceedings and any order made by any arbitrator
confidential.
11.2.7. The arbitrator shall be obliged to give his award in
writing fully supported by reasons.
11.2.8. The provisions of this clause are severable from the rest
of this Agreement and shall remain in effect even if this
Agreement is terminated for any reason.
11.2.9. The arbitrator shall have the power to give default
judgment if any party fails to make submissions on due
date and/or fails to appear at the arbitration.
11.3 Confidentiality and Publicity
Any information obtained by any party to this Agreement in terms of or
arising from or pursuant to the implementation of this Agreement shall
be treated as confidential by the parties and shall not be divulged or
permitted to be divulged to any person not being a party to this
Agreement, without the prior written consent of the other parties,
save that --
11.3.1. any information which is required to be furnished by law or
by existing contract or by any stock exchange on which the
shares of any party to this Agreement are listed may be so
furnished;
11.3.2. any party shall be entitled (after consultation with the
other parties so as to avoid embarrassment or prejudice to
the extent possible) to make such information available to
its shareholders as may be necessary to enable such
shareholders to consider the value and prospects of their
shareholdings;
11.3.3. no party shall be precluded from divulging any information
to any person who is negotiating with such party for the
acquisition of an interest in such party, provided that the
person to whom any disclosure is made in the aforesaid
circumstances shall first have undertaken in writing not to
divulge such information to any other person and to use it
only for the purpose of evaluating the business;
11.3.4. no party shall be precluded from using or divulging such
information in order to pursue any legal remedy available to
it.
11.4 Release from guarantees
The Buyer shall use its best endeavours to procure the release of the
Seller from any liability which the Seller may have beyond the Closing
<PAGE> 16
Page 16
Date under those guarantees, suretyships or indemnities which have
been given by the Seller, if any, for the Company's obligations.
11.5. Jurisdiction
The parties hereby consent to the exclusive jurisdiction
of the High Court of the Republic of South Africa (Witwatersrand Local
Division) in respect of any action arising from or out of or pursuant
to this Agreement and the undertakings given herein.
The Parties have executed this Agreement on as of the date first above written.
FSA Combination Corp.
DMESSERSCHMIDT
By: /s/ Diana Bridgid Messerschmidt
-----------------------------------
Its: Legal Adviser (Under Power of
-----------------------------------
Attorney)
Network Associates, Inc.
DMESSERSCHMIDT
By: /s/ Diana Bridgid Messerschmidt
-----------------------------------
Its: Legal Adviser (Under Power of
-----------------------------------
Attorney)
Seller
/s/ B J Crook
-----------------------
Brenda Joyce Crook
<PAGE> 1
EXHIBIT 2.2
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT, entered into on this 27 day of February, 1998, by
and among Irina Karlsson, a Finnish national residing in Vantaa and Jarmo
Rouvinen, a Finnish national residing Helsinki (the "Sellers") and FSA
Combination Corp., a corporation organized and existing under the laws of
Delaware, United States of America (the "Purchaser"). The Purchaser is a one
hundred per cent (100%) subsidiary of Network Associates, Inc. ("NAI"), a
corporation organized and existing under the laws of Delaware, United States of
America.
WITNESSETH:
WHEREAS, the Sellers in the aggregate own one hundred per cent (100%) of the
issued and outstanding shares in Nordic Lan Tools Oy, a Finnish company engaged
in the business of the import and sale of EDP-hardware and software as well as
the consulting, training and programming related to EDP, having its registered
office in Vantaa, Finland (the "Company");
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.
<PAGE> 2
2
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 audited profit and loss
statement and balance sheet of the Company
including the notes thereto as at the Accounts
Date, together with the accompanying manage-
ment's report as well as the auditors' statutory
report, attached hereto as SCHEDULE 1.1.
1.2 "ACCOUNTS DATE" shall mean 31 December 1997.
1.3 "AGREEMENT" shall mean this Share Purchase Agreement and the
Schedules hereto.
1.4 "ACCOUNTING Shall mean the accounting principles in accordance
PRINCIPLES" with applicable Finnish laws and generally applied
Finnish accounting standards, as consistently
applied by the Company.
1.5 "BUSINESS" shall mean the business of import and sale of
EDP-hardware and software as well as consulting,
training and programming related to EDP as
presently carried out by the Company, including
the assets and rights of whatever nature, relating
to such business.
<PAGE> 3
3
1.6 "CLOSING" shall mean the consummation of the transaction as
contemplated in Section 5.
1.7 "CLOSING DATE" shall mean 27 February, 1998 or such later date as
specified in Section 5.1.
1.8 "COMPANY" shall mean Nordic Lan Tools Oy, a Finnish com-
pany entered in the Trade Register under No.
536.650.
1.9 "DISCLOSURE LETTER" shall mean the Disclosure Letter of even date
herewith referred to in Section 6.
1.10 "NET ASSET VALUE" shall mean the difference in the aggregate value
of the assets and the liabilities of the Company
calculated on the basis of the Accounts and
determined as provided in Section 3.3.
1.11 "ORDINARY COURSE OF shall mean the ordinary course of business of the
BUSINESS" Company consistent with past customer and business
practices and always in accordance with good and
sound business practice.
1.12 "PARTY" shall mean the Purchaser or the Seller, 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.
<PAGE> 4
4
1.15. "PURCHASER'S shall mean CPA Lars Blomqvist of Coopers &
ACCOUNTANTS Lybrand Oy.
1.16 "RELATED shall mean the agreements referred to in Section
AGREEMENTS" 9.1.
1.17 "SELLERS" shall have the meaning as set out in the
introductory paragraph hereof. Ms. Irina Karlsson
is the owner of fifty-seven per cent (57%) and
Mr. Jarmo, Rouvinen of forty-three per cent (43%)
of the issued and outstanding shares of the
Company.
1.18 "SHARES" shall mean the shares to be transferred by the
Sellers to the Purchaser as contemplated herein,
representing all of the issued and outstanding
shares of the Company, each such share with a
nominal value of FIM 100.
1.19 "SHARE TRANSFER shall mean the agreement referred to in Section
AGREEMENT" 5.4(d).
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 Company as represented by
the Shares as of the Closing Date.
<PAGE> 5
5
3. PURCHASE AND SALE OF COMPANY SHARES
3.1 PURCHASE PRICE
(a) The purchase price for the Shares (the "Purchase Price", subject to
Section 3.2, shall be US dollars one million eight hundred thousand
(USD 1,800,000).
(b) The Purchase Price shall be paid at the Closing 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:
Irina Karlsson: fifty-seven per cent (57%) of the NAI-Shares.
Jarmo Rouvinen: forty-three per cent (43%) of the NAI-Shares.
(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 average 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.
(d) At the Closing, from the NAI-Shares otherwise deliverable pursuant
to this Section 3.1, Purchaser shall deposit a number of 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).
(e) The Purchaser has informed the Sellers of the tradeability of the
NAI-Shares as provided for in SCHEDULE 3.1(e).
<PAGE> 6
6
3.2 NET ASSET VALUE
The Purchase Price shall be adjusted on a dollar to dollar basis to the
extent the Net Asset Value calculated as provided in Section 3.3. is less
than five hundred thousand US Dollars (USD 500,000).
3.3. ACCOUNTS AND DETERMINATION OF NET ASSET VALUE
(a) As promptly as practicable after the signing of this Agreement and
no later than 20 days following the Closing Date, the Sellers shall
prepare and deliver to the Purchaser and the Purchaser's Accountants
calculation of the Net Asset Value.
(b) The Purchaser's Accountants shall verify the Accounts and the Net
Asset Value 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 Accounts and/or the Net Asset Value 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
Accounts.
(c) The Purchaser and the Sellers shall in good faith endeavour to
resolve any dispute under Section 3.3 (c) 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
resolved according to Section 10.9 hereunder.
(d) Any adjustment of the Purchase Price based on a shortfall of the Net
Asset Value shall carry interest at the rate of ten per cent (10%)
p.a. from the Closing Date until the date of actual payment.
<PAGE> 7
7
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 fulfillment 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 15.00 p.m. at
the offices of Messrs Roschier-Holmberg & Waselius, Keskuskatu 7 A,
Helsinki.
5.2 PURCHASER'S CONDITIONS PRECEDENT
The obligation of the Purchaser to close hereunder shall be subject to the
fulfillment, 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) Warranties True and Sellers' Certificate
The representations, warranties and assurances given by the Sellers in
Section 6. shall be true and correct on and as of the Closing Date with
the same effect as though such representation, warranties and assurances
had been made on
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and as of such date and Sellers shall have delivered to the Purchaser a
certificate, dated at the Closing Date, to such effect.
(c) 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 appointed by the Purchaser.
(d) 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 Finland, the United States, the European Union or
elsewhere, as the case may be, required for the lawful and valid
consummation of the transactions contemplated hereunder.
(e) Board Approval
The consummation of the transactions contemplated hereby shall have been
approved by the Board of Directors of the Purchaser.
(f) Corporate Action
All corporate action necessary for the lawful and valid consummation of
the transactions contemplated hereby shall have been duly taken by the
Company and shall be in full force and effect.
(g) 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.
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(h) The Company shall have been released from all guarantees and other
undertakings referred to in Section 9.3.
(i) The Purchaser and NAI believe that, based on consultation with its
independent accountants and in the light of the financial due diligence
performed in the Company, that the transactions contemplated in this
Agreement and the Related Agreements can be accounted for as a pooling of
interests pursuant to US GAAP.
5.3 SELLERS' 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.
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(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 Finland, the United States, 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 and release and deliver to the Purchaser the share
certificates corresponding to the Shares duly endorsed in blank in a
manner provided for in 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;
(b) the Sellers shall convey to the Purchaser the share and
shareholders' registers of the Company;
(c) the Purchaser shall deliver to each of the Sellers the consideration
as referred to in Section 3.1(b), less any reduction to the Purchase
Price pursuant to Section 3.2, to the extent known as of the Closing
Date in a manner provided for in SCHEDULE 5.4(a);
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(d) the Parties shall execute the Share Transfer Agreement effecting the
transfer of the Shares, in the form set forth 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.
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.
The liability of the Sellers under, and the rights and remedies of the
Purchaser in respect of, the Warranties shall not be affected by any
knowledge of the Purchaser as a result of the Purchaser's examination of
the Company or otherwise, but only the facts, matters, occurrences or
events disclosed by the Sellers in the Disclosure Letter attached hereto
as SCHEDULE 6. shall constitute exceptions to the Warranties for which the
Sellers are not liable. Accordingly, the Sellers shall not be deemed to be
in breach of the Warranties only to the extent a fact, matter, occurrence
or event has been specifically disclosed to the Purchaser in the
Disclosure Letter.
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6.1 ORGANIZATION, GOOD STANDING
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Finland, 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 filed its annual reports with the relevant
authorities, as required and the information set forth therein is
true, accurate and complete.
(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, 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 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
<PAGE> 13
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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
fulfillment of the terms hereof, will not result in a breach of any
judgement, decree or order of any court or governmental body, any
applicable law or the Articles of Association of 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. There are no outstanding obligations, warrants,
options, depository receipts, 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.
(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 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 Accounts Date and have
been prepared in conformity with the Accounting Principles.
In particular, the Accounts 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 premiums, taxes, pension, retirement or similar obligations);
they do not overstate
<PAGE> 14
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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 has exclusive title to the assets recorded in the
Accounts except for such assets which 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 including work in
progress, are within specifications and of merchantable quality. In
addition to what will be properly accrued and accounted for in the
Closing Accounts, there are no obsolete or slow moving inventories.
(d) The present use of the building used by the Company is not
restricted by any material restriction or condition and conform to,
fire and safety regulations, 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.
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There is no material physical defect in any part of the properties or any
structure thereon and all structures thereon are in good and substantial
repair and condition and fit for the purpose for which they are currently
used having regard to their age and normal wear and tear.
6.6 INTELLECTUAL PROPERTY
(a) The Company owns all intellectual property (the "Intellectual
Property") necessary to manufacture the products presently
manufactured and produce the services presently produced, and to
distribute and sell such products and services in any country where
business presently is conducted.
(b) 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
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.
(c) 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.
(d) No employee of the Company is employed in violation of any
non-disclosure or non-competition agreement.
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6.7 ACCOUNTS RECEIVABLE
All of the receivables of the Company are good and fully collectible
within ninety (90) 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 condition 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.
6.10 INSURANCE
Attached hereto as SCHEDULE 6.10 are true and complete copies of all the
insurance policies, currently in effect in respect of the Business and the
Assets (the "Insurance Policies"). The Insurance Policies of the Company
provide the types and amounts of insurance coverage normal and customary
for similar companies in Finland.
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6.11 AGREEMENTS, CONTRACTS AND COMMITMENTS
(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 other than
those listed in SCHEDULE 6.11(a)(i), copies of which have been
made available to the Purchaser;
(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;
(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) other than those listed
in SCHEDULE 6.11(a)(v).
(b) All agreements or contracts to which the Company is a party are
valid, binding and enforceable in accordance with their respective
terms. 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. The execution
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and the delivery of this Agreement and the Related Agreements nor
the consummation of the transactions contemplated hereby will not
conflict with, result in breach of, constitute a default under or
result in the acceleration of, terminate, modify or cancel or
require any notice under any agreement or other arrangement to which
the Company is bound to.
6.12 EMPLOYMENT AND PENSION AGREEMENTS
(a) A true, complete and current list of all employments of the Company
and 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.
(b) No employee 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 or pension
undertakings to be paid to current or former directors, officers or
other employees of the Company.
(d) The Company has not received notice, which notice remains current,
of any claim that it has not complied with any employment, labour or
related laws.
(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.
(f) There are no pending or current and no threatened claims or labour
litigation in respect of the Company. No negotiations are required
to be
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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.
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 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 deviation by the Company from the Ordinary Course of
Business;
(ii) any adverse change in the financial conditions, assets,
liabilities or prospects of the Company;
(iii) any adverse change in the relationship with the customers,
suppliers or employees of the Company or with any authorities
supervising the Company;
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(iv) any destruction or loss of or damage to any property of the
Company whether or not covered by insurance,
(v) any additional debt or any additional current liability,
except in the Ordinary Course of Business, incurred by the
Company;
(vi) any agreement or transaction for the sale or acquisition of
any assets by the Company except in the Ordinary Course of
Business,
(vii) any change in the accounting systems, policies, principles or
practices of the Company or any deviation from the Accounting
Principles,
(viii) any distribution by the Company of dividends or other
distribution of any assets to its shareholder,
(ix) 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.
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.
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(c) There are no tax audits currently pending or 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 and no claims will be made by any third
party with respect to any product manufactured or sold or service
delivered before the Closing.
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 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 their 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,
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. The Company
shall not be liable to pay any broker fees.
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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
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.
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;
and
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(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 BY THE SELLERS
If the Sellers are in breach of any of the Warranties contained in Section
6. hereof or of any other provision contained herein, the Seller shall
indemnify and hold the Purchaser harmless against all damage, loss,
liability or expense (including, without limitation, reasonable expenses
of investigation and attorneys' fees), all 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 from the
Purchase Price that remains in escrow and to the extent any such
damage, loss, liability or expense cannot be satisfied out of such
deposited part of the Purchase Price, the Sellers agree to reimburse
the Purchaser in cash promptly on request.
(c) To the extent that the Sellers are in breach of the Warranties
contained in Section 6.7 hereof, the Sellers shall forthwith pay to
or as directed by the Purchaser the amount of the respective
receivable(s) together with interest thereon, against transfer of
the relevant receivable(s) to the
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Sellers. The Parties shall procure that the Company, before the
assignment of the relevant receivable(s), shall endeavour to collect
such receivables itself in accordance with the customary business
practice of the Company.
(d) Notwithstanding the above, the Purchaser shall not be entitled to
damages unless the aggregate amount of its claims amounts to at
least USD 25,000. In case said amount is exceeded, the Purchaser
shall be indemnified for all damages, losses, liabilities and
expenses including any amounts below USD 25,000.
(e) Upon any payment by the Sellers pursuant to the provisions of this
Section 8., it 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.
(f) Any payment to be made by the Sellers under this Section 8. will
carry interest at ten per cent (10%) per annum from the Closing
Date until the date of payment.
8.2 RIGHT TO SET-OFF
The Purchaser and/or the Company shall have the right to set-off any claim
they or any of them may have towards the Sellers under this Agreement or
the Related Agreements against any claim the Sellers may have towards the
Purchaser and/or the Company under the Related Agreements or any other
agreements or arrangements.
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9. ADDITIONAL AGREEMENTS
9.1 RELATED AGREEMENTS
The Seller 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) Employment Agreement between the Company and Mr. Pasi Karlsson as
set forth in SCHEDULE 9.1(a);
(b) Employment Agreement between the Company and Mr. Jarmo Rouvinen as
set forth in SCHEDULE 9.1(b);
(c) Accredited Investor Questionnaire as set forth in SCHEDULE 9.1(c);
(d) General Release as set forth in SCHEDULE 9.1(d);
(e) Affiliate Agreement as set forth in SCHEDULE 9.1(e);
(f) Investor Representation Certificate as set forth in SCHEDULE 9.1(f);
(g) Registration Rights Agreement as set forth in SCHEDULE 9.1(g).
9.2 NON-COMPETITION AND SECRECY
(a) The Sellers hereby undertake for a period of one (1) year from the
Closing Date not, without the written consent of the Purchaser, 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. In addition to the provisions contained in this
non-competition clause,
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(b) The Sellers hereby undertake 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 Seller
in breach agrees to pay to the Purchaser immediately at request by
means of liquidated damages an amount of one million Finnish marks
(FIM 1,000,000) 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 LIABILITIES TO RELATED PERSONS OR COMPANIES
The Sellers shall cause any and all loans, guarantees or undertakings
given by the Company to or in favour the Sellers and/or their family
members or Nordic Lantools AB 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
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27
been duly given or made when delivered by mail, telefax or cable to the
Party in question as follows:
If to the Purchaser:
address: Network Associates, Inc.
2805 Bowers Avenue
Santa Clara, California 95051
telefax: +1-408-653 3063
attention: Mr. Richard Hornstein
with copy to: Roschier-Holmberg & Waselius
address: Keskuskatu 7 A
00100 Helsinki
telefax: +358-9-664 303
attention: Ms. Eva Nordman
If to the Sellers:
Ms. Irina Karlsson
address: Prinssintie 8 as 1
01260 Vantaa
Mr. Jarmo Rouvinen
address: Rasintie 4B
00780 Helsinki
with copy to: Asianajotoimisto Jyri Sarpaniemi
address: Simonkatu 8
00100, Helsinki
telefax: +358-9-502 5059
attention: Mr. Jyri Sarpaniemi
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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.
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,
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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
The stamp duty levied on the purchase of the Shares shall be borne by the
Purchaser.
10.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of Finland.
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 Arbitration Rules of
the Finnish Central Chamber of Commerce. The arbitration shall be held in
Helsinki and the arbitration proceedings shall be conducted in the English
language. The arbitral tribunal shall consist of one arbitrator.
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
<PAGE> 30
30
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 Seller 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 Seller in
advance.
10.13 SURVIVAL
The representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing
indefinitely.
10.14 COUNTERPARTS OF THE AGREEMENT
This Agreement has been executed in four (4) identical counterparts, one
(1) for the Purchaser, two (2) for the Sellers and one (1) for the
Company.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of
the day and year first above written.
/s/ IRINA KARLSSON /s/ JARMO ROUVINEN
- ----------------------------------- -------------------------------------
Irina Karlsson Jarmo Rouvinen
FSA Combination Corp.
[SIG]
- -------------------------------
<PAGE> 1
Exhibit 2.3
SECURE NETWORKS INC.
SHARE PURCHASE AGREEMENT
AMONG
ARTHUR WONG, WONG FAMILY 1998 TRUST, MICHAEL TAM, TAM FAMILY 1998 TRUST, KAM
CHUN TAM, KAM CHUN TAM FAMILY 1998 TRUST, CHRISTOPHER BAILEY, BAILEY FAMILY 1998
TRUST, ALFRED HUGER, HUGER FAMILY 1998 TRUST, OLIVER FRIEDRICHS, FRIEDRICHS
FAMILY 1998 TRUST, JONATHAN WILKINS, THOMAS PTACEK, TIMOTHY NEWSHAM, PRL
RESOURCES INC.
(COLLECTIVELY, THE VENDORS)
AND
FSA COMBINATION CORPORATION
(THE PURCHASER)
AND
SECURE NETWORKS INC.
(THE CORPORATION)
AND
NETWORKS ASSOCIATES, INC.
(THE PARENT)
AND
GREATER BAY TRUST COMPANY
(THE ESCROW AGENT)
MADE AS OF MAY 7,1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
<TABLE>
<S> <C>
1.1 Definitions ........................................................... 3
1.2 Expanded Meanings ..................................................... 9
1.3 Amendment of Agreement ................................................10
1.4 Waiver ................................................................10
1.5 Applicable Law ........................................................10
1.6 Currency ..............................................................10
1.7 Headings and Table of Contents ........................................10
1.8 Severability ..........................................................10
1.9 Time of Essence .......................................................10
1.10 Knowledge .............................................................10
1.11 Schedules .............................................................10
ARTICLE 2
PURCHASE AND SALE OF PURCHASED SHARES
2.1 Purchase and Sale of Purchased Shares..................................11
2.2 Purchase Price.........................................................11
2.3 Payment of Purchase Price .............................................11
2.4 Escrow Arrangements....................................................12
2.5 Adjustments to Purchase Price. ........................................17
2.6 Section 116 Certificate................................................17
2.7 Break Fee..............................................................18
2.8 Vendors' Legal and Accounting Expenses.................................18
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDORS, THE TRUSTEES
AND THE CORPORATION
3.1 Basis of Representations...............................................18
3.2 Representations and Warranties Relating to the Individual Vendors......19
3.3 Representations and Warranties Relating to the Corporate Vendor........22
3.4 Representations and Warranties Relating to the Trusts..................23
3.5 Representations and Warranties Relating to the Corporation.............26
3.6 Non-Waiver.............................................................40
3.7 Nature and Survival of Representations and Warranties .................41
3.8 Limitation on Remedies for Breach of Vendors' and Corporation's
Covenants, Representations and Warranties..............................41
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE PARENT
4.1 Basis of Representations...............................................41
4.2 Representations and Warranties of Purchaser............................42
4.3 Representations and Warranties of Parent...............................43
4.4 Non-Waiver.............................................................44
4.5 Nature and Survival of Representations and Warranties..................44
ARTICLE 5
COVENANTS OF THE VENDORS, THE CORPORATION,
AND THE PURCHASER
5.1 Covenants of the Vendors...............................................45
5.2 Purchaser's and Parent's Covenants.....................................49
5.3 Articon Agreement......................................................50
</TABLE>
<PAGE> 3
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS UNDER THIS AGREEMENT
<TABLE>
<S> <C>
6.1 Purchaser's Conditions......................................................50
6.2 Vendors' Conditions.........................................................52
6.3 Rights of Purchaser.........................................................54
6.4 Rights of Vendors...........................................................54
6.5 Rights of Termination.......................................................54
6.6 Reimbursement of Costs for Continuance......................................54
ARTICLE 7
EMPLOYMENT MATTERS
7.1 Employment Agreements.......................................................55
7.2 Other Employees.............................................................55
ARTICLE 8
CLOSING
8.1 Place of Closing............................................................55
8.2 Deliveries by Vendor........................................................55
8.3 Deliveries of Purchaser at Closing..........................................56
8.4 Closing Escrow..............................................................57
ARTICLE 9
SOLICITATION OF EMPLOYEES AND INJUNCTIVE RELIEF
9.1 Solicitation of Employees...................................................57
9.2 Injunctive Relief...........................................................57
ARTICLE 10
INDEMNIFICATION
10.1 Vendor Indemnification .....................................................57
10.2 Purchaser Indemnification...................................................58
10.3 Notice of Claim.............................................................58
10.4 Direct Claims...............................................................58
10.6 Limitation..................................................................59
ARTICLE 11
CONFIDENTIALITY AND NON-COMPETITION
11.1 Confidentiality ............................................................59
11.2 Non-Competition ............................................................59
11.3 Survival ...................................................................60
ARTICLE 12
GENERAL
12.1 Notices ....................................................................60
12.2 Arbitration Procedure ......................................................61
12.3 Audit and Inspection .......................................................62
12.4 Enurement ..................................................................62
12.5 Further Assurances .........................................................62
12.6 Expenses ...................................................................62
12.7 Counterparts ...............................................................63
</TABLE>
<PAGE> 4
SCHEDULES
Schedule 1.1 - Financial Statements;
Schedule 3.2(e) - Purchase Agreements;
Schedule 3.4(g) - Trust Beneficiaries;
Schedule 3.5(p) - Corporation Changes;
Schedule 3.5(w) - Employee Information;
Schedule 3.5(y) - Material Agreements, Other Contracts and
Agreements;
Schedule 3.5(aa) - Bank Accounts;
Schedule 3.5(bb) - Directors and Officers;
Schedule 3.5(ff)(i) - Intellectual Property;
Schedule 3.5(ff)(iv) - I.P., Tools and Other I.P. Rights;
Schedule 3.5(ff)(x) - Employee and Contractor Moral Rights Waivers;
Schedule 3.5(ff)(xvii) - Sources Code Disclosure;
Schedule 3.5(ff)(xix) - Wares and Services;
Schedule 3.5(hh) - Non-Arm's Length Transactions;
Schedule 3.5(mm) - Litigation and Related Matters;
Schedule 5.1 (k) - General Release;
Schedule 5.1 (m) - Affiliate Agreement;
Schedule 5.1 (n)(i) - Registration Rights Agreement;
Schedule 5.1 (n)(ii) - Investors Representation Certificate;
Schedule 12.2 - Arbitration Procedure.
<PAGE> 5
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT is made as of the 7th day of May, 1998
among:
ARTHUR WONG, an individual residing in the Province of Alberta ("WONG")
and
ARTHUR WONG AND MICHAEL TAM AND JASON CHIN, as trustees of the WONG
FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23,
1998, (the "WONG TRUST")
and
MICHAEL TAM, an individual residing in the Province of Alberta
("M. TAM")
and
MICHAEL TAM AND ARTHUR WONG AND CHRISTOPHER BAILEY, as trustees of the
TAM FAMILY 1998 TRUST, established pursuant to a trust deed dated
March 23, 1998, (the "M. TAM TRUST")
and
KAM CHUN TAM, an individual residing in the Province of Alberta ("K.C.
TARN")
and
KAM CHUN TAM AND MICHAEL TAM AND MU ZHEN HU, as trustees of the KAM CHUN
TAM FAMILY 1998 TRUST, established pursuant to a trust deed dated March
23, 1998, (the "K. TAM TRUST")
and
CHRISTOPHER BAILEY, an individual residing in the Province of Alberta
("Bailey")
and
CHRISTOPHER BAILEY AND MICHAEL TAM AND CHRISTOPHER KEIM, as trustees of
the BAILEY FAMILY 1998 TRUST, established pursuant to a trust deed dated
March 23, 1998, (the "BAILEY TRUST")
and
ALFRED HUGER, an individual residing in the Province of Alberta
("HUGER") and
<PAGE> 6
Page 2 of 67
ALFRED HUGER and OLIVER FRIEDRICHS and JOHN BOLETTA, as trustees of the
HUGER FAMILY 1998 TRUST, established pursuant to a trust deed dated
March 23, 1998, (the "HUGER TRUST")
and
OLIVER FRIEDRICHS, an individual residing in the Province of Alberta
("FRIEDRICHS")
and
OLIVER FRIEDRICHS and ALFRED HUGER and ARTHUR WONG, as trustees of the
FRIEDRICHS FAMILY 1998 TRUST, established pursuant to a trust deed dated
March 23, 1998, (the "FRIEDRICHS TRUST")
and
JONATHAN WILKINS, an individual residing in the Province of Alberta
("WILKINS")
and
THOMAS PTACEK, an individual residing in the State of Illinois
("PTACEK")
and
TIMOTHY NEWSHAM, an individual residing in the State of Hawaii
("NEWSHAM")
and
PRL RESOURCES INC., a body corporate incorporated under the laws of the
Province of Alberta ("PRL")
(collectively referred to herein as the "VENDORS")
and
FSA COMBINATION CORPORATION, a corporation incorporated under the laws
of the State of Delaware (the "PURCHASER")
and
SECURE NETWORKS INC., a corporation incorporated under the laws of the
Province of Alberta (the "CORPORATION")
and
NETWORKS ASSOCIATES, INC., a corporation incorporated under the laws of
the State of Delaware (the "PARENT").
and
<PAGE> 7
Page 3 of 67
GREATER BAY TRUST COMPANY, a trust company having offices in Palo Alto,
California (the "ESCROW AGENT").
WHEREAS the Vendors are the owners of the Purchased Shares;
AND WHEREAS the Vendors have agreed to sell and transfer, and the
Purchaser has agreed to purchase, the Purchased Shares in exchange for common
shares of the Parent upon the terms and conditions hereinafter set forth;
AND WHEREAS a portion of the common shares of the Parent to be issued in
connection with the purchase and sale contemplated by this Agreement are to be
deposited into escrow with the Escrow Agent;
AND WHEREAS for accounting purposes, it is intended that the purchase
and sale contemplated by this Agreement be accounted for as a pooling of
interests under United States generally accepted accounting principles and the
Vendors and the Corporation have agreed to use their best efforts to cause the
purchase and sale to be so accounted for;
AND WHEREAS the Parent has joined in the execution of this Agreement for
the purpose of making certain covenants, representations and warranties;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as set forth
below.
ARTICLE I
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 DEFINITIONS. In this Agreement, the following words and phrases shall have
the meanings set out below and grammatical variations of such terms shall have
corresponding meanings.
"ABCA" means the Business Corporations Act (Alberta), as amended from time to
time.
"ACCOUNTS RECEIVABLE" means all accounts receivable of, and book debts and other
debts due to, the Corporation that exist at the Effective Time.
"AFFILIATE" shall have the meaning ascribed thereto in the ABCA.
"AGREEMENT" means this share purchase agreement, as amended from time to time.
"ARBITRATOR" shall have the meaning ascribed thereto in subsection 2(a) of
Schedule 12.2.
"ARTICON" shall have the meaning ascribed thereto in Section 5.3.
"ARTICON AGREEMENT" shall have the meaning ascribed thereto in Section 5.3.
"ASSETS" means all the property and assets owned by the Corporation.
"ASSOCIATE" shall have the meaning ascribed thereto in the ABCA.
<PAGE> 8
Page 4 of 67
"BALLISTA SOFTWARE" means the software program called "Ballista".
"BANKING AGREEMENTS" means the agreements as set forth in Schedule 3.5(y), or as
contemplated by such agreements.
"BUSINESS" means the business currently and heretofore carried on by the
Corporation, including without limitation, the business of providing security
auditing software and computer security research and consulting, including,
without limitation, the development, improvement and licensing of the Ballista
Software, a network security scanner, and conducting in-depth research into the
security of software systems deployed on the Internet.
"BUSINESS DAY" means any day other than a day which is a Saturday, a Sunday or a
statutory holiday in the Province of Alberta.
"CANADIAN GAAP" means the generally accepted accounting principles and practices
in Canada, including without limiting the foregoing, the principles set forth in
the CICA Handbook published by the Canadian Institute of Chartered Accountants
or any successor institute and which are applicable on the effective date as at
which a calculation is required to be made in accordance therewith.
"CLAIM" shall have the meaning ascribed thereto in Section 10.3.
"CLOSING" means the completion of the purchase and sale of the Purchased Shares
as herein provided.
"CLOSING DATE BALANCE SHEET" means the balance sheet of the Corporation as at
the Time of Closing prepared in accordance with U.S. GAAP on a basis consistent
with previous years.
"COMMON SHARES" means all of the issued and outstanding class A common voting
shares in the capital of Corporation.
"COMPANY AFFILIATE" shall have the meaning ascribed thereto in Subsection
5.1(m)(i).
"COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property of the
Corporation as set forth in Schedule 3.5(ff)(i).
"CONFIDENTIAL INFORMATION" means the confidential information and trade secrets
of the Corporation and third parties to which the Corporation is under an
obligation of confidence including, without limitation:
(a) all formulas, patterns, compilations, programmes, methods,
techniques, processes, knowhow and information contained or
embodied in the Ballista Software, including any updates of the
same and further including, without limitation, any of the
foregoing confidential information which is not generally known
in the software business, has economic value from not being
generally known and is subject to reasonable efforts of the
Corporation to keep secret and confidential;
(b) confidential matters of a business nature or of a technical
nature relating to the development or marketing of the Ballista
Software and related to the Business and the Corporation
including, without limitation:
(i) customers, suppliers, product licensing prices,
marketing research,
(ii) product research and development,
<PAGE> 9
Page 5 of 67
(iii) inventions, (whether patentable or not); and
(c) confidential matters of a financial nature relating to the
development or marketing of the Ballista Software and related to
the Business and the Corporation including, without limitation,
business plans, corporate financing, accounting and financing
statements, and books and records.
"DIRECT CLAIM" shall have the meaning ascribed thereto in Section 10.3.
"DISPUTE" shall have the meaning ascribed thereto in Section 12.2.
"DRAG ALONG AGREEMENT" means that Shareholder Agreement dated as of April 2,
1998 among the Individual Vendors, PRL and certain of the Trustees on behalf of
the Trusts.
"EFFECTIVE TIME" means 12:01 a.m. on the date of Closing.
"EMPLOYMENT AGREEMENTS" shall have the meaning ascribed thereto in Section 7. 1.
"ENCUMBRANCE" means any encumbrance, lien, charge, hypothec, pledge, mortgage,
title retention agreement, security interest of any nature, adverse claim,
exception, reservation, easement, right of occupation, any matter capable of
registration against title, option, right of pre-emption, privilege or any
agreement, indenture, contract, lease, deed of trust, licence, option,
instrument or other commitment, whether written or oral, to create any of the
foregoing.
"ESCROW" means the escrow of the Escrow Shares in the Escrow Fund for the Escrow
Period as set forth in this Agreement.
"ESCROW FUND" shall have the meaning ascribed thereto in Subsection 2.4(a).
"ESCROW PERIOD" means the period commencing on the date of the Closing and
ending at 5:30 p.m. (Calgary time) on the date that is the first anniversary of
the date of Closing or, if such first anniversary date is not a Business Day,
then the next subsequent Business Day after such first anniversary date.
"ESCROW SHARES" means the aggregate of 10% of each Vendor's proportionate share
as determined in accordance with Section 2.3, of the Issued NAI Shares.
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended.
"FEE EVENT" shall have the meaning ascribed thereto in Section 2.7.
"FINANCIAL STATEMENTS" means the following financial statements provided to the
Purchaser:
(a) the unaudited Balance Sheet and Statement of Income for the
Corporation as at April 30, 1998; and
(b) unaudited Balance Sheets and Statements of Income for the
Corporation for the fiscal periods ended February 28, 1998,
December 31, 1997 and December 31, 1996.
copies of which are set forth in Schedule 1.1.
<PAGE> 10
Page 6 of 67
"INDEMNIFIED PARTY" shall have the meaning ascribed thereto in Section 10.3.
"INDEMNIFYING PARTY" shall have the meaning ascribed thereto in Section 10.3.
"INDIVIDUAL VENDORS" means, individually or collectively, as the context may
require, Wong, M. Tam, K.C. Tam, Bailey, Huger, Friedrichs, Wilkins, Ptacek and
Newsham.
"INTELLECTUAL PROPERTY" means any or all of the following and all rights in,
arising out of, or associated with:
(a) all Canada, United States and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof;
(b) all trade secrets and proprietary information, including trade
secrets and proprietary information that are inventions (whether
patentable or not), invention disclosures, improvements, know
how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing;
(c) all copyrights, copyrights registrations and applications
therefor and all other rights corresponding thereto throughout
the world;
(d) all industrial designs and any registrations and applications
therefor throughout the world;
(e) all trade names, logos, common law trademarks and service marks;
trademark and service mark, registrations and applications
therefor and all goodwill associated therewith throughout the
world;
(f) all media on which any of the foregoing is recorded, all Web
addresses, sites and domain names;
(g) any similar, corresponding or equivalent rights to any of the
foregoing; and
(h) all documentation related to any of the foregoing.
"ISSUED NAI SHARES" shall have the meaning ascribed thereto in Subsection
2.3(a).
"KEY EMPLOYEES" shall have the meaning ascribed thereto in Section 7.1.
"MATERIAL AGREEMENTS" means the agreements as set forth in Schedule 3.5(y).
"NAI SHARES" means common shares in the capital of the Parent.
"NASDAQ" means the National Association Securities Dealers Automated Quotation
System.
"OFFICER'S CERTIFICATE" shall have the meaning ascribed thereto in Subsection
2.4(e).
"PARENT SEC REPORTS" shall have the meaning ascribed thereto in Section 4.3(g).
"PERSON" means any individual, corporation, body corporate, partnership, joint
venture, association, trust, governmental or regulatory authority, or other
legal entity.
<PAGE> 11
Page 7 of 67
"PREFERRED SHARES" means all of the issued and outstanding class B preferred
shares in the capital of the Corporation.
"PREMISES" means the premises at which the Business is operated by the
Corporation, being 330, 1201 5th Street S.W., Calgary, Alberta.
"PRINCIPAL SHAREHOLDERS" means Wong, Huger and Friedrichs.
"PRL DEBENTURE" means that convertible debenture granted by the Corporation to
PRL, dated March 16, 1998.
"PROPORTIONATE ESCROW INTEREST" means, for a Vendor, the portion of the
aggregate number of Escrow Shares contributed by such Vendor to the Escrow Fund.
"PURCHASE PRICE" shall have the meaning ascribed thereto in Section 2.2.
"PURCHASED SHARES" means all of the Shares as follows:
(a) the 226,866 Preferred Shares owned beneficially and of record by
Wong;
(b) the 226,866 Common Shares owned beneficially and of record by
the Wong Trust;
(c) the 100,000 Preferred Shares owned beneficially and of record by
M. Tam;
(d) the 100,000 Common Shares owned beneficially and of record by
the M. Tam Trust;
(e) the 126,866 Preferred Shares owned beneficially and of record by
K.C. Tam;
(f) the 126,866 Common Shares owned beneficially and of record by
the K. Tam Trust;
(g) the 226,866 Preferred Shares owned beneficially and of record by
Bailey;
(h) the 226,866 Common Shares owned beneficially and of record by
the Bailey Trust;
(i) the 180,000 Preferred Shares owned beneficially and of record by
Huger;
(j) the 180,000 Common Shares owned beneficially and of record by
the Huger Trust;
(k) the 95,000 Preferred Shares owned beneficially and of record by
Friedrichs;
(l) the 95,000 Common Shares owned beneficially and of record by the
Friedrichs Trust;
(m) the 20,000 Common Shares and 20,000 Preferred Shares owned
beneficially and of record by Wilkins;
(n) the 20,000 Common Shares and 20,000 Preferred Shares owned
beneficially and of record by Ptacek;
(o) the 10,000 Common Shares and 10,000 Preferred Shares owned
beneficially and of record by Newsham; and
<PAGE> 12
Page 8 of 67
(p) the 111,733 Common Shares and 111,733 Preferred Shares owned
beneficially and of record by PRL.
"PURCHASER'S GROUP" means, after the Time of Closing, the Purchaser, the
Corporation and any Affiliate of the Purchaser or the Corporation.
"RECORDS" means, collectively:
(a) all written, machine readable or electronically stored
information and data including, without limiting the generality
of the foregoing, all books, records, agreements, reports,
plans, drawings, papers, accounting and other documents which
relate to:
(i) the creation, acquisition, or ownership by the Vendors
of the Purchased Shares,
(ii) the acquisition, construction, ownership or operation of
the Assets by the Corporation,
(iii) the conduct of the Business,
(iv) all customer lists relating to the Business, and
(v) the Corporation's title to the Assets; and
(b) all minute books, accounting books and records, tax returns and
records and other books, records, agreements, papers, returns,
assessments, reassessments and documents, whether written,
machine readable or electronically stored, which relate to any
or all of the incorporation, existence or the business or
activities of the Corporation and any or all of the activities
of the Vendors and the Corporation in relation thereto.
"REGISTERED INTELLECTUAL PROPERTY" means all Canadian, United States,
international and foreign:
(a) patents, patent applications (including provisional
applications);
(b) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or
applications related to trademarks;
(c) registered copyrights and applications for copyright
registration; and
(d) any other Company Intellectual Property that is the subject of
an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state,
government or other public legal authority.
"RELATED CONTRACTS" shall have the meaning ascribed thereto in Section 12.2.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the United States Securities Act of 1933, as amended.
"SHAREHOLDER LOANS" means, collectively those amounts owing by the Corporation
to the Vendors as at the date of Closing as follows:
<PAGE> 13
Page 9 of 67
(a) to Wong, the amount of $60,717,72;
(b) to M. Tam, the amount of $17,114.04; and
(c) to Bailey, the amount of $25,640.55.
"SHARES" means all of the issued and outstanding shares of every class in the
capital of the Corporation.
"TANGIBLE NET WORTH" means the aggregate of all tangible Assets (net of all
reserves and excluding all intangible Assets, including without limitation, all
goodwill and capitalized software) set forth in the Closing Date Balance Sheet,
less all liabilities of any kind (including, without limitation, accounts
payable, royalties payable, warranty reserves, accrued bonuses, accrued
vacation, employee expense obligations, deferred revenue, litigation reserves,
amounts due to related parties, and debt and other liabilities, and excluding
the PRL Debenture) set forth in the Closing Date Balance Sheet determined in
accordance with U.S. GAAP.
"TAX ACT" means the Income Tax Act (Canada).
"THIRD PARTY CLAIM" shall have the meaning ascribed thereto in Section 10.3.
"TIME OF CLOSING" means 10:00 a.m. Calgary time on May 15, 1998 or such other
time and date following satisfaction of the conditions of the Purchaser and the
Vendors as provided in Article 6 as the parties may agree.
"TRUSTEES" means, individually or collectively, as the context may require:
(a) Arthur Wong, Michael Tam, and Jason Chin, as trustees of the
Wong Trust;
(b) Michael Tam, Arthur Wong and Christopher Bailey, as trustees of
the M. Tam Trust;
(c) Kam Chun Tam, Michael Tam and Mu Zhen Hu, as trustees of the
K. Tam Trust;
(d) Christopher Bailey, Michael Tam and Christopher Keim, as
trustees of the Bailey Trust;
(e) Alfred Huger, Oliver Friedrichs and John Boletta, as trustees of
the Huger Trust;
(f) Oliver Friedrichs, Alfred Huger and Arthur Wong, as trustees of
the Friedrichs Trust.
"TRUSTS" means, individually, or collectively, as the context may require, the
Wong Trust, the M. Tam Trust, the K. Tam Trust, the Bailey Trust, the Huger
Trust and the Friedrichs Trust.
"U.S. GAAP" means the generally accepted accounting principles and practices in
the United States which are applicable on the effective date as at which a
calculation is required to be made in accordance therewith.
"VENDORS' AGENT" shall have the meaning ascribed thereto in Subsection 2.4(i).
"YEAR 2000 COMPLIANT" shall have the meaning ascribed thereto in Subsection
3.5(ff)(xii).
1.2 EXPANDED MEANINGS. Unless the context otherwise necessarily requires:
(a) words used herein importing the singular number only shall
include the plural and vice versa, and words importing the use
of any gender shall include all genders;
<PAGE> 14
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(b) the terms "in writing" or "written" include printing,
typewriting, or any electronic means of communication by which
words are capable of being visually reproduced at a distant
point of reception, including by telecopier;
(c) references to the "parties" herein shall mean the parties to
this Agreement; and
(d) references herein to any agreement or instrument, including this
Agreement, shall be deemed to be references to the agreement or
instrument as varied, amended, modified, supplemented or
replaced from time to time, and any specific references herein
to any legislation or enactment shall be deemed to be references
to such legislation or enactment as the same may be amended or
replaced from time to time.
1.3 AMENDMENT OF AGREEMENT. No supplement, modification, waiver or termination
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby.
1.4 WAIVER. No waiver of any of the provisions of this Agreement shall be valid
unless in writing and no such waiver shall constitute nor be deemed to
constitute a waiver of any other provisions (whether or not similar) nor shall
such waiver constitute a continuing waiver unless otherwise expressly provided.
1.5 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Alberta and the federal laws of
Canada applicable therein and the parties hereby irrevocably submit to the
jurisdiction of the courts of the Province of Alberta for all matters arising
out of or in correction with this Agreement or any of the transactions
contemplated hereby.
1.6 CURRENCY. Unless otherwise indicated, all dollar amounts in this Agreement
are expressed in United States funds.
1.7 HEADINGS AND TABLE OF CONTENTS. The division of this Agreement into
Articles, Sections, Subsections, Schedules and other subdivisions and the
insertion of headings, is for convenience of reference only and shall not affect
or be utilized in the construction or interpretation hereof. Unless otherwise
stated, all references herein to Articles, Sections, Subsections and Schedules
are to those in or to this Agreement.
1.8 SEVERABILITY. Any Article, Section, Subsection, Schedule or other
subdivision or any other provision of this Agreement which is, is deemed to be,
or becomes void, illegal, invalid or unenforceable shall he severable herefrom
and ineffective to the extent of such voidability, illegality, invalidity or
unenforceability, and shall not invalidate, affect or impair the remaining
provisions hereof, which provisions shall be severable from any void, illegal,
invalid or unenforceable Article, Section, Subsection, Schedule or other
subdivision or provision hereof.
1.9 TIME OF ESSENCE. Time shall be of the essence in this Agreement.
1.10 KNOWLEDGE. Any reference herein to "the best of the knowledge" of any of
the parties will be deemed to mean the actual knowledge of such party and the
knowledge such party would have had after due and reasonable investigation.
1.11 SCHEDULES. The following is a list of the Schedules attached to and forming
part of this Agreement:
<PAGE> 15
Page 11 of 67
SCHEDULES
Schedule 1.1 - Financial Statements;
Schedule 3.2(e) - Purchase Agreements;
Schedule 3.4(g) - Trust Beneficiaries;
Schedule 3.5(p) - Corporation Changes;
Schedule 3.5(w) - Employees;
Schedule 3.5(y) - Material Agreements, Other Contracts and Agreements;
Schedule 3.5(aa) - Bank Accounts;
Schedule 3.5(bb) - Directors and Officers;
Schedule 3.5(ff)(i) - Intellectual Property;
Schedule 3.5(ff)(iv) - I.P., Tools and Other I.P. Rights;
Schedule 3.5(ff)(x) - Employee and Contractor Moral Rights Waivers;
Schedule 3.5(ff)(xvii) - Sources Code Disclosure;
Schedule 3.5(ff)(xix) - Wares and Services;
Schedule 3.5(hh) - Non-Arm's Length Transactions;
Schedule 5.1(k) - General Release;
Schedule 3.5(mm) - Litigation and Related Matters;
Schedule 5.1(m) - Affiliate Agreement;
Schedule 5.1 (n)(i) - Registration Rights Agreement;
Schedule 5.1(n)(ii) - Investors Representation Certificate; and
Schedule 12.2 - Arbitration Procedure.
The parties agree that the Schedules are hereby incorporated into this Agreement
by reference and shall form part hereof. In the event of a conflict between a
Schedule or Schedules, on the one hand, and this Agreement, on the other hand,
the provisions of this Agreement shall take precedence.
ARTICLE 2
PURCHASE AND SALE OF PURCHASED SHARES
2.1 PURCHASE AND SALE OF PURCHASED SHARES. On and subject to the terms and
conditions of this Agreement, at the Time of Closing and with effect at the
Effective Time, the Vendors shall sell and convey to the Purchaser and the
Purchaser shall purchase from the Vendors the Purchased Shares, all of which
shall be free and clear of all Encumbrances of any kind whatsoever at the Time
of Closing, for an amount equal to the Purchase Price.
2.2 PURCHASE PRICE. Subject to any adjustments made pursuant to this Agreement,
the purchase price (the "PURCHASE PRICE") payable by the Purchaser to the
Vendors for the Purchased Shares shall be the sum of $25,000,000.
2.3 PAYMENT OF PURCHASE PRICE.
(a) The Purchase Price shall be satisfied by the issuance by the
Parent to the Purchaser of 378,000 NAI Shares (the "ISSUED NAI
SHARES") and the transfer and delivery by the Purchaser to the
Vendors of 90% of the Issued NAI Shares and the deposit of the
Escrow Shares with the Escrow Agent in accordance with Section
2.4.
(b) The Issued NAI Shares shall be allocated amongst the Vendors in
the following proportions:
<PAGE> 16
Page 12 of 67
(i) 1.62% to Wong;
(ii) 18.68% to the Wong Trust;
(iii) 0.72% to M. Tam;
(iv) 8.23% to the M. Tam Trust;
(v) 0.91% to K.C. Tam;
(vi) 10.45% to the K. Tam Trust;
(vii) 1.62% to Bailey;
(viii) 18.68% to the Bailey Trust;
(ix) 1.29% to Huger;
(x) 14.82% to the Huger Trust;
(xi) 0.68% to Friedrichs;
(xii) 7.82% to the Friedrichs Trust;
(xiii) 1.79% to Wilkins;
(xiv) 1.79% to Ptacek;
(xv) 0.90% to Newsham; and
(xvi) 10.00% to PRL.
(c) If, on or before the Time of Closing, the NAI Shares as
presently constituted shall be changed into or exchanged for a
different number or kind of shares or other securities of NAI or
of another corporation, whether by reason of conversion,
consolidation, amalgamation, merger, recapitalization,
reclassification, split, reverse split, combination of shares or
otherwise, then there shall be substituted for or added to the
Issued NAI Shares the number or kind of shares or other
securities into which each Issued NAI Share shall be so changed,
exchanged or entitled, as the case may be.
2.4 ESCROW ARRANGEMENTS.
(a) ESCROW FUND - At the Effective Time, without any act of any
Vendor, the Escrow Shares will be deposited into an escrow
account with the Escrow Agent, such deposit to constitute an
escrow fund (the "ESCROW FUND"). The Escrow Fund is to be
governed by the terms set forth herein and maintained at the
Corporation's sole cost and expense.
(b) COMPENSATION - The Escrow Fund shall be available to compensate
the Purchaser and its affiliates for any claim, loss, expense,
liability or other damage (including without limitation legal
fees on a solicitor and his own client basis) to the extent of
the amount of such claim, loss, expense, liability or other
damage (collectively "LOSSES") that the
<PAGE> 17
Page 13 of 67
Purchaser or any of its affiliates has incurred (or reasonably
anticipates incurring in the case of an extension of the Escrow
Period pursuant to the provisions of Subsection 2.4(c)) by
reason of the breach by:
(i) the Corporation of any representation, warranty,
covenant or agreement of the Corporation contained
herein in which event claims for Losses incurred as a
result shall be satisfied out of the Escrow Fund as a
whole; or
(ii) any or all of the Vendors of any representation,
warranty, covenant or agreement of any or all of the
Vendors contained herein; provided, however, that claims
for Losses incurred as a result of a breach by a Vendor
shall be satisfied solely out of such Vendor's
Proportionate Escrow Interest.
(c) TERMINATION AND DISTRIBUTION OF ESCROW FUNDS - Upon completion
of the Escrow Period, the Escrow shall terminate; provided,
however, that such portion of the Escrow Fund, which, in the
reasonable judgment of the Purchaser, subject to the objection
of a Vendor and the subsequent arbitration of the matter
pursuant to the provisions of Section 12.2, is necessary to
satisfy any unsatisfied Losses specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to
termination of the Escrow, shall remain in the Escrow (and the
Escrow only with respect to such claim shall remain in
existence) until such claims have been resolved. On the later of
the completion of the Escrow Period and the date upon which such
claims have been resolved, the Escrow Agent shall deliver to the
appropriate Vendors the remaining portion of the Escrow Fund not
required to satisfy such claims. In the event that Escrow Funds
are being held to satisfy an anticipated claim and no action,
suit, or proceeding has been threatened with respect to such
anticipated claim on or before the date which is 24 months after
the Time of Closing, then the extended Escrow Period shall end
and the remaining portion of the Escrow Fund shall be delivered
by the Escrow Agent to the Vendors. Deliveries of Escrow Shares
to Vendors pursuant to the provisions of this Subsection 2.4(c)
shall be made according to each Vendor's Proportionate Escrow
Interest as certified to the Escrow Agent by the Vendors' Agent.
(d) PROTECTION OF ESCROW FUND - The Escrow Agent shall:
(i) hold and safeguard the Escrow Fund during its existence;
(ii) treat the Escrow Fund as a trust fund in accordance with
the terms of this Agreement and not as the property of
the Purchaser; and
(iii) hold and dispose of the Escrow Fund only in accordance
with the terms hereof.
(e) CLAIM UPON ESCROW FUND - Upon receipt by the Escrow Agent of a
certificate signed by any officer of the Purchaser (an
"OFFICER'S CERTIFICATE"):
(i) stating that the Purchaser or any of its affiliates has
paid or properly accrued or reasonably anticipates that
it will have to pay or accrue Losses; and
(ii) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each
such item was paid or properly accrued, or the basis for
such anticipated liability, and either the nature of the
misrepresentation, breach of warranty or claim or the
litigation matter to which such item is related,
<PAGE> 18
Page 14 of 67
the Escrow Agent shall, subject to the provisions of
Section 12.2, deliver to the Purchaser out of the Escrow
Fund, as promptly as practicable, that number of Escrow
Shares (rounded up to the nearest whole number of
shares) held in the Escrow Fund equal to such Losses. In
determining the number of Escrow Shares to be paid out
by the Escrow Agent pursuant to this Section 2.4, such
shares shall be valued by the Escrow Agent at the
average closing price of the NAI Shares on NASDAQ as at
the date of Closing. Upon request by the Escrow Agent, a
duly authorized officer of the Parent shall deliver a
certificate to the Escrow Agent as to that closing price
of the NAI Shares.
(f) DEDUCTIBLE - The Purchaser shall not be entitled to receive any
disbursement from the Escrow Fund with respect to any Losses
arising in respect of any individual occurrence or circumstance
unless:
(i) the aggregate amount of all Losses shall exceed $25,000;
or
(ii) the Losses arising from any such individual occurrence
or circumstance shall exceed $10,000.
(g) OBJECTIONS TO CLAIM - At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Vendors' Agent and for a
period of 15 Business Days after receipt of such Officer's
Certificate by the Vendors' Agent, the Escrow Agent shall make
no delivery to the Purchaser of any Escrow Shares out of the
Escrow Fund pursuant to the provisions of Subsection 2.4(e)
unless the Escrow Agent shall have received written
authorization from the Vendors' Agent to make such delivery.
After the expiration of such 15 Business Day period, the Escrow
Agent shall make delivery of the applicable number of Escrow
Shares (rounded up to the nearest whole number of shares) from
the Escrow Fund in accordance with the provisions of Subsection
2.4(e); provided that no such payment or delivery may be made if
the Vendors' Agent shall object in a written statement to the
claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the
expiration of such 15 Business Day period.
(h) RESOLUTION OF CONFLICTS: ARBITRATION -
(i) In case the Vendors' Agent shall make a written
objection as provided in Subsection 2.4(g) to any claim
or claims made in any Officer's Certificate, the
Vendors' Agent and the Purchaser shall attempt in good
faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Vendors'
Agent and the Purchaser should so agree, then a
memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute
Escrow Shares from the Escrow Fund in accordance with
the terms thereof; and
(ii) if no agreement as set forth in Subsection 2.4(h)(i) can
be reached after good faith negotiation, then either the
Purchaser or the Vendors' Agent may demand arbitration
of the matter (in accordance with the provisions of
Section 12.2) unless the amount of the damage or loss is
at issue in pending litigation with a third party, in
which event such arbitration shall not be commenced
until such amount is ascertained upon the conclusion of
such litigation or both parties agree to
<PAGE> 19
Page 15 of 67
arbitration. The decision of the Arbitrator 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 the Escrow Agent shall be
entitled to act in accordance with such decision and
make or withhold payments or deliveries out of the
Escrow Fund in accordance therewith.
(i) VENDORS' AGENT: POWER OF ATTORNEY -
(i) Effective at the Effective Time, and without further act
of any Vendor, Wong is hereby appointed by each of the
Vendors as agent and attorney-in-fact (the "VENDORS'
AGENT") for each Vendor on whose behalf any Escrow
Shares were deposited into the Escrow Fund, for and on
behalf of the Vendors, to:
(1) give and receive notices and communications;
(2) authorize delivery to the Purchaser of Escrow
Shares from the Escrow Fund in satisfaction of
claims by the Purchaser;
(3) object to such deliveries;
(4) agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and
comply with orders of courts and awards of
arbitrators with respect to such claims; and
(5) take all actions necessary or appropriate in the
judgment of the Vendors' Agent for the
accomplishment of the foregoing.
Such agency may be changed by the Vendors from time to
time upon not less than 30 days prior express written
notice to the Purchaser; provided that the Vendors'
Agent may not be removed unless holders of a two-thirds
interest in the Escrow Fund agree to such removal and to
the identity, and with the consent, of the substituted
agent. No bond shall be required of the Vendors' Agent,
and the Vendors' Agent shall not receive compensation
for his services. Notices or communications to or from
the Vendors' Agent shall constitute notice to or from
each of the Vendors.
(ii) The Vendors' Agent shall not be liable for any act done
or omitted hereunder as the Vendors' Agent while acting
in good faith and in the exercise of reasonable
judgment. Each Vendor on whose behalf Escrow Shares were
contributed to the Escrow Fund shall jointly and
severally indemnify the Vendors' Agent and hold the
Vendors' Agent harmless against any loss, liability or
expense incurred without negligence or bad faith on
the part of the Vendors' Agent and arising out of or in
connection with the acceptance or administration of the
Vendors' Agent's duties hereunder, including without
limitation the reasonable fees and expenses of any legal
counsel (on a solicitor and his own client basis)
retained by the Vendors' Agent.
(j) ACTIONS OF THE VENDORS' AGENT - A decision, act, consent or
instruction of the Vendors' Agent shall constitute a decision of
all the Vendors for whom a portion of the Escrow Shares
otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each of such
Vendors, and the Escrow Agent and the
<PAGE> 20
Page 16 of 67
Purchaser may rely upon any such decision, act, consent or
instruction of the Vendors' Agent as being the decision, act,
consent or instruction of each and every such Vendor. The Escrow
Agent and the Purchaser are hereby relieved from any liability
to any Person for any acts done by them in accordance with such
decision, act, consent or instruction of the Vendors' Agent.
(k) THIRD PARTY CLAIMS - The Purchaser shall have the right in its
sole discretion to settle any Third Party Claim; provided,
however that the Purchaser shall in good faith consult with the
Vendors' Agent prior to settling any Third Party Claim.
Notwithstanding the foregoing provisions of this Subsection
2.4(k), any such settlement of a third party claim shall not be
determinative of any disagreement or dispute by the Vendors
relating to the Third Party Claim, or any conflict among the
parties to this Agreement. All such disagreements, disputes and
conflicts, if not resolved by the parties, are to be resolved by
arbitration pursuant to Section 12.2.
(l) ESCROW AGENT'S DUTIES -
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth
herein, and as set forth in any additional written
escrow instructions which the Escrow Agent may receive
after the date of this Agreement which are signed by an
officer of the Purchaser and the Vendors' Agent, and may
rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be
liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted
pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the
parties or by any other Person, excepting only orders or
process of any courts of law or any decision of the
Arbitrator pursuant to the provisions of Section 12.2,
and is hereby expressly authorized to comply with and
obey orders, judgment or decrees of any court or any
such decision of the Arbitrator. In case the Escrow
Agent obeys or complies with any such order, judgment or
decree of any court, or any such decision of the
Arbitrator, the Escrow Agent shall not be liable to any
of the parties or to any other Person by reason of such
compliance, notwithstanding any such order, judgment,
decree or decision being subsequently reversed,
modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the
parties executing or delivering or purporting to execute
or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights, any statute of limitations with respect
to this Agreement or any documents deposited with the
Escrow Agent.
(v) The Escrow Agent may resign at any time upon giving at
least 30 days written notice to the Purchaser and the
Vendors' Agent pursuant to this Agreement;
<PAGE> 21
Page 17 of 67
provided, however, that no such resignation shall become
effective until the appointment of a successor escrow
agent which shall be accomplished as follows:
(1) the Purchaser and the Vendors' Agent shall use
their best efforts to mutually agree upon a
successor agent within 30 days after receiving
such notice;
(2) if the Purchaser and the Vendors' Agent fail to
agree upon a successor escrow agent within such
time, then the Arbitrator shall have the right
to appoint a successor escrow agent;
(3) 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;
and
(4) thereafter, the predecessor Escrow Agent shall
be discharged for any further duties and
liabilities under this Agreement.
2.5 ADJUSTMENTS TO PURCHASE PRICE.
(a) As soon as possible following the Closing but in any event no
more than 30 days after the Time of Closing, the Corporation
shall cause the Closing Date Balance Sheet to be prepared and
delivered to the Purchaser.
(b) If the Tangible Net Worth, as determined by the Closing Date
Balance Sheet, is less than $20,000, then the Purchase Price
will be reduced by the difference between $20,000 and such
Tangible Net Worth amount and the Vendors shall pay to the
Purchaser within 60 days of the delivery of the Closing Date
Balance Sheet, such difference by the delivery out of Escrow to
the Purchaser pursuant to the provisions of Section 2.4 that
number of Escrow Shares equal to such difference.
(c) At any time within 60 days following the delivery of the Closing
Date Balance Sheet by the Corporation to the Purchaser, the
Vendors' Agent, the Purchaser or the Corporation may dispute
(pursuant to the provisions of Section 12.2) any amounts
reflected therein. If no such dispute is referred to arbitration
with such 60 day period, then the Closing Date Balance Sheet
shall be thereupon deemed to be final and conclusive for the
purposes of this Agreement.
2.6 SECTION 116 CERTIFICATE. If either of Newsham or Ptacek fails to deliver to
the Purchaser at or before the Time of Closing a certificate issued pursuant to
Section 116 of the Tax Act in respect of the sale of the Purchased Shares being
sold by that Vendor, containing a certificate limited for that Vendor at least
equal to the Purchase Price payable to such Vendor in respect of his Purchased
Shares, then the number of NAI Shares to be delivered to that Vendor hereunder
may be reduced by a number of NAI Shares (rounded up to the nearest whole number
of shares) equal to the amount of tax for which the Purchaser may be liable as
determined solely by the Purchaser's counsel as provided in Section 116 of the
Tax Act with respect to that Vendor, divided by the closing price of the NAI
Shares on NASDAQ on the day before the date of Closing, with such NAI Shares to
be delivered to the Escrow Agent and to be released to that Vendor upon delivery
to the Purchaser of the Section 116 certificate by that Vendor.
<PAGE> 22
Page 18 of 67
2.7 BREAK FEE. If, at any time after the execution of this Agreement and prior
to June 30, 1998.
(a) any Person or Persons other than the Purchaser or its Affiliates
acquires:
(i) more than 50% of the outstanding Shares,
(ii) any of the Company's Intellectual Property, other than
in the ordinary course of the Business, or
(b) any Person or Persons other than the Vendors or the Purchaser or
its Affiliates acquires the power to elect any of the directors
of the Corporation; or
(c) the Corporation completes a merger, amalgamation, consolidation,
business combination or similar transaction with any Person or
Persons other than the Purchaser or its Affiliates,
(any one of such events being a "FEE EVENT"), then the Vendors and the
Corporation shall be jointly and severally obligated to pay to the Purchaser a
fee in the amount of $1,250,000 within 10 Business Days of the Fee Event.
2.8 VENDORS' LEGAL AND ACCOUNTING EXPENSES. In the event of Closing, the
Corporation shall pay on behalf of the Vendors all of the reasonable fees and
expenses of Code Hunter Wittmann, the Vendors' counsel, the Vendor's United
States counsel, and the Vendors' accountants, up to a maximum amount of
$100,000. In the event such payments by the Corporation should cause the
Tangible Net Worth to fall below $20,000, then the Corporation's obligation to
pay such fees and expenses shall be limited to an amount that would cause the
Tangible Net Worth to be $20,000 after such payment, and any such fees and
expenses remaining unpaid, up to the maximum of $100,000, shall be paid by the
Purchaser or the Parent on behalf of the Vendors.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE VENDORS, THE TRUSTEES
AND THE CORPORATION
3.1 BASIS OF REPRESENTATIONS.
(a) Each Individual Vendor, as to himself and such of the Purchased
Shares owned by him (and not as to any other Vendor or the
Purchased Shares owned by any other Vendor) hereby represents and
warrants to the Purchaser and the Parent that each of the
statements contained in Subsections 3.2(a) through (1),
inclusive, is true and correct as at the time of execution and
delivery of this Agreement by such Individual Vendor, except for
any such statement which expressly speaks as at some other time;
(b) each of the Principal Shareholders hereby jointly and severally
represents and warrants to the Purchaser and the Parent that each
of the statements contained in Subsections 3.2(m) and (n) is true
and correct as at the time of execution and delivery of this
Agreement by the Principal Shareholders, except for any such
statement which expressly speaks as at some other time.
(c) PRL hereby represents and warrants to the Purchaser and the
Parent that each of the statements contained in Section 3.3 with
respect to PRL is true and correct as at the time
<PAGE> 23
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of execution and delivery of this Agreement by PRL, except for
any such statement which expressly speaks as at some other time;
(d) each of the Trusts and the Trustees in their capacities as
Trustees and not in any personal capacity, for and on behalf of
their respective Trust only, and not the other Trusts, hereby
represents and warrants to the Purchaser and the Parent that
each of the statements contained in Section 3.4 with respect to
the Trust of which they are Trustee is true and correct as at
the time of execution and delivery of this Agreement by the
Trustees, except for any such statement which expressly speaks
as at some other time;
(e) each of the Principal Shareholders and the Corporation hereby
jointly and severally represents and warrants to the Purchaser
and the Parent that each of the statements contained in Section
3.5 is true and correct as at the time of execution and delivery
of this Agreement by the Principal Shareholders and the
Corporation, except for any such statement which expressly
speaks as at some other time;
(f) any such statement which expressly speaks as at a time other
than the time of execution and delivery of this Agreement by any
or all of the Vendors, the Trustees and the Corporation was or
will be true and correct as at the time at which such statement
speaks, except to the extent affected by the transactions
contemplated hereby; and
(g) each of such statements will be true and correct at the Time of
Closing except for any such statement which expressly speaks as
at some other time except to the extent affected by the
transactions contemplated hereby,
and each of the Vendors, the Trustees and the Corporation acknowledge that the
Purchaser and the Parent are relying on such representations and warranties in
connection with the purchase of the Purchased Shares and the completion of the
other transactions hereunder.
3.2 REPRESENTATIONS AND WARRANTIES RELATING TO THE INDIVIDUAL VENDORS.
(a) CAPACITY - Each of the Individual Vendors has the capacity to
own the Purchased Shares owned by such Individual Vendor, to
duly enter into this Agreement and to perform his or her
obligations hereunder.
(b) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly
executed and delivered by each of the Individual Vendors and
constitutes a legal, valid and binding obligation of each of the
Individual Vendors enforceable in accordance with its terms.
(c) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by any of the Individual Vendors at or before the Time
of Closing will have been duly executed and delivered by each
such Individual Vendor and shall constitute a legal, valid and
binding obligation of each such Individual Vendor enforceable in
accordance with its terms.
(d) LITIGATION AND RELATED MATTERS - There are no actions, suits,
investigations or proceedings pending or, to the best of the
knowledge of the Individual Vendors threatened against or
affecting the Individual Vendor's Purchased Shares or its
ability to consummate the transactions contemplated hereby, at
law or in equity, or before any arbitrator of any kind, or
before or by any governmental or regulatory authority, domestic
or foreign, and
<PAGE> 24
Page 20 of 67
the Individual Vendor is not aware of any existing ground on
which any such action or proceeding might be commenced with any
reasonable likelihood of success.
(e) NO OTHER PURCHASE AGREEMENTS - Except as disclosed in Schedule
3.2(e), no Person, other than the Purchaser, has any agreement,
option or commitment or any right or privilege (whether by law,
pre-emptive or contractual), capable of becoming an agreement,
option or commitment for the acquisition from the Individual
Vendor for any or all of the Individual Vendor's Purchased
Shares.
(f) LOANS - None of the Individual Vendors are indebted to the
Corporation and except for the Shareholder Loans, the
Corporation is not indebted to any of the Individual Vendors.
(g) SHAREHOLDINGS OF THE INDIVIDUAL VENDORS - The Individual Vendor
is the sole beneficial and registered owner of such of the
Purchased Shares as follows, with good and marketable title
thereto, free and clear of all Encumbrances and, without
limiting the generality of the foregoing, none of the Purchased
Shares owned by the Individual Vendor are subject to any voting
trust, shareholder agreement or voting agreement other than the
Drag Along Agreement:
<TABLE>
<CAPTION>
NUMBER OF PURCHASED SHARES
VENDOR COMMON SHARES PREFERRED SHARES
<S> <C> <C>
Wong - 226,866
M. Tam - 100,000
K.C. Tam - 126,866
Bailey - 226,866
Huger - 180,000
Friedrichs - 95,000
Wilkins 20,000 20,000
Ptacek 20,000 20,000
Newsham 10,000 10,000
TOTAL 40,000 1,005,598
</TABLE>
(h) OWNERSHIP BY PURCHASER - Upon completion of the transactions
contemplated by this Agreement, all of the Purchased Shares as
are owned by the Individual Vendor will be transferred and
delivered to the Purchaser free and clear of any and all
Encumbrances.
(i) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement and each and every agreement or document to be
executed and delivered hereunder and the consummation of the
transactions contemplated herein will not:
(i) violate, be in conflict with, result in a breach of,
constitute a default, of cause the acceleration of any
obligation of the Individual Vendor, under:
(A) any agreement, instrument, licence, permit or
authority to which the Individual Vendor is, or
is entitled to be, a party or to which any or
all of its property and its Purchased Shares are
subject,
<PAGE> 25
Page 21 of 67
(B) any judgment, decree, order, statute, rule or
regulation applicable to the Individual Vendor,
or
(C) to the best of the knowledge of the Individual
Vendor, any provision of law or regulation of
any governmental or regulatory authority or any
judicial or administrative order, award,
judgment or decree applicable to the Individual
Vendor;
(ii) result in the creation of any Encumbrance upon any or
all of the Purchased Shares owned by the Individual
Vendor under any such agreement or instrument; or
(iii) give to any Person any material interest or rights that
have not been waived prior to the date hereof, including
preferential rights of purchase of any part of the
Purchased Shares owned by the Individual Vendor or to
the best of the knowledge of the Individual Vendor (if
the Individual Vendor is not a Principal Shareholder),
any property of the Corporation or any right of
termination, cancellation or acceleration under any such
agreement, instrument, license, permit or authority.
(j) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses,
certifications, approvals, consents, orders-in-council,
legislation or other action of any governmental or regulatory
authority (except for the certificates referred to in Section
2.6) are required in Canada for the execution, delivery or
performance by the Individual Vendor of this Agreement or the
transactions contemplated herein, or for the execution, delivery
or performance by the Individual Vendor of any other agreement
contemplated hereunder to be delivered by the Individual Vendor
at or before the Time of Closing or the transactions
contemplated therein.
(k) INTERMEDIARY FEES - No commission or other remuneration is
payable by the Purchaser or will be payable by the Purchaser to
any broker, agent or other intermediary who has acted for the
Individual Vendor in connection with the sale of the Purchased
Shares and the transactions herein contemplated.
(l) RESIDENCY - None of the Individual Vendors is a non-resident of
Canada for the purposes of Section 116 of the Tax Act, and each
of the Individual Vendors is a resident of Alberta, except for:
(i) Ptacek, who is a resident of the State of Illinois; and
(ii) Newsham, who is a resident of the State of Hawaii.
(m) NO FURTHER INFORMATION - The Principal Shareholders have no
information or knowledge of any facts relating to the Business,
the Assets or the Corporation not disclosed in writing to the
Purchaser which might reasonably be expected to have a material
adverse effect on the Business, the Company Intellectual
Property or the Corporation.
(n) CONTINUANCE - The Principal Shareholders are not aware of any
fact or circumstance that would reasonably be expected to
interfere with the Corporation being continued pursuant to the
laws of the Province of Nova Scotia.
<PAGE> 26
Page 22 of 67
3.3 REPRESENTATIONS AND WARRANTIES RELATING TO THE CORPORATE VENDOR.
(a) ORGANIZATION - PRL is a duly organized and valid and subsisting
corporation under the laws of the Province of Alberta.
(b) CORPORATE POWER AND AUTHORITY - PRL has all necessary power,
authority and capacity to enter into this Agreement and perform
its obligations hereunder, and to own the Purchased Shares owned
by it.
(c) CORPORATE ACTION - At the Time of Closing, PRL will have taken
all necessary actions, steps and corporate or other proceedings
to approve or authorize, validly and effectively, the entering
into and the execution, delivery and performance of this
Agreement and the sale and transfer of the Purchased Shares
owned by it to the Purchaser.
(d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly
authorized, executed and delivered by PRL and constitutes a
legal, valid and binding obligation of PRL, enforceable in
accordance with its terms.
(e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by PRL at or before the Time of Closing will have been
duly executed and delivered by PRL and shall constitute a legal,
valid and binding obligation of PRL, enforceable in accordance
with its terms.
(f) NO OTHER PURCHASE AGREEMENTS - No Person, other than the
Purchaser, has any agreement, option or commitment or any right
or privilege (whether by law, pre-emptive or contractual),
capable of becoming an agreement, option or commitment for the
acquisition from PRL for any or all of the Purchased Shares.
(g) SHAREHOLDINGS OF PRL - PRL is the sole beneficial and registered
owner of 111,733 Common Shares and 111,733 Preferred Shares,
with good and marketable title thereto, free and clear of all
Encumbrances and, without limiting the generality of the
foregoing, none of the Purchased Shares owned by PRL are subject
to any voting trust, shareholder agreement or voting agreement
other than the Drag Along Agreement.
(h) LOANS - PRL is not indebted to the Corporation and the
Corporation will not be indebted to PRL as at the Time of
Closing.
(i) OWNERSHIP BY PURCHASER - Upon completion of the transactions
contemplated by this Agreement, all of the Purchased Shares as
are owned by PRL will be transferred and delivered to the
Purchaser free and clear of any and all Encumbrances.
(j) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement and each and every agreement or document to be
executed and delivered hereunder and the consummation of the
transactions contemplated herein will not:
(i) violate, be in conflict with, result in a breach of,
constitute a default, or cause the acceleration of any
obligation of PRL under:
(A) any agreement, instrument, licence, permit or
authority to which PRL is or is entitled to be,
a party or to which any or all of its property
and its Purchased Shares are subject,
<PAGE> 27
Page 23 of 67
(B) any provision of the articles, by-laws or
resolutions of the board of directors (or any
committee thereof) or shareholders of PRL,
(C) any judgment, decree, order, statute, rule or
regulation applicable to PRL, or
(D) to the best of the knowledge of PRL, any
provision of law or regulation of any
governmental or regulatory authority or any
judicial or administrative order, award,
judgment or decree applicable to PRL;
(ii) result in the creation of any Encumbrance upon any or
all of the Purchased Shares owned by PRL under any such
agreement or instrument; or
(iii) give to any Person any material interest or rights that
have not been waived prior to the date hereof, including
preferential rights of purchase of any part of the
Purchased Shares owned by PRL or, to the best of the
knowledge of PRL, any property of the Corporation or any
right of termination, cancellation or acceleration under
any such agreement, instrument, license, permit or
authority.
(k) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses,
certifications, approvals, consents, orders-in-council,
legislation or other action of any governmental or regulatory
authority are required in Canada for the execution, delivery or
performance by PRL of this Agreement or the transactions
contemplated herein, or for the execution, delivery or
performance by PRL of any other agreement contemplated hereunder
to be delivered by PRL at or before the Time of Closing or the
transactions contemplated therein.
(l) INTERMEDIARY Fees - No commission or other remuneration is
payable by the Purchaser or will be payable by the Purchaser to
any broker, agent or other intermediary who has acted for PRL
in connection with the sale of the Purchased Shares and the
transactions herein contemplated.
(m) RESIDENCY - PRL is a resident of Alberta and a taxable Canadian
corporation within the meaning of the Tax Act.
(n) LITIGATION AND RELATED MATTERS - There are no actions, suits,
investigations or proceedings pending or threatened against or
affecting PRL's Purchased Shares or its ability to consummate
the transactions contemplated hereby, at law or in equity, or
before any arbitrator of any kind, or before or by any
governmental or regulatory authority, and PRL is not aware of
any existing ground on which any such action or proceeding might
be commenced with any reasonable likelihood of success.
(o) RELATIONSHIP BETWEEN PRL AND THE CORPORATION - Other than as a
shareholder of the Corporation, PRL has no interest in the
Corporation and the Corporation, its officers, directors and
shareholders have no beneficial interest in PRL.
3.4 REPRESENTATIONS AND WARRANTIES RELATING TO THE TRUSTS.
(a) CAPACITY - The Trust is a validly existing trust formed under
the laws of the Province of Alberta, the Trustees are duly
appointed as the only trustees thereof and the Trustees have the
power and authority, on behalf of the Trust, to own legal title
to the Purchased Shares,
<PAGE> 28
Page 24 of 67
and the Trustees have the power and authority, on behalf of the
Trust, to duly enter into this Agreement and to perform the
obligations of the Trust hereunder.
(b) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement and each and every agreement or document to be
executed and delivered hereunder and the consummation of the
transactions contemplated herein will not:
(i) violate, be in conflict with, result in a breach of,
constitute a default, or cause the acceleration of any
obligation of the Trust, under:
(A) any agreement, instrument, licence, permit or
authority to which the Trust is, or are entitled
to be, a party or to which any or all of its
property and its Purchased Shares are subject,
(B) any judgment, decree, order, statute, rule or
regulation applicable to the Trust, or
(C) to the best of the knowledge of the Trustees any
provision of law or regulation of any
governmental or regulatory authority or any
judicial or administrative order, award,
judgment or decree applicable to the Trust;
(ii) result in the creation of any Encumbrance upon the
Purchased Shares owned by that Trust under any such
agreement or instrument; or
(iii) give to any Person any material interest or rights that
have not been waived prior to the date hereof, including
preferential rights of purchase of any part of the
Purchased Shares owned by that Trust or, to the best of
the knowledge of the Trustees, any property of the
Corporation, or any right of termination, cancellation
or acceleration under any such agreement, instrument,
license, permit or authority.
(c) BINDING AND ENFORCEABLE AGREEMENT - The Trustees have the power,
authority and capacity to execute and deliver this Agreement and
to sell the Purchased Shares held by the Trust on behalf of the
Trust, and this Agreement has been duly executed and delivered
by each of the Trustees and constitutes a legal, valid and
binding obligation of the Trust enforceable in accordance with
its terms.
(d) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by the Trustees and the Trust at or before the Time of
Closing will have been duly executed and delivered by the
Trustees, on behalf of the Trust, and shall constitute a legal,
valid and binding obligation of the Trust enforceable in
accordance with its terms.
(e) NO OTHER PURCHASE AGREEMENTS - No Person, other than the
Purchaser, has any agreement, option or commitment or any right
or privilege (whether by law, pre-emptive or contractual),
capable of becoming an agreement, option or commitment for the
acquisition from the Trust for any or all of the Purchased
Shares.
(f) SHAREHOLDINGS OF THE TRUST - The Trust is the registered owner
of such of the Purchased Shares as follows, with good and
marketable title thereto, free and clear of all Encumbrances
and, without limiting the generality of the foregoing, none of
the Purchased
<PAGE> 29
Page 25 of 67
Shares owned by the Trust are subject to any voting trust,
shareholder agreement or voting agreement other than the Drag
Along Agreement:
<TABLE>
<CAPTION>
TRUST NUMBER OF PURCHASED SHARES
- ----- --------------------------
<S> <C>
Wong Trust 226,866 Common Shares
M. Tam Trust 100,000 Common Shares
K. Tam Trust 126,866 Common Shares
Bailey Trust 226,866 Common Shares
Huger Trust 180,000 Common Shares
Friedrichs Trust 95,000 Common Shares
TOTAL 955,598 Common Shares
</TABLE>
(g) BENEFICIARIES - Schedule 3.4(g) sets forth the names of such of
the Vendors as are beneficiaries of the Trust.
(h) OWNERSHIP - Upon completion of the transactions contemplated by
this Agreement, all of the Purchased Shares as are owned by the
Trust will be transferred and delivered to the Purchaser, free
and clear of any and all Encumbrances.
(i) LITIGATION AND RELATED MATTERS - There are no actions, suits,
investigations or proceedings pending or threatened against or
affecting such of the Purchased Shares held by the Trust or the
Trustees' ability to consummate the transactions contemplated
hereby, at law or in equity, or before any arbitrator of any
kind, or before or by any governmental or regulatory authority,
domestic or foreign, and none of the Trustees are aware of any
existing ground on which any such action or proceeding might be
commenced with any reasonable likelihood of success.
(j) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses,
certifications, approvals, consents, orders-in-council,
legislation or other action of any governmental or regulatory
authority are required in Canada for the execution, delivery or
performance by any or all of the Trustees and the Trusts of this
Agreement or the transactions contemplated herein, or for the
execution, delivery or performance by any or all of the Trustees
and the Trusts of any other agreement contemplated hereunder to
be delivered by any or all of the Trust at or before the Time of
Closing or the transactions contemplated therein.
(k) INTERMEDIARY FEES - No commission or other remuneration is
payable by the Purchaser or will be payable by the Purchaser or
will be payable to any broker, agent or other intermediary who
has acted for the Trustees and the Trust in connection with the
sale of the Purchased Shares and the transactions herein
contemplated.
(l) RESIDENCY - Each of the Trusts is a resident of Alberta and a
resident of Canada within the meaning of the Tax Act.
<PAGE> 30
Page 26 of 67
3.5 REPRESENTATIONS AND WARRANTIES RELATING TO THE CORPORATION
(a) ORGANIZATION - The Corporation is a duly organized and valid and
subsisting corporation under the laws of the Province of
Alberta.
(b) CORPORATE POWER AND AUTHORITY - The Corporation has all
necessary power, authority and capacity to enter into this
Agreement and perform its obligations hereunder, to own, lease,
licence or otherwise hold, as applicable, the Assets and to
carry on the Business as presently conducted and is validly
registered wherever necessary under the federal and provincial
laws of Canada and any other jurisdiction in which the failure
to be so registered would have a material adverse effect on the
Business or the tangible Assets, and in the case of the Company
Intellectual Property, in any other jurisdiction in North
America in which the failure to be so registered would have a
material adverse effect.
(c) CORPORATE ACTION - At the Time of Closing, the Corporation will
have taken all necessary actions, steps and corporate and other
proceedings to approve or authorize, validly and effectively,
the entering into and the execution, delivery and performance of
this Agreement and the sale and transfer of the Purchased Shares
to the Purchaser.
(d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly
authorized, executed and delivered by the Corporation and
constitutes a legal, valid and binding obligation of the
Corporation, enforceable in accordance with its terms.
(e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by the Corporation at or before the Time of Closing
will have been duly executed and delivered by the Corporation
and shall constitute a legal, valid and binding obligation of
the Corporation, enforceable in accordance with its terms.
(f) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement by the Vendors and the Corporation and each and every
agreement or document to be executed and delivered hereunder and
the consummation of the transactions contemplated herein will
not:
(i) violate, be in conflict with, result in a breach of,
constitute a default, or cause the acceleration of any
obligation of the Corporation, under:
(A) any agreement, instrument, licence, permit or
authority to which the Corporation is, or is
entitled to be, a party or to which any or all
of its property and the Shares are subject,
(B) any provision of the articles, by-laws or
resolutions of the board of directors (or any
committee thereof) or shareholders of the
Corporation,
(C) any judgment, decree, order, statute, rule or
regulation applicable in Canada to the
Corporation, or
(D) any provision of law or regulation of any
governmental or regulatory authority or any
judicial or administrative order, award,
judgment or decree applicable in Canada to the
Corporation;
<PAGE> 31
Page 27 of 67
(ii) to the best of the knowledge of the Corporation with
respect to the Vendors' execution and delivery of this
Agreement, result in the creation of any Encumbrance
upon the Assets under any such agreement or instrument;
or
(iii) to the best of the knowledge of the Corporation with
respect to the Vendors' execution and delivery of this
Agreement, give to any Person any material interest or
rights that have not been waived prior to the date
hereof, including preferential rights of purchase of any
part of the Shares or the Assets, or any right of
termination, cancellation or acceleration under any such
agreement, instrument, license, permit or authority.
(g) SHARE CAPITAL OF THE CORPORATION - The authorized share capital
of the Corporation consists of:
(i) an unlimited number of Class A common voting shares; and
(ii) an unlimited number of Class B preferred shares,
of which 1,117,331 Class A common voting shares, and 1,117,331
Class B preferred shares (and no more) are currently issued and
outstanding, and all of which, including the Purchased Shares,
have been duly and validly authorized and issued by the
Corporation and are outstanding as fully paid and
non-assessable.
(h) SHAREHOLDERS OF THE CORPORATION - As of the date hereof, and
immediately prior to the Time of Closing the following Persons
are, and will be, the sole registered owners of all of the
Shares, to the best of the knowledge of the Corporation, free
and clear of all Encumbrances and, without limiting the
generality of the foregoing, none of the Shares are subject to
any voting trust, shareholder agreement or voting agreement
other than the Drag Along Agreement:
<PAGE> 32
Page 28 of 67
<TABLE>
<CAPTION>
NUMBER OF COMMON NUMBER OF
REGISTERED OWNER SHARES PREFERRED SHARES
- ---------------- ------ ----------------
<S> <C> <C>
Arthur Wong 226,866
Michael Tam 100,000
Kam Chum Tam 126,866
Christopher Bailey 226,866
Alfred Huger 180,000
Oliver Friedrichs 95,000
Thomas Ptacek 20,000 20,000
Jonathan Wilkins 20,000 20,000
Tim Newsham 10,000 10,000
Wong Trust 226,866
M. Tam Trust 100,000
K. C. Tam Trust 126,866
Bailey Trust 226,966
Friedrichs Trust 95,000
Huger Trust 180,000
PRL Resources Inc. 111,733 111,733
TOTAL 1,117,331 1,117,331
</TABLE>
(i) OWNERSHIP BY PURCHASER - To the best of the knowledge of the
Corporation, upon completion of the transactions contemplated by
this Agreement, all of the Purchased Shares will be transferred
and delivered to the Purchaser, free and clear of any and all
Encumbrances.
(j) OPTIONS OR CONVERTIBLE SECURITIES - No Person has any agreement,
option, commitment, or any right or privilege (whether by law,
preemptive or contractual) capable of becoming an agreement,
option or commitment (including any such right or privilege
under convertible securities, warrants or convertible
obligations of any nature) for:
(i) the purchase, subscription, allotment or issuance of, or
conversion into, any of the unissued Shares or any other
securities of the Corporation; or
(ii) the purchase or other acquisition from the Corporation
of any of its undertaking, Business or Assets, other
than in the ordinary course of the Business, and except
pursuant to the agreements listed in Schedule 3.5(y).
<PAGE> 33
Page 29 of 67
(k) SUBSIDIARIES - The Corporation does not own any subsidiaries or
shares or any other interest in any other Person, nor is the
Corporation subject to any agreements of any nature to acquire
any subsidiary or shares or any other interest in any other
Person or to acquire or lease any other business operations and
will not prior to the Time of Closing acquire, or agree to
acquire, any subsidiary or shares or any other interest in any
other Person or any other business operations without the prior
express written consent of the Purchaser.
(l) PARTNERSHIPS OR JOINT VENTURES - Except as the agreements listed
in Schedule 3.5(y) may create such, the Corporation is not a
partner or participant in any partnership, joint venture,
profit-sharing arrangement or other association of any kind and
is not party to any agreement under which the Corporation agrees
to carry on any part of the Business or any other activity in
such manner or by which the Corporation agrees to share any
revenue or profit with any other Person.
(m) BOOKS AND RECORDS - The books and records of the Corporation
fairly present, in accordance with Canadian GAAP, the financial
position of the Corporation and all Assets and undertakings, all
liabilities, including contingent liabilities and shareholders
equity accounts as at the date hereof, and all material
financial transactions of the Corporation relating to the
Business have been accurately recorded in such books and
records.
(n) FINANCIAL STATEMENTS - The Financial Statements of the
Corporation have been prepared in accordance with Canadian GAAP
on a basis consistent with that of previous years and present
fairly the Assets, liabilities and the financial position as at
the dates indicated and the results of operation of the
Corporation for the periods indicated and no material adverse
change in such financial position or such results of operations
has occurred since the date thereof.
(o) MINUTE BOOKS - In all material respects, the corporate records
and minute books of the Corporation contain complete and
accurate minutes of all meetings and resolutions of the
directors (and any committees thereof) and shareholders of the
Corporation, and the share certificate books, register of
shareholders, register of transfers and register of directors of
the Corporation are complete and accurate in all material
respects.
(p) NO CHANGES - Except as set forth in Schedule 3.5(p), since
February 28, 1998 there has not been, occurred or arisen any:
(i) transaction by the Corporation, except in the ordinary
course of business as conducted by the Corporation on
that date;
(ii) capital expenditure or commitment by the Corporation, in
excess of $10,000 individually or $25,000 in the
aggregate;
(iii) destruction of, damage to or loss of any material
tangible Assets (which includes any medium in which the
Company Intellectual Property resides), Business or
customer of the Corporation (whether or not covered by
insurance);
(iv) labour trouble or claim of wrongful discharge or other
unlawful labour practice or action;
<PAGE> 34
Page 30 of 67
(v) change in accounting methods or practices (including any
change in depreciation or amortization, policies or
rates) by the Corporation;
(vi) revaluation for accounting purposes by the Corporation
of any of the Assets;
(vii) declaration, setting aside or payment of a dividend or
other distribution with respect to the Shares, or any
direct or indirect redemption, purchase, redemption or
other acquisition by the Corporation of any of its
securities;
(viii) increase in the salary or other compensation payable or
to become payable by the Corporation to any of its
officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any
kind for the payment, by the Corporation, of a bonus or
other additional salary or compensation to any such
person except as otherwise contemplated by this
Agreement other than normal course of business salary
increases in connection with ongoing yearly reviews or
promotions (none of which individually exceeds 10% of
the previous year's salary);
(ix) acquisition, sale or transfer of any Assets, except in
the ordinary course of business as conducted on that
date, and except pursuant to the agreements listed in
Schedule 3.5(y);
(x) amendment or termination of any material contract,
agreement or license to which the Corporation is a party
or by which it is bound, except such amendments or
terminations as may have been made in the ordinary
course of business, or on a reasonable commercial basis;
(xi) loan by the Corporation to any Person or entity (other
than (A) loans to all employees aggregating to no more
that $5,000 and (B) expense advances to employees, all
of which are immaterial in any amount and are issued in
the normal course of business), incurring by the
Corporation of any indebtedness, guaranteeing by the
Corporation of any indebtedness, issuance or sale of any
debt securities of the Corporation or guaranteeing of
any debt securities of others;
(xii) waiver or release of any right or claim of the
Corporation, including any write-off or other compromise
of any account receivable of the Corporation in excess
of $ 10,000;
(xiii) the commencement or notice or, to the best knowledge of
the Corporation, threat of commencement of any lawsuit
or proceeding against or investigation of the
Corporation or its affairs;
(xiv) notice of any claim of ownership by a third party of the
Company Intellectual Property or of infringement by the
Corporation of any third party's intellectual property
rights;
(xv) issuance or sale by the Corporation of any of its Shares
or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities, except:
(A) the 111,733 Common Shares and 111,733
Preferred Shares as were issued to PRL pursuant
to the terms of the PRL Debenture, and
<PAGE> 35
Page 31 of 67
(B) the Common Shares and Preferred Shares which
were issued in connection with a reorganization
of the Corporation on March 23, 1998;
(xvi) change in pricing or royalties set or charged by the
Corporation;
(xvii) any event or condition of any character that has or
could be reasonably expected to have a material adverse
impact on the Corporation and its Business;
(xviii) to the best of the knowledge of the Principal
Shareholders and the Corporation, any event or action
taken by the Corporation that could be reasonably
expected to interfere with the Parent's or Purchaser's
ability to account for the purchase and sale
contemplated hereby as a pooling of interests; or
(xix) negotiation or agreement, oral or written, by the
Corporation or any officer or employees thereof to do
any of the things described in Subsections 3.5(p)(i) to
(xviii), inclusive, (other than negotiations with the
Purchaser and its representatives regarding the
transactions contemplated by this Agreement).
(q) POOLING OF INTERESTS - To the knowledge of the Corporation and
the Principal Shareholders, based on consultation with the
Corporation's independent accountants, neither the Corporation
nor any of its directors, officers, Affiliates or shareholders
has taken or agreed to take any action which would preclude the
Parent's or Purchaser's ability to account for the purchase and
sale contemplated by this Agreement as a pooling of interests
under U.S. GAAP.
(r) ONLY BUSINESS - The Business is the only business which has been
or is currently conducted by the Corporation and the tangible
Assets and the Intellectual Property described in Schedule
3.5(iv) are sufficient to carry on the Business in the ordinary
course as conducted on the date hereof.
(s) ACCOUNTS RECEIVABLE - All Accounts Receivable have been created
in the course of bona fide business transactions by the
Corporation and to the best of the knowledge of the Corporation
are valid, enforceable and fully collectible and none of the
Vendors nor the Corporation have any reason to believe that any
Account Receivable of the Corporation will not be paid in
accordance with its respective terms of payment or is subject to
any setoff or counterclaim.
(t) NO UNDISCLOSED LIABILITIES OF THE CORPORATION - Subject to the
compliance by the Corporation with the terms of the agreements
listed in Schedules 3.5(y) and 3.5(ff)(i), the Corporation does
not have any liabilities, indebtedness, expense, claim,
deficiency, guarantee or endorsement of any type whatsoever in
excess of $5,000 individually or $15,000 in the aggregate,
whether accrued, absolute, contingent, matured, unmatured or
other and whether or not of the nature normally required to be
disclosed for financial statement purposes in accordance with
Canadian GAAP, except pursuant to the claim disclosed on
Schedule 3.5(mm).
(u) INDEBTEDNESS - Except as disclosed in the Financial Statements,
the Corporation does not have outstanding, and is under no
obligation to create or issue, any bonds, debentures, mortgages,
promissory notes or other indebtedness maturing more than one
year after the date of their original creation or issuance.
<PAGE> 36
Page 32 of 67
(v) TAXES -
(i) save for the requirement to file Income Tax Returns, the
Corporation has in a due and timely manner, filed all
reports and returns respecting taxes, duties, royalties,
and other fees. charges and levies of every nature and
kind, and all information and data in connection
therewith, required to be filed by it with any taxing or
regulatory authority to whom the Corporation and the
Business are subject;
(ii) the Corporation has paid all taxes, duties, royalties,
and other fees, charges and levies, and any interest,
penalties and fines in connection therewith, properly
due and payable, and has paid all of same in connection
with all known assessments, reassessments and
adjustments;
(iii) other than taxes and other such levies incurred in the
ordinary course of business and not yet due, no other
taxes, duties, royalties, or other fees, charges or
levies, nor any interest, penalties and fines have been
claimed by any governmental or regulatory authority or
are known to any of the Vendors or the Corporation to be
due and owing by the Corporation or are to the best of
the knowledge of the Principal Shareholders and the
Corporation, pending or threatened (including all tax
instalments) or by reason of the transactions herein
contemplated will become due and owing by the
Corporation and there are no matters of dispute or under
discussion with any governmental or regulatory
authority, relating to taxes, duties, royalties or other
fees, charges, levies, interest, penalties or fines
asserted by such authority;
(iv) the Corporation has withheld all amounts required to be
withheld including, without limiting the generality of
the foregoing, all amounts required to be withheld under
the Tax Act, for employee deductions, unemployment
insurance, the Canada Pension Plan and Goods and
Services Tax payable under the Excise Tax Act (Canada)
and any other amounts required by law to be withheld
from any payments, made to non-residents and any of its
officers, directors and employees, and has paid the same
to the proper taxing authority or receiving offices;
(v there are no agreements, waivers (including a waiver in
respect of time within which a reassessment may be made
by any taxing authority) or other arrangements providing
for any extension of time with respect to the filing of
any tax return by, or payment of any tax, governmental
charge or deficiency against, the Corporation; and
(v) there are no actions, suits, proceedings, investigations
or claims threatened or pending against the Corporation
in respect of taxes, governmental charges or
assessments, or any other matters under discussion with
any governmental or regulatory authority relating to
taxes, charges or assessments asserted by any such
governmental or regulatory authority.
(w) EMPLOYEE COMMITMENTS -
(i) The employee records provided to the Purchaser
accurately set forth the names, duration of service,
salary or other terms of remuneration and unused
vacation entitlement for the employees of the
Corporation;
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except as set forth in Schedule 3.5(w), the Corporation
is not a party to or bound by:
(A) any written or oral employment, service,
pension, employee benefit agreement or
collective bargaining agreement or other
agreement with or respecting its employees or
bound by or obligated to make any contributions
under any pension plan or arrangement or any
retirement income plan, deferred profit sharing
plan or similar plan or arrangement, or any
plan, program or other arrangement providing for
medical services or coverage, dental care and
life insurance, or
(B) any agreements or arrangements that contain any
severance pay or post-employment liabilities or
obligations, or
(C) any employment or consulting agreement, contract
or commitment with an employee or individual
consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or
other organization, or
(D) any agreement or plan, including, without
limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased,
or the vesting of benefits of which will be
accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or
the value of any of the benefits of which will
be calculated on the basis of any of the
transactions contemplated by this Agreement;
(iii) except as set forth in Schedule 3.5(w), since February
28, 1998, the Corporation has not hired any new
employees, changed or agreed to change the terms of
employment of any existing employees of the Corporation,
or paid or agreed to pay any bonus or other payment to
any employee;
(iv) there are no existing or, to the best of the knowledge
of the Vendors and the Corporation, threatened, labour
strikes or labour disputes, grievances, controversies or
other labour troubles affecting the Corporation or the
Business;
(v) the Corporation has complied with all laws, rules,
regulations and orders applicable to it relating to
employment, including those relating to wages, hours,
collective bargaining, occupational health and safety,
workers' hazardous materials, employment standards, pay
equity and workers' compensation;
(vi) there are no outstanding charges or complaints against
the Corporation relating to unfair labour practices or
discrimination or under any legislation relating to
employees; and
(vii) the Corporation has paid in full all amounts owing under
provincial legislation relating to workers' compensation
and the workers' compensation claims experience of the
Corporation would not permit a penalty reassessment
under such legislation.
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(x) REAL PROPERTY - Other than the leasehold interest in the
Premises, the Corporation does not own or have any right, title
or interest in any real property.
(y) LEASES - Except as set forth in Schedule 3.5(y) and Schedule
3.5(hh), the Corporation is not a party to any lease or
agreement in the nature of a lease, whether as lessor or lessee,
and, except as expressly set forth in Schedule 3.5(y), each such
lease is in good standing and in full force and effect without
amendment thereto and the Corporation is not in breach of any of
the material covenants, conditions or agreements contained in
any such lease.
(z) TITLE TO TANGIBLE ASSETS - The Corporation owns its tangible
Assets free and clear of any and all Encumbrances except as
described in the Material Agreements.
(aa) BANK ACCOUNTS - Schedule 3.5(aa) contains a true and complete
list showing the name of each bank, trust company or similar
institution in which the Corporation has accounts or safe
deposit boxes and the names of all persons authorized to draw
thereon or to have access thereto.
(bb) DIRECTORS AND OFFICERS - Schedule 3.5(bb) sets forth the names
and titles of all directors and officers of the Corporation
immediately prior to the Time of Closing.
(cc) POWERS OF ATTORNEY - The Corporation has not granted to any
Person a general or special power of attorney for the
Corporation.
(dd) GUARANTEES - Except as set forth in Schedule 3.5(y), the
Corporation is not a party to or bound by any agreement of
guarantee, indemnification, assumption or endorsement or any
other like commitment of the obligations, liabilities
(contingent or otherwise) or indebtedness of any Person or other
entity.
(ee) INSIDER DEBT - None of the directors, former directors,
officers, former officers, shareholders, former shareholders or
employees of the Corporation or any Person or corporation not
dealing at arm's length (as such term is construed under the Tax
Act) with any of the foregoing is indebted to the Corporation.
(ff) INTELLECTUAL PROPERTY.
(i) Schedule 3.5(ff)(i) sets forth all the Intellectual
Property that is owned by or exclusively licensed to the
Corporation (the "Company Intellectual Property").
Except as set forth on Schedule 3.5(ff)(i), each item of
Company Intellectual Property is free and clear of any
liens or Encumbrances. The Corporation owns,
exclusively, the copyrights to copyrighted works that
form part of the Company Intellectual Property.
(ii) To the extent that any Intellectual Property has been
developed or created by any Person other than the
Corporation for which the Corporation has, directly or
indirectly, paid, the Corporation has a written
agreement with such Person with respect thereto and the
Corporation thereby has obtained ownership of, and is
the exclusive owner of, all such Intellectual Property
that might otherwise vest in such Person.
(iii) Except pursuant to agreements set forth in Schedule
3.5(y), the Corporation has not transferred ownership of
or granted any licence of or right to use or authorized
<PAGE> 39
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the retention of any rights to use any Intellectual
Property that is or was Company Intellectual Property,
to any other person, except for end user licence
agreements with respect to object code granted to
customers in the ordinary course of business, and there
are no exclusive distribution or other such rights that
have been granted by the Corporation except to Articon
Information Systems GmbH ("Articon") pursuant to the
Articon Agreement.
(iv) Schedule 3.5(ff)(iv) contains a list of, and the same is
all of, the Intellectual Property used in and/or
necessary to the conduct of the Business as it currently
is conducted including, without limitation, the design,
development, manufacture, use, import and sale of the
products, technology and services of the Corporation
(including products, technology or services currently
under development).
(v) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses
and agreements listed in Schedules 3.5(ff)(i), 3.5(y)
and 3.5(ff)(iv) include all contracts, licenses and
agreements, to which the Corporation is a party with
respect to any Intellectual Property. No person other
than the Corporation has ownership rights to
improvements made by the Corporation in Intellectual
Property which has been licensed to the Corporation and
which forms part of the Ballista Software.
(vi) Schedules 3.5(ff)(i), 3.5(y) and 3.5(ff)(iv) list all
contracts, licenses and agreements between the
Corporation and any other person wherein or whereby the
Corporation has agreed to, or assumed, any obligation or
duty to warrant, indemnify, reimburse, hold harmless,
guaranty or otherwise assume or incur any obligation or
liability or provide a right of rescission with respect
to the infringement or misappropriation by the
Corporation or such other person of the Intellectual
Property of any person other than the Corporation (and
copies of same have been provided to Purchaser).
(vii) Except with respect to the dispute set forth in Schedule
3.5(mm), the operation of the business of the
Corporation as it currently is conducted, including but
not limited to the Corporation's design, development,
use, import, manufacture and sale of the products,
technology or services (including products, technology
or services currently under development) of the
Corporation does not infringe or misappropriate the
Intellectual Property of any person, violate the rights
of any person (including rights to privacy or
publicity), or to the Corporation's knowledge constitute
unfair competition or trade practices under the federal
laws of Canada applicable in Alberta or, to the
Corporation's actual knowledge without investigation,
under the laws of any other jurisdiction. The
Corporation has not received notice from any Person
claiming that such operation or any act, product,
technology or service (including products, technology or
services currently under development) of the Corporation
infringes or misappropriates the Intellectual Property
of any Person or constitutes unfair competition or trade
practices under the laws of any jurisdiction (nor is the
Corporation aware of any basis therefor).
(viii) There are no contracts, licenses or agreements between
the Corporation and any other person with respect to
Company Intellectual Property under which there is any
dispute known to the Corporation regarding the scope of
such agreement, or performance under such agreement
including with respect to any payments to be made or
received by the Corporation thereunder.
<PAGE> 40
Page 36 of 67
(ix) To the knowledge of the Principal Shareholders and the
Corporation, no Person is infringing or misappropriating
any Company Intellectual Property.
(x) The Corporation has taken reasonable steps necessary to
protect the Corporation's rights in confidential
information and trade secrets of the Corporation or
provided by any other person to the Corporation. Without
limiting the foregoing, the Corporation has, and
enforces, a policy requiring each employee, consultant
and contractor other than ministerial employees to
execute proprietary information, confidentiality and
assignment agreements substantially in the Corporation's
standard forms, and all material current and former
employees, consultants and contractors of the
Corporation have executed such an agreement. Waivers of
moral rights in favour of the Corporation have been
obtained with respect of all elements of the Company
Intellectual Property created by independent contractors
and employees of the Corporation, which waivers have
been provided to the Purchaser and are summarized in
Schedule 3.5(ff)(x).
(xi) Except for the Agreements set forth in Schedules
3.5(ff)(i), 3.5(y) and 3.5(ff)(iv), no Company
Intellectual Property or product, technology or service
of the Corporation is subject to any proceeding or
outstanding decree, order, judgment, agreement or
stipulation that restricts in any manner the use,
transfer or licensing thereof by the Corporation or may
affect the validity, use or enforceability of Company
Intellectual Property.
(xii) Software programs being the subject matter of the
Company Intellectual Property will record, store,
process, calculate and present calendar dates falling on
and after (and if applicable, spans of time including)
January 1, 2000. The Ballista Software does not
calculate any information dependent on or relating to
dates, other than the expiry time clocks. None of the
Company Intellectual Property will lose functionality
with respect to the introduction of records containing
dates falling on or after January 1, 2000 (collectively,
"YEAR 2000 COMPLIANT"). All software used with or in
conjunction with the Ballista Software are Year 2000
Compliant.
(xiii) The Corporation has no Registered Intellectual Property,
except for the trademark application made for the
trademark "Ballista".
(xiv) No royalty or other fee is required to be paid by the
Corporation to any other Person with respect to the
Ballista Software, nor is any royalty or fee payable
(other than fees as have been paid) by the Corporation
to any other Person with respect to the OSF-Motif 2.0
Source License dated January 20, 1997, as set forth in
Schedule 3.5(ff)(i).
(xv) The computer systems of the Corporation contain at least
North American industry standard anti-virus software and
the Corporation will continue to take all steps and
implement all procedures in accordance with industry
standard to, so far as reasonably possible, ensure that
such systems are free from viruses and will remain so
until the Time of Closing.
(xvi) The Ballista Software performs in all material respects
in accordance with the functions and descriptions set
forth in the user manual for the Ballista Software,
<PAGE> 41
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a copy of which has been provided to the Purchaser and
initialed by the parties hereto for future
identification.
(xvii) Except as specified in Schedule 3.5(ff)(xvii), the
Corporation has not and will not provide the source code
for the Ballista Software to any third party prior to
the Time of Closing, directly or indirectly, by license
transfer, sale, or escrow or otherwise permit any third
party to reverse engineer, disassemble or decompile the
Ballista Software to create such source code (except
decompilation permitted by law), and such Persons who
are identified in Schedule 3.5(ff)(xvii) are subject to
confidentiality agreements with the Corporation in
respect of such source code.
(xviii) The Corporation has designed three software programs
called "Sniper", "Decoynet" and "Watchtower" which
designs were conceived by employees or officers of the
Corporation and were not designed by appropriating the
Intellectual Property of any third party.
(xix) The Corporation has the exclusive right to use the
trademark "Ballista" in Canada in relation to the wares
and services set forth in Schedule 3.5(ff)(xix) and has
not received notice of any violation of any third
party's trademark in relation to the use of "Ballista"
in relation to the wares and services set forth in
Schedule 3.5(ff)(xix), except for a claim by Carnegie
Mellon University which is described in Schedule
3.5(mm).
(gg) SHAREHOLDER LOANS - Except for the Shareholder Loans, the
Corporation is not indebted to any of the directors, former
directors, officers, former officers, shareholders, former
shareholders or employees of the Corporation or any Person
(other than Millennium Systems Canada Inc.) not dealing at arm's
length (as such terms is construed under the Tax Act) with any
of the foregoing.
(hh) NON-ARM'S LENGTH TRANSACTIONS - Except as disclosed in Schedule
3.5(hh), no director, officer, shareholder or employee of the
Corporation and no entity that is an Affiliate or Associate of
one or more of such individuals:
(i) owns, directly or indirectly, in whole or in part, any
property that the Corporation uses in the operation of
the Business; or
(ii) has any cause of action or other claim whatsoever
against the Corporation in connection with the Business,
except for any liabilities reflected in the Financial
Statements and claims in the ordinary and normal course
of business.
(ii) GOVERNMENT PROGRAMS - No agreements, loans, funding arrangements
or assistance programs are outstanding in favour of the
Corporation from any governmental or regulatory authority, and,
to the best of the knowledge of the Principal Shareholders and
the Corporation no basis exists for any governmental or
regulatory authority to seek payment or repayment from the
Corporation of any amount or benefit received, or to seek
performance of any obligation of the Corporation, under any such
program.
(jj) COMPLIANCE WITH COVENANTS - The Corporation has, or has caused
to be, complied with, performed, observed and satisfied all
material covenants, terms, conditions, obligations and
liabilities required to be performed, observed, and satisfied by
it, whether express or implied, which have arisen under the
provisions of:
<PAGE> 42
Page 38 of 67
(i) the Material Agreements; and
(ii) any other contracts, agreements, indentures or other
instruments to which the Corporation is a party,
and all such contracts, agreements, indentures and other
instruments are valid and enforceable, each in accordance with
its respective terms, and no party to any of them is in default
thereunder or in breach thereof or would, with the giving of
notice or the lapse of time or both be in breach or default in
any material respect.
(kk) NO DEFAULTS - The Corporation is not in breach or default, has
not received any notice of default or violation, and the
Principal Shareholders and the Corporation are not aware, after
due inquiry, of any potential or threatened notice of alleged
default or violation, of the provisions of any Material
Agreement or any other contracts, agreements, indentures or
instruments to which the Corporation is a party,
(ll) COMPLIANCE WITH LAWS - All laws, regulations, and orders of any
governmental or regulatory authority having jurisdiction over
the Corporation or its properties are being, and have been,
complied with in all material respects by the Corporation.
(mm) LITIGATION AND RELATED MATTERS - Except for the actions set
forth in Schedule 3.5(mm), there are no actions, suits,
investigations or proceedings pending or, to the best of the
knowledge of the Principal Shareholders and the Corporation,
threatened against or affecting the Corporation, at law or in
equity, or before any arbitrator of any kind, or before or by
any governmental or regulatory authority, domestic or foreign,
and, after due inquiry, the Principal Shareholders and the
Corporation are not aware of any existing ground on which any
such action or proceeding might be commenced with any reasonable
likelihood of success. The Corporation is not subject to any
outstanding orders, writs, injunctions, decrees, judgments,
awards, determinations, work orders or directions of any court,
arbitrator or governmental or regulatory authority, the failure
to comply with which can reasonably be expected to have a
material adverse effect on the Corporation's conduct of the
Business or its ownership or operation of the Assets.
(nn) INSURANCE - The Corporation currently holds no insurance.
(oo) ENVIRONMENTAL -
(i) The Corporation has been and is in compliance with all
applicable laws, statutes, ordinances, by-laws,
regulations, policies, orders, directives and decisions
rendered by any governmental or regulatory authority
relating to the protection of the environment, the
failure to comply with which would have a material
adverse effect on the Business or the financial
condition of the Corporation; and
(ii) there have been no orders issued, environmental audits,
evaluations, assessments or investigations conducted or
other proceedings taken or, to the best of the knowledge
of the Principal Shareholders and the Corporation,
threatened against or relating to the Corporation, its
officers or directors, the Business or the Assets under
any applicable environmental protection legislation.
<PAGE> 43
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(pp) OPERATING PERMITS AND LICENSES - There are no permits, licenses,
consents, authorizations, approvals, privileges, waivers,
exemptions, orders (inclusionary or exclusionary) or other
concessions required in connection with the ownership and
operation of the Assets and the conduct of the Business.
(qq) OBLIGATIONS TO CUSTOMERS AND SUPPLIERS - The Corporation is not
required to provide any bonding or other financial security
arrangements in connection with any transactions with any of its
customers or suppliers in the ordinary course of the Business.
(rr) WARRANTIES AND INDEMNITIES - There are no existing warranty and
indemnity claims in excess of $5,000 made against the
Corporation.
(ss) SIGNIFICANT CUSTOMERS - The Business is not dependent for more
than 15% of its gross revenues on any single customer.
(tt) PAID UP CAPITAL - The paid up capital of the Purchased Shares
for the purposes of the Tax Act is $286,921 (Cdn.).
(uu) WORKPLACE EVENTS - Neither the Corporation nor the Business is
subject to any Workers' Compensation Board or similar authority
or workers' compensation legislation or regulations.
(vv) OTHER OUTSTANDING AGREEMENTS - The Corporation does not have
outstanding any guarantees or credit support agreements and does
not have any outstanding agreement (including employment
agreements), contract or commitment, whether written or oral, of
any nature or kind whatsoever, except:
(i) the Material Agreements;
(ii) agreements, contracts and commitments in the ordinary
course of business;
(iii) service contracts on office equipment;
(iv) the employment and service agreements described in
Schedule 3.5(w); and
(v) the other contracts and agreements described in Schedule
3.5(y).
(ww) PARTICULARS OF SCHEDULES - All particulars set out in the
Schedules referred to in this Article 3 are true, complete and
accurate and not misleading in any material respect.
(xx) GST REGISTRATION - The Corporation is a registrant for the
purposes of the Excise Tax Act (Canada) whose registration
number is R102251972.
(yy) JURISDICTION - The Corporation conducts business in Alberta
only.
(zz) RESIDENCY - The Corporation is a taxable Canadian corporation
within the meaning of the Tax Act.
(aaa) NOT AN OFFERING CORPORATION - The Corporation is not offering,
nor has it offered, any of its securities to the public within
the meaning of applicable federal or provincial laws and is not
a reporting issuer thereunder.
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Page 40 of 67
(bbb) PRIVATE COMPANY - The Corporation is a "private company" within
the meaning of the Securities Act (Alberta).
(ccc) AGREEMENTS, CONTRACTS AND COMMITMENTS - The Corporation does not
have, is not a party to nor is bound by:
(i) any fidelity or surety bond or completion bond,
(ii) any lease of personal property having a value
individually in excess of $25,000 except as set forth in
Schedule 3.5(y),
(iii) any agreement of indemnification or guarantee except as
set forth in Schedules 3.5(y), 3.5(ff)(i) and
3.5(ff)(iv);
(iv) any agreement, contract or commitment relating to
capital expenditures and involving future payments in
excess of $25,000,
(v) any agreement, contract or commitment relating to the
disposition or acquisition of Assets or any interest in
any business enterprise outside the ordinary course of
the Business,
(vi) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments
relating to the borrowing of money or extension of
credit, including guarantees referred to in clause (ii)
hereof,
(vii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more other than purchases
in the ordinary course of the Business,
(viii) any construction or development contracts except as set
forth in Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv);
(ix) any distribution, joint marketing or development
agreement except as set forth in Schedules 3.5(y),
3.5(ff)(i) and 3.5(ff)(iv); or
(X) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without
penalty within thirty (30) days except as set forth in
Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv).
(ddd) CONSENTS - The Corporation has obtained, or will obtain prior to
the Time of Closing, all necessary consents, waivers and
approvals of parties to any contracts as may be required in
connection with the purchase and sale of the Purchased Shares
except those that, if not obtained after reasonable efforts,
would not individually or in the aggregate be material to the
Corporation.
3.6 NON-WAIVER. No investigations made by or on behalf of the Purchaser at any
time shall have the effect of waiving, diminishing the scope of or otherwise
affecting any representation or warranty made by any or all of the Vendors, the
Trustees and the Corporation herein or pursuant hereto unless disclosure of the
fact at issue is expressly made in writing in a Schedule or a certificate of the
Vendors or of the Corporation delivered at or before the Time of Closing in
accordance with this Agreement and such disclosure contains no material untrue
statement.
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Page 41 of 67
3.7 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
agreements, representations, warranties and indemnities of each of the Vendors,
the Trustees, the Beneficiaries and the Corporation contained in this Agreement
shall survive Closing of the purchase and sale herein provided for and,
notwithstanding Closing or any documents delivered or investigations made in
connection therewith, shall continue in full force and effect for the benefit of
the Purchaser.
3.8 LIMITATION AN REMEDIES FOR BREACH OF VENDORS' AND CORPORATION'S COVENANTS,
REPRESENTATIONS AND WARRANTIES. Notwithstanding the provisions of Section 3.7,
but without prejudice to the Vendors' obligations pursuant to Section 2.7 and
Article 11, the Purchaser shall not be entitled to bring any action or assert
any claim based upon the breach or untruth of any of the covenants contained in
this Agreement or the representations or warranties contained in Sections 3.2 to
3.5, inclusive after the first anniversary of the Time of Closing unless, on or
prior to such anniversary, written notice of such claim setting forth the
details thereof shall have been delivered by the Purchaser to the Vendors. The
Purchaser's remedies for any such breach and/or claim arising out of this
Agreement (except for claims arising pursuant to Section 2.7 and claims arising
after the first anniversary of the Time of Closing pursuant to Article 11)
shall be in all respects limited to recovery by the Purchaser against the Escrow
while the Escrow Shares are held by the Escrow Agent, in accordance with Section
2.4, provided that nothing contained in this Agreement shall limit the right and
remedies as are otherwise available to the Purchaser in the event of fraud on
the part of any of the Vendors or the Corporation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE PARENT
4.1 BASIS OF REPRESENTATIONS.
(a) The Purchaser and the Parent jointly and severally represent and
warrant to the Vendors that each of the statements contained in
Section 4.2 is true and correct as at the time of execution and
delivery of this Agreement by the Purchaser, except for any such
statement which expressly speaks as at some other time;
(b) the Parent represents and warrants to the Vendors that each of
the statements contained in Section 4.3 is true and correct as
at the time of execution and delivery of this Agreement by the
Parent, except for any such statement which expressly speaks as
at some other time;
(C) any such statement which expressly speaks as at a time other
than the time of execution and delivery of this Agreement by the
Purchaser or the Parent was or will be true and correct as at
the time at which such statement speaks; and
(d) each of such statements will be true and correct at the Time of
Closing except for any such statement which expressly speaks as
at some other time, except to the extent affected by the
transactions contemplated hereby,
and each of the Purchaser and the Parent acknowledges that the Vendors are
relying on such representations and warranties in connection with the sale of
the Purchased Shares and the completion of the other transactions hereunder.
<PAGE> 46
Page 42 of 67
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER.
(a) DUE INCORPORATION AND ORGANIZATION OF PURCHASER - The Purchaser
is a corporation duty organized, validly existing and in good
standing under the laws of the State of Delaware, and is a
wholly-owned subsidiary of the Parent.
(b) CORPORATE POWER AND AUTHORITY - The Purchaser has all necessary
power, authority and capacity to enter into and perform its
obligations pursuant to the terms of this Agreement and is duly
qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of the Purchaser to
consummate the transactions contemplated by this Agreement.
(c) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement and each and every agreement or document to be
executed and delivered hereunder and the consummation of the
transactions contemplated herein will not in any material
respect violate, nor be in conflict with, result in a breach of,
constitute a default or cause the acceleration of any obligation
of the Purchaser under:
(i) any of the terms and provisions of the constating
documents or by-laws of the Purchaser or resolutions of
the shareholders or directors thereof;
(ii) any judgment, decree, order, or award of any court,
arbitrator or governmental or regulatory authority; or
(iii) any applicable law, statute, rule or regulation
applicable to the Purchaser,
and which would materially adversely affect the ability of the
Purchaser to fulfil and comply with the terms and provisions
hereof.
(d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly
executed and delivered by the Purchaser and this Agreement
constitutes a legal, valid and binding obligation of the
Purchaser enforceable in accordance with its terms.
(e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by the Purchaser at or before the Time of Closing will
have been duly executed and delivered by the Purchaser and shall
constitute a valid and binding obligation of the Purchaser
enforceable in accordance with its terms.
(f) REGULATORY APPROVALS OF TRANSACTIONS - No permits, licenses,
certifications, approvals, consents, orders-in-council,
legislation or other action of any governmental or regulatory
authority are required for the execution, delivery or
performance by the Purchaser and the Parent of this Agreement or
the transactions contemplated herein, or for the execution,
delivery or performance by the Purchaser of any other agreement
contemplated hereunder to be delivered by the Purchaser at or
before the Time of Closing or the transactions contemplated
therein, except for such consents, approvals, orders,
authorizations, registrations, declarations and filings as may
be required under applicable federal, foreign, provincial and
state securities (or related) laws and such other consent,
authorizations, filings, approvals and registrations which if
not obtained or made would not be material to the Purchaser or
have a material adverse effect on the ability of the Purchaser
to complete the transactions contemplated hereby.
<PAGE> 47
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4.3 REPRESENTATIONS AND WARRANTIES OF PARENT.
(a) DUE INCORPORATION AND ORGANIZATION OF PARENT - The Parent is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) CORPORATE POWER AND AUTHORITY - The Parent has all necessary
power, authority and capacity to enter into and perform its
obligations pursuant to the terms of this Agreement and is duly
qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have
a material adverse effect on the ability of the Parent to
consummate the transactions contemplated by this Agreement.
(c) NO CONFLICTING INTERESTS - The execution and delivery of this
Agreement and each and every agreement or document to be
executed and delivered hereunder and the consummation of the
transactions contemplated herein will not in any material
respect violate, nor be in conflict with, result in a breach of,
constitute a default or cause the acceleration of any obligation
of the Parent under:
(i) any of the terms and provisions of the constating
documents or by-laws of the Parent or resolutions of the
shareholders or directors thereof;
(ii) any judgment, decree, order, or award of any court,
arbitrator or governmental or regulatory authority; or
(iii) any applicable law, statute, rule or regulation
applicable to the Parent,
and which would materially adversely affect the ability of the
Parent to fulfil and comply with the terms and provisions
hereof.
(d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly
executed and delivered by the Parent and this Agreement
constitutes a legal, valid and binding obligation of the Parent
enforceable in accordance with its terms.
(e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing,
each agreement contemplated to be executed and delivered
hereunder by the Parent at or before the Time of Closing will
have been duly executed and delivered by the Parent and shall
constitute a valid and binding obligation of the Parent
enforceable in accordance with its terms.
(f) REGULATORY APPROVALS OF TRANSACTIONS - No permits, licenses,
certifications, approvals, consents, orders-in-council,
legislation or other action of any governmental or regulatory
authority are required for the execution, delivery or
performance by the Parent of this Agreement or the transactions
contemplated herein, or for the execution, delivery or
performance by the Parent of any other agreement contemplated
hereunder to be delivered by the Parent at or before the Time of
Closing or the transactions contemplated therein, except for
such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable
federal, foreign, provincial and state securities (or related)
laws and such other consent, authorizations, filings, approvals
and registrations which if not obtained or made would not be
material to the Parent or have a material adverse effect on the
ability of the Parent to complete the transactions contemplated
hereby.
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(g) SEC FILINGS; MATERIAL ADVERSE EFFECT - The Parent has filed all
forms, reports and documents required to be filed by parent with
the SEC since January 1, 1996, and has made available to the
Vendors such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents
(including those that Parent may file subsequent to the date
hereof) are referred to herein as the "PARENT SEC REPORTS". As
of their respective dates, the Parent SEC Reports:
(i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder
applicable to such Parent SEC Reports; and
(ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
in order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading.
Except as disclosed in the Parent SEC Reports filed by the
Parent and publicly available prior to the date of this
Agreement, there has not been any material adverse effect with
respect to Parent.
(h) PARENT FINANCIAL STATEMENTS - Each of the audited consolidated
financial statements of the Parent (including any related notes
and schedules thereto) including (or incorporated by reference)
in its Annual Report on Form 10-K for the year ended December
31, 1997, is accurate and complete and fairly presents, in
conformity with U.S. GAAP applied on a consistent basis through
the periods involved (except as may be noted therein), and in
conformity with the SEC's Regulation S-X, the consolidated
financial position of the Parent and its consolidated
subsidiaries as of its date and the consolidated results of
operations and changes in financial position for the period then
ended.
(i) NAI Shares. The Issued NAI Shares, when issued in accordance
with the terms and provisions of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable 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 in
compliance with securities laws applicable in the Province of
Alberta.
4.4 NON-WAIVER. No investigations made by or on behalf of any or all of the
Vendors at any time shall have the effect of waiving, diminishing the scope of
or otherwise affecting any representation or warranty made by the Purchaser or
the Parent herein or pursuant hereto, unless disclosure of the fact at issue is
expressly made in writing in a Schedule or certificate of the Parent or of the
Corporation delivered at or before the Time of Closing in accordance with this
Agreement and such disclosure contains no material untrue statement.
4.5 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
agreements, representations, warranties and indemnities of the Purchaser and the
Parent contained in this Agreement shall survive Closing of the purchase and
sale herein provided for and, notwithstanding Closing or any documents delivered
or investigations made in connection therewith, shall continue in full force and
effect for the benefit of the Vendors.
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4.6 LIMITATION ON PRINCIPALS' VENDORS' REMEDIES FOR BREACH OF PURCHASES AND
PARENT'S REPRESENTATION AND WARRANTIES. Notwithstanding the provisions of
Section 4.5, but without prejudice to the Purchaser's obligations pursuant to
Section 5.2(b), the Vendors shall not be entitled to bring any action or assert
any claim based upon the breach or untruth of any of the representations or
warranties contained in Section 4.2 or Section 4.3 after the first anniversary
of the Time of Closing unless, on or prior to such anniversary, written notice
of such claim setting forth the details thereof shall have been delivered by the
Vendors to the Purchaser and the Parent.
ARTICLE 5
COVENANTS OF THE VENDORS, THE CORPORATION,
AND THE PURCHASER
5.1 COVENANTS OF THE VENDORS. Each of the Vendors and the Corporation covenants
and agrees with the Purchaser, during the period from the date hereof to the
Time of Closing, as set forth below.
(a) NO SHOPPING - The Vendors and the Corporation agree that they
shall not, nor shall they permit any of their respective
Affiliates, agents, consultants, advisors or representatives to
solicit, initiate, encourage, or participate in any discussions
or negotiations with any third party concerning:
(i) any sale of the Assets, or any portion thereof other
than in the ordinary course of the Business;
(ii) any sale of the Purchased Shares, or any portion
thereof; or
(iii) any merger, amalgamation, consolidation, business
combination or similar transaction involving the
Corporation.
(b) CONTINUANCE TO NOVA SCOTIA - The Vendors shall and shall cause
the Corporation to, and the Corporation shall, initiate the
steps and proceedings necessary to continue the Corporation
pursuant to the laws of the Province of Nova Scotia, on terms
and conditions and pursuant to such documentation as is
satisfactory to the Purchasers' counsel, acting reasonably, and
will provide to the Purchaser such assistance as may be
requested by the Purchaser following closing to complete such
continuance.
(c) EXAMINATION AND INVESTIGATION - Immediately after the execution
and delivery of this Agreement and prior to the Time of Closing,
the Vendors and the Corporation shall permit employees, advisors
and representatives of the Purchaser full and complete access to
all facilities and premises and all current and historical
Records and information of every nature and kind within either
of the Vendors' or the Corporation's possession or control which
relate to:
(i) the acquisition, development, construction, operation,
maintenance, or ownership of any of the Assets or the
Business;
(ii) the incorporation, organization, operations, or
financial position of the Corporation; and
(iii) the acquisition or ownership of the Purchased Shares,
<PAGE> 50
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for the purposes of reviewing the Records and information and
such employees, advisors, and representatives shall be permitted
to make copies of such records and information as they may deem
advisable. The Vendors and the Corporation shall use their best
efforts to make available to the Purchaser any pertinent
information that is possessed by a third party or which is
relevant to Subsections 5.1(c)(i), 5.1(c)(ii) OR 5.1(c)(iii),
(d) DELIVERY OF BOOKS AND RECORDS - At the Time of Closing there
shall be delivered to the Purchaser, by the Vendors or as
directed by the Vendors, all of the Records of and relating to
the Corporation and the Business. The Purchaser agrees that it
will preserve the Records to be delivered to it for a period of
six years from the date of Closing, or for such longer period as
is required by any applicable law, and will permit the Vendors
or their authorized representatives reasonable access thereto in
connection with the affairs of the Vendors relating to their
matters, but the Purchaser shall not be responsible or liable to
the Vendors for or as a result of any accidental loss or
destruction of or damage to any such Records.
(e) CONDUCT OF BUSINESS - The Vendors shall and shall cause the
Corporation to, and the Corporation shall:
(i) operate and maintain the Business in a good and
business-like manner in the ordinary course thereof so
as to:
(A) maintain and enhance the goodwill of the
Business,
(B) preserve and protect the Assets and rights of
the Corporation under the Material Agreements,
(C) maintain and enhance the Corporation's
relationship with its suppliers and customers,
and
(D) keep available the services of its present
officers and employees;
(ii) take all action within their control to ensure that the
representations and warranties of the Vendors, the
Trustees, and the Corporation hereunder are true and
correct at the time indicated for such representations
and warranties;
(iii) promptly advise the Purchaser of any facts that come to
their attention which would cause any of the Vendors',
Trustees' and the Corporation's representations and
warranties herein to be untrue in any material respect;
(iv) promptly advise the Purchaser in writing of any material
adverse change in the Business, the Assets or the
Corporation;
(v) ensure that the Corporation does not make any purchase,
sale or lease of Assets with a total sale price or
purchase price, as the case may be, of more than $5,000
in the aggregate without the prior express written
consent of the Purchaser;
(vi) ensure that the Corporation does not create, incur or
assume any long-term debt or create any Encumbrance upon
any of the Assets not in the ordinary course of the
Business or guarantee or otherwise become liable for the
obligations of any other Person or make any loans or
advances to any Person;
<PAGE> 51
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(vii) ensure that the Corporation does not declare or pay any
dividends on the Shares, redeem or repurchase any Shares
in the capital of the Corporation, or make any other
distributions in respect of the securities of the
Corporation;
(viii) ensure that the Corporation does not hire any new
employees, change the terms of employment of any of the
existing employees of the Corporation or pay any bonus
or other payment to any employee, without the prior
express verbal or written consent of the Purchaser;
(ix) maintain all of the tangible Assets in the same
condition as they now exist, normal wear and tear and
depreciation excepted, shall not sell, lease or
otherwise dispose of any of the Assets except in the
ordinary course of the Business;
(x) maintain the books, records and accounts of the
Corporation in the ordinary course of the Business and
record all transactions on a basis consistent with
Canadian GAAP;
(xi) ensure that the Corporation does not take any action to
amend its constating documents or its by-laws;
(xii) ensure that the Corporation does not take any action
which is out of the ordinary course of the Business
without the prior express written consent of the
Purchaser; and
(xiii) maintain existing policies of insurance and shall give
all notices and present all claims under all policies of
insurance in a due and timely fashion.
(f) REGULATORY CONSENTS - The Vendors shall use their reasonable
commercial efforts to obtain or cause the Corporation to obtain,
and the Corporation shall use its reasonable commercial efforts
to obtain at or prior to the Time of Closing, from all
appropriate federal, provincial, state, municipal or other
governmental or regulatory authorities, the licenses, permits,
consents, approvals, certificates, registrations and
authorizations required to effect the transactions contemplated
herein, except for those transactions contemplated in the
Registration Rights Agreement which licences, permits, consents,
approvals, certificates, registrations and authorizations
required by the Registration Rights Agreement will be obtained
in accordance with the terms of that agreement.
(g) CONTRACTUAL CONSENTS - The Vendors shall use their reasonable
commercial efforts to give or obtain or cause the Corporation to
give or obtain and the Corporation shall use its reasonable
commercial efforts to obtain, at or prior to the Time of Closing
the notices, consents and approvals required to give effect to
the transactions contemplated herein.
(h) TRANSFER OF SHARES - At or before the Time of Closing, the
Vendors shall use their best efforts to take and to cause the
Corporation to take, and the Corporation shall use its best
efforts to take, all necessary steps and corporate proceedings
to be taken in order to permit the Purchased Shares to be duly
transferred to the Purchaser, free and clear of all
Encumbrances.
<PAGE> 52
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(i) DISCHARGE LIABILITIES - The Vendors shall cause the Corporation
to pay and discharge, and the Corporation shall pay and
discharge, the liabilities of the Corporation in the ordinary
course of the Business except those contested in good faith by
the Corporation.
(j) RESIGNATION OF OFFICERS AND DIRECTORS - At or before the Time of
Closing, the Vendors shall cause each officer and director of
the Corporation, to submit his written resignation as a director
or officer of the Corporation, effective at the Time of Closing.
(k) RELEASES - At the Time of Closing, each of the Vendors shall
execute and deliver to the Corporation and the Purchaser, a
release, in substantially the form set forth in Schedule 5. 1
(k).
(l) POOLING OF INTEREST - None of the Vendors and the Corporation
shall commit any act or omission that they are informed by the
Purchaser or the Parent could be reasonably expected to
interfere with the Parent's or the Purchaser's ability to
account for the purchase and sale contemplated hereby as a
pooling of interests pursuant to U.S. GAAP, and the Corporation
and the Vendors shall use their reasonable commercial efforts to
cause the purchase and sale contemplated hereby to be accounted
for as a pooling of interests.
(m) AFFILIATE AGREEMENTS AND RELEASES -
(i) Prior to the Time of Closing, the Corporation shall
deliver to the Parent a written list, identifying all
Persons who are, as at the date of this Agreement, an
Affiliate of the Company (each, a "COMPANY AFFILIATE")
within the meaning of Rule 145 promulgated under the
Securities Act.
(ii) At or prior to the Time of Closing, the Vendors and the
Corporation shall cause each Company Affiliate to:
(A) execute and deliver an Affiliate Agreement in
the form attached as Schedule 5. 1 (m); and
(B) execute and deliver a General Release in
substantially the form attached as Schedule 5.
l(k) with such amendments as the Purchaser's
counsel may reasonably require to such form.
(n) REGISTRATION RIGHTS AGREEMENT AND INVESTORS REPRESENTATION
CERTIFICATE - At or prior to the Time of Closing, each of the
Vendors shall execute and deliver a:
(i) Registration Rights Agreement, in the form attached as
Schedule 5. l(n)(i); and
(ii) Investors Representation Certificate, in the form
attached as Schedule 5. 1 (n)(ii).
(o) BENEFICIARIES RATIFICATION - At or before the Time of Closing,
the Vendors who are beneficiaries of the Trusts as set forth in
Schedule 3.4(g)shall execute and deliver a letter confirming the
Trustees' authority to execute this Agreement and to perform the
obligations of the Trusts and Trustees hereunder.
(p) SHAREHOLDER OPTION AGREEMENTS - At or before the Time of
Closing, the Option Holders pursuant to those Purchase
Agreements described in Schedule 3.2(e) shall either terminate
those agreements or execute and deliver an acknowledgement
agreeing to the substitution
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of Issued NAI Shares for the Option Shares (defined therein)
upon completion of the transactions contemplated by this
Agreement, and releasing the Parent and the Purchaser for any
matter arising out of the Option.
(q) CONDITIONS OF CLOSING - Each of the Vendors and the Corporation
shall use their best efforts to cause all of the conditions for
the benefit of the Vendors or the Purchaser to be fulfilled at
or before the Time of Closing.
5.2 PURCHASER'S AND PARENT'S COVENANTS. The Purchaser and Parent covenant and
agree with the Vendors, during the period from the date hereof to the Time of
Closing, as set forth below.
(a) TRANSFER OF SHARES - At or before the Time of Closing, the
Parent and the Purchaser shall cause all necessary steps and
corporate proceedings to be taken in order to permit the
Purchased Shares to be duly transferred to the Purchaser.
(b) CONFIDENTIALITY - In the event that the purchase and sale of the
Purchased Shares contemplated herein is not completed, the
Parent and the Purchaser agree that they shall not, in any
manner whatsoever:
(i) use the Confidential Information for any purpose
including, without limitation their personal benefit or
the benefit of any third party;
(ii) charge or receive, any direct or indirect payments by
way of trade of services, compensation or fees from
third party for use of the Confidential Information; or
(iii) copy or otherwise reproduce or render capable of
reproduction by any means whatsoever all or part of the
Confidential Information.
The Purchaser and the Parent further agree that they will not
disclose the Confidential Information to any third party
including publishing or otherwise communicating to any Person,
in any form, the Confidential Information.
(c) The restrictions set forth in Subsection 5.2(b) shall not apply
to any part of the Confidential Information which:
(i) is at the time of disclosure to the Purchaser or the
Parent or thereafter becomes a part of the public domain
through no violation of this Agreement;
(ii) was in the lawful possession of the Purchaser or the
Parent prior to its disclosure to either of them by the
Vendors or the Corporation.
(iii) is hereafter lawfully acquired by the Parent or the
Purchaser through a third party which, to the best of
the Parent's or Purchaser's knowledge, is not under an
obligation of confidence to the Corporation and which
third party was not in a contractual or fiduciary
relationship with the Corporation;
(iv) is disclosed following receipt of the express written
consent of the Corporation to such disclosure being
made; or
<PAGE> 54
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(v) is required by law or requested by a court of competent
jurisdiction, tribunal, administrative or regulatory
body or by a stock exchange having jurisdiction over the
Parent or the Purchaser to be disclosed.
(d) RETURN OF CONFIDENTIAL INFORMATION - In the event that the
purchase and sale of the Purchased Shares herein provided for is
not completed, the Parent and the Purchaser agree, on demand, to
return to the Corporation all Confidential Information,
including correspondence, records, specifications, software
source code, models, notes, reports and other documents and any
copies thereof. The Parent and the Purchaser shall confirm in
writing of their compliance with their obligations hereunder.
5.3 ARTICON AGREEMENT. The Corporation has executed a letter of intent (the
"ARTICON AGREEMENT") between ARTICON Information Systems GmbH ("Articon") and
the Corporation on or about December 11, 1997 (Germany time) with respect to,
among other things, the Corporation appointing Articon as its reseller in
Germany and other regions. The Vendors, the Purchaser and the Parent shall use
their best efforts to assist the Corporation to terminate or convert the Articon
Agreement to a non-exclusive arrangement (collectively, the "COMPROMISE"). The
Purchaser and the Vendors' Agent jointly shall have the right to settle the
terms of the Compromise; provided, however, that the Purchaser and the Vendors'
Agent, both acting reasonably, mutually agree to such settlement. With respect
to any litigation in connection with the Articon Agreement, the Purchaser shall
have the right to participate in or assume control of the negotiation or defence
of such litigation. All of the costs of the Compromise (including without
limitation any amounts payable by the Corporation to Articon in connection with
the Compromise and the Corporation's legal fees and disbursements on a solicitor
and his own client basis) shall:
(a) if the Compromise occurs before the Time of Closing, constitute
a purchase price adjustment pursuant to the provisions of
Section 2.5; or
(b) if the Compromise occurs on or after the Time of Closing, be
paid by the Vendors to the Purchaser from the Escrow Fund
pursuant to the provisions of Section 2.4,
to a maximum amount of $500,000, with 50% of the first $60,000 of such costs to
be borne by the Purchaser. In the event the Compromise is not completed by the
last day of the Escrow Period, then on such day the Vendors shall pay to the
Purchaser from the Escrow Fund (pursuant to the provisions of Section 2.4) the
amount of $470,000, as liquidated damages.
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS UNDER THIS AGREEMENT
6.1 PURCHASER'S CONDITIONS. The obligation of the Purchaser to complete the
purchase of the Purchased Shares contemplated by this Agreement shall be subject
to the satisfaction of, or compliance with, at or before the Time of Closing,
the conditions set forth below (which is hereby acknowledged to be inserted for
the exclusive benefit of the Purchaser and may be unilaterally waived by the
Purchaser in whole or in part).
(a) TRUTH AND ACCURACY OF REPRESENTATIONS - All of the
representations and warranties of the Vendors, the Trustees and
the Corporation set forth in this Agreement shall be true and
correct as at the Time of Closing with the same force and effect
as though made at the Time of Closing, except to the extent
affected by the transactions contemplated by this Agreement, and
certificates of each of the Vendors, the Trustees and the
President (or other officer acceptable to the Purchaser) of the
Corporation dated the date of Closing to
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that effect shall have been delivered to the Purchaser, such
certificates to be in form and substance reasonably satisfactory
to the Purchaser.
(b) COMPLIANCE WITH AGREEMENT - All of the terms, covenants,
agreements and conditions of this Agreement to be complied with
or performed by the Vendors, the Trustees and the Corporation at
or before the Time of Closing shall have been complied with or
performed and certificates of each of the Vendors, the Trustees
and the President (or other officer acceptable to the Purchaser)
of the Corporation dated the date of Closing to that effect
shall have been delivered to the Purchaser, such certificates to
be in form and substance reasonably satisfactory to the
Purchaser.
(c) RECEIPT OF CLOSING DOCUMENTATION - The Purchaser and the Parent
shall have received all documentation required to be delivered
to the Purchaser and the Parent at or before the Time of Closing
in accordance with this Agreement.
(d) POOLING MATTERS -
(i) No action shall have been taken or have been agreed to
have been taken by the Corporation or its officers,
directors, shareholders or Affiliates that would, in the
reasonable judgement of the Parent's independent
accountants, jeopardize the accounting treatment of the
transactions contemplated hereby as a pooling of
interests pursuant to U.S. GAAP;
(ii) the Parent shall have received a letter from Coopers &
Lybrand LLP dated as of the date of the Closing and
addressed to the Parent and the Purchaser stating that
the transactions contemplated hereby will qualify as a
pooling of interests transaction pursuant to U.S. GAAP;
and
(iii) not to limit the generality of Subsections 6. 1(b) and
(c); the Vendors and the Company Affiliates, as
applicable, shall have executed and delivered to the
Purchaser and the Parent the documentation referred to
in Subsections 5. 1 (m) and (n).
(e) APPROVALS AND CONSENTS - All required approvals, consents,
authorizations and waivers relating to the consummation of the
transactions hereby contemplated shall have been obtained from
the relevant governmental or regulatory authorities as are
required by law to be obtained to permit the change of
ownership of the Purchased Shares, the creditors of any of the
Vendors and the Corporation and other third parties.
(f) CONTINUANCE OF THE CORPORATION - There shall be no impediment
existing at the Time of Closing to the continuance of the
Corporation pursuant to the laws of the Province of Nova Scotia
which cannot, in the opinion of counsel to the Purchaser, be
cured with reasonable efforts.
(g) LEGAL FORMALITIES - All necessary corporate action and all
instruments and documents required to authorize the sale and
transfer of the Purchased Shares to the Purchaser and implement
this Agreement or any other agreements incidental thereto, shall
have been taken,
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(h) LEGAL OPINION - The Vendors shall have delivered to the
Purchaser a favourable opinion of Code Hunter Wittmann, counsel
to the Vendors, in a form reasonably satisfactory to the Parent
and the Purchaser and their counsel.
(i) NO RESTRICTIONS - No action or proceeding, judicial (at law or
in equity) or extrajudicial shall be pending or threatened by
any Person to enjoin, restrict or prohibit:
(i) the purchase and sale contemplated hereby or the
Purchaser's subsequent ownership, use, or
enjoyment of the Purchased Shares; or
(ii) the right of the Corporation or the Purchaser
from and after the Time of Closing to conduct
the Business.
(j) CONCURRENT CLOSINGS - All of the conditions precedent to the
obligations of the Purchaser to complete the transactions herein
contemplated or contemplated in the other agreements
contemplated or required hereby and the Schedules shall have
been fulfilled or satisfactorily performed in accordance
therewith including, without limitation, the delivery of all
documents required to be delivered thereunder.
(k) CONSENT UNDER MATERIAL AGREEMENTS - No consents are required
under the Material Agreements to the transactions contemplated
hereunder.
(l) NO DAMAGE - No destruction, material damage, appropriation,
expropriation or seizure of all or any part of the tangible
Assets (which shall include any medium in which Intellectual
Property resides), or the Purchased Shares shall have occurred,
except such as has been fully insured against in accordance with
the provisions hereof.
(m) RESIGNATION OF DIRECTORS AND OFFICERS - Such directors and
officers of the Corporation as the Purchaser may specify shall
have resigned from the Corporation, effective as at the Time of
Closing.
(n) SHAREHOLDER LOANS - The Corporation shall have paid, in full,
all amounts outstanding under the Shareholder Loans.
(o) EMPLOYMENT AGREEMENTS - The Parent and the Key Employees shall
have entered into the Employment Agreements.
(p) NO MATERIAL ADVERSE CHANGE - No material adverse change to the
Business, the Assets or the financial condition of the
Corporation shall have occurred since February 28, 1998.
6.2 VENDORS' CONDITIONS. The obligation of the Vendors to complete the sale of
the Purchased Shares contemplated by this Agreement shall be subject to the
satisfaction of, or compliance with, at or before the Time of Closing, the
conditions set forth below (which is hereby acknowledged to be inserted for the
exclusive benefit of the Vendors and may be unilaterally waived by the Vendors
in whole or in part).
(a) TRUTH AND ACCURACY OF REPRESENTATIONS - All of the
representations and warranties of the Purchaser and of the
Parent set forth in this Agreement shall be true and correct as
at the Time of Closing with the same force and effect as though
made at the Time of Closing, and certificates to that effect of
the President (or other officer acceptable to the Vendors) of
the Purchaser and of the Parent dated the date of Closing to
that effect shall have been
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delivered to the Vendors, such certificates to be in form and
substance reasonably satisfactory to the Vendors.
(b) PERFORMANCE OF OBLIGATIONS - All of the terms, covenants,
agreements and conditions of this Agreement to be complied with
or performed by the Purchaser and the Parent at or before the
Time of Closing shall have been complied with or performed, and
a certificate to that effect of the President (or other officer
acceptable to the Vendors) of the Purchaser and of the Parent
dated the date of Closing to that effect shall have been
delivered to the Vendors, such certificates to be in form and
substance reasonably satisfactory to the Vendors.
(c) RECEIPT OF CLOSING DOCUMENTATION - The Vendors shall have
received all documentation required to be delivered to the
Vendors at or before the Time of Closing in accordance with this
Agreement.
(d) APPROVALS AND CONSENTS - All required approvals consents,
authorizations and waivers relating to the consummation of the
transactions hereby contemplated shall have been obtained from
the relevant governmental and regulatory authorities as are
required by law to be obtained to permit the change of ownership
of the Purchased Shares, the creditors of the Vendors and the
Corporation, and other third parties.
(e) NO RESTRICTIONS - No action or proceeding, judicial (at law or
in equity) or extrajudicial, shall be pending or threatened by
any Person to enjoin, restrict or prohibit the purchase and sale
contemplated hereby.
(f) STATUTORY RESTRICTIONS - There shall be no impediment,
prohibition or restriction existing and no offence would occur
or result at the Time of Closing under any applicable statute or
regulation to which the transactions contemplated hereby would
be subject, by Closing of the transactions contemplated hereby.
(g) LEGAL OPINIONS - The Purchaser and the Parent shall have
delivered to the Vendors:
(i) a favourable opinion of Wilson Sonsini Goodrich and
Rosati, counsel to the Parent and the Purchaser in a
form reasonably satisfactory to the Vendors and their
counsel; and
(ii) a favourable opinion of Milner Fenerty, counsel to the
Purchaser in a form reasonably satisfactory to the
Vendors and their counsel.
(h) ORDER OF THE ALBERTA SECURITIES COMMISSION - The Alberta
Securities Commission shall not have:
(i) finally refused (which refusal shall not include an
adjournment) the application dated May 7, 1998 for an
order (the "Order") pursuant to section 116 of the
Securities Act (Alberta) with respect to the first trade
(the "First Trade") of the Issued NAI Shares acquired by
the Vendors (other than Ptacek and Newsham) and made by
Milner Fenerty on behalf of the Parent; or
(ii) indicated that it is unlikely to approve the Order in a
form that would permit the First Trade of such Issued
NAI Shares through the facilities of NASDAQ (without
<PAGE> 58
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the need to resort to the use of the exemptions from the
prospectus requirements of the Securities Act (Alberta)
other than the Order).
6.3 RIGHTS OF PURCHASER. If any of the conditions for the exclusive benefit of
the Purchaser as set forth in Section 6.1 shall not have been fulfilled in any
material respect at or prior to the Time of Closing to the satisfaction of the
Purchaser, then the Purchaser shall be entitled, by notice to the Vendors' Agent
prior to the Time of Closing:
(a) to provide written notice, describing the condition that has not
been fulfilled and of its intention to terminate its obligations
hereunder and this Agreement effective as of the date that is 30
days from the date of receipt of such written notice by the
Vendors' Agent unless such condition has been fulfilled on or
before the end of such 30 day period; or
(b) to proceed with Closing as contemplated by Article 8.
If no such notice is given prior to the completion of Closing, then the
Purchaser shall be deemed to have elected to proceed with Closing as
contemplated by Article 8.
6.4 RIGHTS OF VENDORS. If any of the conditions for the exclusive benefit of the
Vendors set forth in Section 6.2 shall not have been fulfilled in any material
respect at or prior to the Time of Closing to the satisfaction of the Vendors,
then the Vendors shall be entitled, by notice from the Vendors' Agent to the
Purchaser prior to the time of completion of Closing:
(a) to provide written notice, describing the condition that has not
been fulfilled and of their intention to terminate their
obligations hereunder and this Agreement effective as of the
date that is 30 days from the date of receipt of such written
notice by the Purchaser unless such condition has been fulfilled
on or before the end of such 30 day period; or
(b) to proceed with Closing as contemplated by Article 8.
If no such notice is given prior to the completion of Closing, then the Vendors
shall be deemed to have elected to proceed with Closing as contemplated by
Article 8.
6.5 RIGHTS OF TERMINATION. If this Agreement has been terminated pursuant to
Subsection 6.3(a) or Subsection 6.4(a), then the party terminating the Agreement
shall be released from all its obligations under this Agreement other than any
obligations set out in Section 2.7 and Section 5.2(b) and the termination of
this Agreement shall not affect the rights and remedies of the party terminating
this Agreement against the other parties.
6.6 REIMBURSEMENT OF COSTS FOR CONTINUANCE. Notwithstanding any other provision
of this Agreement, in the event that the purchase and sale of the Purchased
Shares herein provided for is not consummated by reason of termination of this
Agreement pursuant to Subsection 6.4(a) and the Vendor's have completed the
continuance of the Corporation into Nova Scotia as contemplated by Section 5. 1
(b), the Purchaser and Parent shall bear the reasonable costs and expenses (to a
maximum total amount of $5,000) of the Vendors and the Corporation to
discontinue the Corporation pursuant to the laws of Nova Scotia and to continue
the Corporation pursuant to the laws of Alberta upon the Vendors' and the
Corporation's written request.
<PAGE> 59
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ARTICLE 7
EMPLOYMENT MATTERS
7.1 EMPLOYMENT AGREEMENTS. The Purchaser agrees that, at or before the Time of
Closing, the Parent shall offer employment contracts to, and shall enter into
letters of understanding (the "EMPLOYMENT AGREEMENTS") with each of Alfred
Huger, Oliver Friedrichs, Thomas Ptacek and Jennifer Meyers (the "KEY
EMPLOYEES").
7.2 OTHER EMPLOYEES. The Parent shall negotiate in good faith to retain the
services of such other employees and independent contractors of the Corporation
as the Purchaser deems appropriate.
ARTICLE 8
CLOSING
8.1 PLACE OF CLOSING. The Closing shall take place at the Time of Closing at the
offices of Milner Fenerty, 30th Floor, Fifth Avenue Place, 237 - 4th Avenue
S.W., Calgary, Alberta, or at such other place as may be agreed upon by the
Vendors and the Purchaser.
8.2 DELIVERIES BY VENDOR. At the Time of Closing and at the place of Closing,
the Vendors shall deliver to the Purchaser:
(a) one or more share certificates representing the Purchased Shares
duly endorsed for transfer to the Purchaser;
(b) certificates of incumbency for PRL, each of the Trusts and the
Corporation listing all of the directors and officers of PRL and
the Corporation, and all of the Trustees of each Trust, as at
Closing;
(c a letter from such of the beneficiaries of the Trusts as set
forth in Schedule 3.4(g) confirming the authority of the
Trustees;
(d) notarized copies of the constating documents and by-laws of the
Corporation;
(e) a certificate of status of the Corporation and of PRL;
(f) a certified copy of a resolution of the directors of the
Corporation consenting to the transfer of the Purchased Shares
to the Purchaser and authorizing the registration of such
transfer on the share register of the Corporation;
(g) a certified copy of a resolution of the directors of PRL
authorizing this Agreement and the transactions contemplated
herein;
(h) a certificate signed by each of the Vendors and the Corporation
to the effect that the representations and warranties of each of
the Vendors and the Corporation herein contained are true and
correct as at the Time of Closing;
(i) a certificate signed by each of the Vendors to the effect that
all of the terms, covenants, agreements and conditions of this
Agreement to be complied with or performed by the Vendors and
the Corporation at or before the Time of Closing have been
complied with or performed.
<PAGE> 60
Page 56 of 67
(j) written consents pursuant to the Material Agreements to the
extent required;
(k) the minute books and corporate seals of the Corporation;
(1) the Employment Agreements, executed by the Key Employees;
(m) the legal opinion of Code Hunter Wittmann, the Vendors' counsel,
dated as of the date of Closing;
(n) resignations of the directors and officers of the Corporation;
(o) the documentation referred to in Subsections 5. 1(m), (n), (o)
and (p);
(p) such other certificates or documents as the Vendors and the
Corporation are required to deliver pursuant to the terms of
this Agreement or as the Purchaser or its counsel may reasonably
require.
8.3 DELIVERIES OF PURCHASER AT CLOSING. At the Time of Closing and at the place
of Closing, the Purchaser shall deliver to the Vendors:
(a) copies of all duly executed documentation submitted to the
Parent's registrar and transfer agent authorizing and directing
the issuance of the Issued NAI Shares and subject to all terms
and conditions in favour of the Purchaser contained herein being
waived or satisfied, the Parent's registrar and transfer agent
shall be directed to make an entry in the share register of the
Parent as at the Time of Closing that the Issued NAI Shares have
been issued;
(b) a certified copy of a resolution of the directors of the
Purchaser consenting to the purchase of the Purchased Shares;
(c) a certificate signed by the Purchaser to the effect that the
representations and warranties of the Purchaser herein contained
are true and correct as at the Time of Closing;
(d) certificates signed by the Purchaser and the Parent to the
effect that all of the terms, covenants, agreements and
conditions of this Agreement to be complied with or performed by
the Purchaser, or the Parent as the case may be, at or before
the Time of Closing have been complied with or performed;
(e) a legal opinion of Wilson Sonsini Goodrich & Rosati, the
Purchaser's U.S. counsel, dated the date of closing;
(f) a legal opinion of Milner Fenerty, the Purchaser's Canadian
counsel, dated the date of closing;
(g) a draft of the Registration Statement containing such
information concerning the Parent as is accurate at the Time of
Closing referred to in the Registration Rights Agreement; and
(h) such other certificates or documents as the Purchaser is
required to deliver pursuant to the terms of this Agreement or
as the Vendors or their counsel may reasonably require.
<PAGE> 61
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8.4 CLOSING ESCROW. All payments or documents delivered by any Person at the
Time of Closing shall be deemed not to have been delivered until each of the
Vendors and the Purchaser has declared that it is satisfied with the form and
substance of all of the payments and documents to be delivered to such Person at
Closing and all conditions to the delivery or release of any payments or
documents to be delivered at the Time of Closing by parties other than the
Vendors or the Purchaser shall have been satisfied.
ARTICLE 9
SOLICITATION OF EMPLOYEES AND INJUNCTIVE RELIEF
9.1 SOLICITATION OF EMPLOYEES. None of the Vendors shall, for a period ending on
the later of one year from the date of this Agreement or one year following
cessation of employment with the Purchaser's Group, on its own behalf or on
behalf of any other Person, solicit, encourage or otherwise induce any of the
employees of the Purchaser's Group to leave such employee's employment with the
Purchaser's Group.
9.2 INJUNCTIVE RELIEF. Each of the Vendors acknowledges that breach by it of the
covenants contained in Section 9.1 may cause irreparable harm to the Business,
the Corporation and to the Purchaser, which may not be compensable through
monetary damages. Each of the Vendors, therefore, hereby acknowledges that the
Purchaser may enforce such covenants through injunctive relief.
ARTICLE 10
INDEMNIFICATION
10.1 VENDOR INDEMNIFICATION. Subject to the provisions of Section 3.8, each of
the Vendors and the Corporation covenants and agrees to defend, indemnify and
save harmless the Purchaser and its officers, directors, employees and agents
and affiliates and the Corporation (which collectively shall be a "PURCHASER"
for the purpose of this Section 10.1 and an "INDEMNIFIED PARTY" for the purpose
of Sections 10.3 to 10.4, inclusive, where the context so requires) from and
against any losses, liabilities, obligations, damages, penalties, claims,
actions, suits, costs and expenses of any nature whatsoever arising out of,
under or pursuant to any of the following:
(a) any or all debts, liabilities, contracts or engagements
whatsoever, including any liabilities for federal, provincial,
sales, excise (including goods and services), income, capital,
corporate, withholding or any other taxes of the Corporation in
an amount, together with all other liability for or in
connection with taxes to be indemnified hereunder, existing at
the Time of Closing and not disclosed on or included in the
balance sheet forming part of the Financial Statements, save and
except those liabilities:
(i) disclosed in this Agreement or any Schedule, or
(ii) accruing or incurred subsequent to February 28, 1998 in
the ordinary course of business;
(b) all contingent liabilities which the Corporation becomes
obligated to pay, existing at the Time of Closing, not disclosed
or reflected in the balance sheets forming part of the Financial
Statements;
(c) any liability arising under the Employment Standards Code
(Alberta) for the period prior to the Time of Closing, but
excluding severance payments payable to the employees of the
Corporation whose employment ends on or after the Time of
Closing;
<PAGE> 62
Page 58 of 67
(d) any reassessment for income, capital or corporate tax, interest
and all penalties for any period up to the Time of Closing for
which no adequate reserve has been provided for and disclosed in
the Financial Statements, other than:
(i) a reassessment disallowing an expense or a deduction
claimed by the Corporation in respect of which any of
such corporations subsequently will be entitled to claim
capital cost allowances pursuant to the regulations to
the Tax Act, and
(ii) any reassessments, interest and penalties which,
together with all other liabilities for Or in connection
with taxes to be indemnified hereunder, is in the
aggregate amount less than or equal to the Tax
Deductible;
(e) any loss suffered by the Purchaser or the Corporation as a
result of any breach of any representation, warranty or covenant
contained in this Agreement given by any or all of the Vendors
and the Corporation or in the Registration Rights Agreement, the
Affiliates Agreements, the General Releases, or the Investors
Representation Certificate or in any other certificate delivered
pursuant to this Agreement by any or all of the Vendors and the
Corporation; and
(f) all claims, demands, fines, penalties, costs and expenses of any
nature whatsoever (including, without limitation, legal fees,
charges and disbursements on an as between a solicitor and his
own client basis) in respect of the foregoing.
10.2 PURCHASER INDEMNIFICATION. Subject to the provisions of Section 4.6, the
Purchaser and Parent agree to indemnify and save harmless the Vendors from any
loss suffered or incurred by the Vendors as a result of or arising directly or
indirectly out of or in connection with:
(a) any breach by the Purchaser or Parent of or any inaccuracy of
any representation or warranty given by either or both of the
Purchaser or Parent contained in this Agreement or in any
agreement, instrument, certificate or other document delivered
pursuant hereto; and
(b) any breach or non-performance by the Purchaser or Parent of any
covenant to he performed by it that is contained in this
Agreement or in any agreement, certificate or other document
delivered pursuant hereto.
10.3 NOTICE OF CLAIM. In the event that an indemnified party (the "INDEMNIFIED
PARTY") shall become aware of any claim, proceeding or other matter (a "CLAIM")
in respect of which the Vendors, the Corporation, the Purchaser or the Parent
(the "INDEMNIFYING PARTY") agreed to indemnify the Indemnified Party pursuant to
this Agreement, the Indemnified Party shall promptly give written notice thereof
to the Indemnifying Party. Such notice shall specify whether the Claim arises as
a result of a claim by a Person against the Indemnified Party (a "THIRD PARTY
CLAIM") or whether the Claim does not so arise (a "DIRECT CLAIM"), and shall
also specify with reasonable particularity (to the extent that the information
is available) the factual basis for the Claim and the amount of the Claim, if
known.
10.4 DIRECT CLAIMS. With respect to any Direct Claim, following receipt of
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
have 60 days to make such investigation of the Claim as is considered necessary
or desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party the information relied upon by the
Indemnified Party to substantiate the Claim, together with all such other
information as the Indemnifying Party may reasonably
<PAGE> 63
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request. If both parties agree at or prior to the expiration of such 60 day
period (or any mutually agreed upon extension thereof) to the validity and
amount of such Claim, then the Indemnifying Party shall immediately pay to the
Indemnified Party the full agreed upon amount of the Claim subject to Section
2.4, failing which the matter shall be referred to binding arbitration as
provided in Section 12.2 or shall be determined by a court of competent
jurisdiction,
10.5 THIRD PARTY CLAIMS. With respect to any Third Party Claim, such claims
shall be governed by the provisions of Subsection 2.4(k).
10.6 LIMITATION. Notwithstanding anything else contained herein:
(a) the Purchaser's remedies against the Vendors and the Corporation
pursuant to the Indemnities contained herein shall be limited to
recovery against the Escrow Fund while such Escrow Fund is held
by the Escrow Agent, in accordance with Sections 2.4 and 3.8,
except in a circumstance of fraud; and
(b) the Vendors' remedies against the Purchaser and the Parent
pursuant to the Indemnities contained herein shall be limited to
the amount of the Purchase Price.
ARTICLE 11
CONFIDENTIALITY AND NON-COMPETITION
11.1 CONFIDENTIALITY. The Vendors acknowledge that they have heretofore had
access to and have been entrusted with Confidential Information, the disclosure
of which to competitors of the Corporation or of the Purchaser, or to the
general public would be highly detrimental to the best interests of the
Purchaser and the Corporation. The Vendors further acknowledge and agree that
the right to maintain confidential the Confidential Information constitutes a
proprietary right that the Corporation and the Purchaser are entitled to
protect. Accordingly, the Vendors covenant and agree with the Corporation and
the Purchaser that they will not disclose any Confidential Information to any
Person nor will they use the same for any purposes other than those of the
Corporation or the Purchaser.
11.2 NON-COMPETITION. None of the Vendors shall within one year after Closing in
any area where the Corporation is carrying on business as at the Time of
Closing:
(a) be, either directly or indirectly, interested in any business
other than the Business, which manufactures, assembles,
distributes or supplies products or services competitive with
the Business; or
(b) in any way:
(i) solicit in respect of the sale of products or services
competitive with the Business from, or
(ii) enter into contractual relations for the supply of
products or services competitive with the Business with,
any customer of the Corporation which is a customer of the
Corporation as at the Time of Closing.
<PAGE> 64
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11.3 SURVIVAL. The provisions of this Article II shall survive Closing of the
purchase and sale herein provided for and notwithstanding Closing, shall
continue in full force and effect for the benefit of the Corporation and the
Purchaser.
ARTICLE 12
GENERAL
12.1 NOTICES. Any notice or other writing required or permitted to be given
hereunder or for the purposes hereof to any party shall be sufficiently given if
delivered personally or by telecopier to such party:
(a) in the case of a notice to the Vendors, in care of the Vendors'
Agent:
Arthur Wong
Suite 330, 1201 - 5th Street S.W.
Calgary, Alberta
T2R OX6
Telecopy: (403) 262-9221,
with a copy to the Vendors' solicitors at:
Code Hunter Wittmann
Suite 1400, 700 - 2nd Street S.W.
Calgary, Alberta
T2P 4V5
Attention: Andrew Oppenheim
Tclecopy: (403) 263-9193;
(b) in the case of a notice to the Purchaser at:
FSA Combination Corporation
2805 Bowers Avenue
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Telecopy: (408) 970-9727,
with a copy to Purchaser's and Parent's solicitors at:
Milner Fenerty -and- Wilson Sonsini
30th Floor, Fifth Avenue Place Goodrich & Rosati
237 - 4th Avenue S.W. 650 Page Mill Road
Calgary, Alberta Palo Alto, California
T2P 4X7 94304-1050
Attention: David Lefebvre Attention: Greg Wharton
Telecopy: (403) 268-3100; and Telecopy: (650) 493-6811
<PAGE> 65
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(c) in the case of a notice to the Parent at:
Networks Associates, Inc. - and- Wilson Sonsini
2805 Bowers Avenue Goodrich & Rosati
Santa Clara, CA 95051 650 Page Mill Road
Palo Alto, California
94304-1050
Attention: Richard Hornstein, Esq. Attention: Greg Wharton
Telecopy: (408) 970-9727; and Telecopy: (650) 493-6811
(d) with a copy to Parent's solicitors at:
Milner Fenerty - and- Wilson Sonsini
30th Floor, Fifth Avenue Place Goodrich & Rosati
237 - 4th Avenue S.W. 650 Page Mill Road
Calgary, Alberta Palo Alto, California
T2P 4X7 94304-1050
Attention: David Lefebvre Attention: Greg Wharton
Telecopy: (403) 268-3100; and Telecopy: (650) 493-6811
(e) in the case of a notice to the Escrow Agent at:
Greater Bay Trust Company
400 Emerson Street, Second Floor
Palo Alto, California
94301
Attention: Anna Paiva
(f) in the case of a notice to the Corporation:
Secure Networks Inc.
Suite 330, 1201 - 5th Street S.W.
Calgary, Alberta
T2R 0Y6
Attention: Arthur Wong
Telecopy: (403) 262-9221,
or at such other address as the party to whom such writing is to be given shall
have last notified to the party giving the same in the manner provided in this
Section 12.1. Any notice delivered to the party to whom it is addressed
hereinbefore provided shall be deemed to have been given and received on the day
it is so delivered at such address, provided that if the notice is delivered
after 4:00 p.m. (local time) or if such day is not a Business Day then the
notice shall be deemed to have been given and received on the Business Day next
following such day.
12.2 ARBITRATION PROCEDURE. Should a dispute, controversy or claim (each, a
"DISPUTE") arise respecting anything contained in this Agreement or any related
agreement or contracts ("RELATED CONTRACTS") specifically referred to in this
Agreement or the performance, non-performance, breach,
<PAGE> 66
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termination or invalidity hereof or thereof, such Dispute shall be referred to
and finally resolved by arbitration in accordance with the provisions of
Schedule 12.2.
12.3 AUDIT AND INSPECTION. The Purchaser, upon notice in writing to the Vendors'
Agent and the Corporation, shall have the right (but not the obligation) to
audit the Corporation's and any of its Affiliate's accounts and records. Any
claims of discrepancies disclosed by such audit shall be made by the Purchaser
to the Vendors' Agent and the Corporation in writing. The cost of such audit
shall be borne by the Purchaser.
12.4 ENUREMENT. This Agreement shall enure to the benefit of and be binding upon
the parties and their respective successors and permitted assigns but shall not
be assignable by any of the parties prior to the Time of Closing without the
prior written consent of the other parties.
12.5 FURTHER ASSURANCES. The parties shall provide all such reasonable
assurances as may be required to consummate the transactions contemplated
hereby, and each party shall provide such further documents or instruments
required by any other party as may be reasonably necessary or desirable to
effect the purpose of this Agreement and carry out its provisions, whether
before or after Closing.
12.6 EXPENSES. Subject to Section 2.8 and Section 6.6, all costs and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
<PAGE> 67
12.7 COUNTERPARTS. Ms Agreement may be executed in one or more counterparts,
which so executed shall constitute an original and all of which together shall
constitute one and the same agreement. A signed counterpart provided by way of
telecopier shall be as binding upon the parties as an originally signed
counterpart.
IN WITNESS WHEREOF the parties have duly executed this Agreement as
of the date first above written.
/s/ [SIG] /s/ ARTHUR WONG
- ------------------------------------------ -------------------------------
WITNESS ARTHUR WONG
/s/ [SIG] /s/ MICHAEL TAM
- ------------------------------------------ -------------------------------
WITNESS MICHAEL TAM
/s/ [SIG] /s/ KAM CHUN TAM
- ------------------------------------------ -------------------------------
WITNESS KAM CHUN TAM
/s/ [SIG] /s/ CHRISTOPHER BAILEY
- ------------------------------------------ -------------------------------
WITNESS CHRISTOPHER BAILEY
/s/ [SIG] /s/ ALFRED HUGER
- ------------------------------------------ -------------------------------
WITNESS ALFRED HUGER
/s/ [SIG] /s/ OLIVER FRIEDRICHS
- ------------------------------------------ -------------------------------
WITNESS OLIVER FRIEDRICHS
/s/ [SIG] /s/ JOHNATHAN WILKINS
- ------------------------------------------ -------------------------------
WITNESS JOHNATHAN WILKINS
- ------------------------------------------ -------------------------------
WITNESS THOMAS PTACEK
- ------------------------------------------ -------------------------------
WITNESS TIMOTHY NEWSHAM
PRL RESOURCES INC.
By: [SIG]
--------------------------------------
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 68
12.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
which so executed shall constitute an original and all of which together shall
constitute one and the same agreement. A signed counterpart provided by way of
telecopier shall be as binding upon the parties as an originally signed
counterpart.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the
date first above written.
- ----------------------------------- -----------------------------------
WITNESS ARTHUR WONG
- ----------------------------------- -----------------------------------
WITNESS MICHAEL TAM
- ----------------------------------- -----------------------------------
WITNESS KAM CHUN TAM
- ----------------------------------- -----------------------------------
WITNESS CHRISTOPHER BAILEY
- ----------------------------------- -----------------------------------
WITNESS ALFRED HUGER
- ----------------------------------- -----------------------------------
WITNESS OLIVER FRIEDRICHS
- ----------------------------------- -----------------------------------
WITNESS JOHNATHAN WILKINS
/s/ JENNIFER MYERS /s/ THOMAS PTACEK
- ----------------------------------- -----------------------------------
WITNESS THOMAS PTACEK
- ----------------------------------- -----------------------------------
WITNESS TIMOTHY NEWSHAM
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 69
12.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
which so executed shall constitute an original and all of which together shall
constitute one and the same agreement. A signed counterpart provided by way of
telecopier shall be as binding upon the parties as an originally signed
counterpart.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the
date first above written.
- ----------------------------------- -----------------------------------
WITNESS ARTHUR WONG
- ----------------------------------- -----------------------------------
WITNESS MICHAEL TAM
- ----------------------------------- -----------------------------------
WITNESS KAM CHUN TAM
- ----------------------------------- -----------------------------------
WITNESS CHRISTOPHER BAILEY
- ----------------------------------- -----------------------------------
WITNESS ALFRED HUGER
- ----------------------------------- -----------------------------------
WITNESS OLIVER FRIEDRICHS
- ----------------------------------- -----------------------------------
WITNESS JOHNATHAN WILKINS
- ----------------------------------- -----------------------------------
WITNESS THOMAS PTACEK
/s/ KRIS KAUKA /s/ TIMOTHY NEWSHAM
- ----------------------------------- -----------------------------------
WITNESS TIMOTHY NEWSHAM
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 70
WONG FAMILY 1998 TRUST
By: /s/ ARTHUR WONG /s/ C. JAMES
---------------------------------- ---------------------------------------
Arthur Wong, as Trustee Witness
By: /s/ MICHAEL TAM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Michael Tam, as Trustee Witness
By: /s/ JASON CHIN /s/ C. JAMES
---------------------------------- ---------------------------------------
Jason Chin, as Trustee Witness
MICHAEL TAM FAMILY 1998 TRUST
By: /s/ MICHAEL TAM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Michael Tam, as Trustee Witness
By: /s/ ARTHUR WONG /s/ C. JAMES
---------------------------------- ---------------------------------------
Arthur Wong, as Trustee Witness
By: /s/ CHRISTOPHER BAILEY /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Christopher Bailey, as Trustee Witness
KAM CHUN TAM FAMILY 1998 TRUST
By: /s/ KAM CHUN TAM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Kam Chun Tam, as Trustee Witness
By: /s/ MICHAEL TAM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Michael Tam, as Trustee Witness
By: /s/ MU ZHEN HU /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Mu Zhen Hu, as Trustee Witness
BAILEY FAMILY 1998 TRUST
By: /s/ CHRISTOPHER BAILEY /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Christopher Bailey, as Trustee Witness
By: /s/ MICHAEL TAM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Michael Tam, as Trustee Witness
By: /s/ CHRISTOPHER KEIM /s/ BRUCE LEIDL
---------------------------------- ---------------------------------------
Christopher Keim, as Trustee Witness
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 71
HUGER FAMILY 1998 TRUST
By: /s/ ALFRED HUGER /s/ BRUCE LEIDL
----------------------------- -----------------------------
Alfred Huger, as Trustee Witness
By: /s/ OLIVER FRIEDRICHS /s/ BRUCE LEIDL
----------------------------- -----------------------------
Oliver Friedrichs, as Trustee Witness
By: /s/ JOHN BOLETTA /s/ BRUCE LEIDL
----------------------------- -----------------------------
John Boletta, as Trustee Witness
FRIEDRICHS FAMILY 1998 TRUST
By: /s/ OLIVER FRIEDRICHS /s/ BRUCE LEIDL
----------------------------- -----------------------------
Oliver Friedrichs, as Trustee Witness
By: /s/ ALFRED HUGER /s/ BRUCE LEIDL
----------------------------- -----------------------------
Alfred Huger, as Trustee Witness
By: /s/ ARTHUR WONG /s/ C. JAMES
----------------------------- -----------------------------
Arthur Wong, as Trustee Witness
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 72
SECURE NETWORKS INC.
By: /s/ [SIG]
-----------------------------------
By:
-----------------------------------
This is a counterpart execution page to a Share Purchase Agreement
dated May 7, 1998, relating to Secure Networks Inc.
<PAGE> 73
PRL RESOURCES INC. FSA COMBINATION CORPORATION
By: By: /s/ [SIG]
------------------------------- -------------------------------
Its: Its: Chief Financial Officer
------------------------------ ------------------------------
By:
-------------------------------
Its:
------------------------------
NETWORKS ASSOCIATES, INC.
By:
-------------------------------
Its:
------------------------------
GREATER BAY TRUST COMPANY
By:
-------------------------------
Its:
------------------------------
This is a counterpart execution page to a Share Purchase Agreement
dated May __, 1998, relating to Secure Networks Inc.
<PAGE> 74
PRL RESOURCES INC. FSA COMBINATION CORPORATION
By: By:
--------------------------- ---------------------------
Its: Its:
-------------------------- ---------------------------
By:
---------------------------
Its:
--------------------------
NETWORKS ASSOCIATES, INC.
By: /s/ [SIG]
---------------------------
Its: CFO
--------------------------
GREATER BAY TRUST COMPANY
By: /s/ [SIG]
---------------------------
Its: Vice President
--------------------------
This is a counterpart execution page to a Share Purchase Agreement
dated May ___, 1998, relating to Secure Networks Inc.
<PAGE> 1
Exhibit 4.8
SYSCON (PROPRIETARY) LIMITED
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of 26 February 1998, by and
between Networks Associates, Inc., a Delaware corporation (the "Company"), and
Brenda Joyce Crook ("Crook").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, FSA
Combination Corp., a Delaware corporation and a wholly owned subsidiary of the
Company ("FSA") and Crook are entering into a Stock Purchase Agreement (the
"PURCHASE AGREEMENT") which provides for the Purchase (the "PURCHASE") of the
entire share capital of Syscon (Proprietary) Limited by FSA in exchange for
shares of Company Common Stock;
WHEREAS, the Purchase Agreement provides that, as of the Closing Date, the
shares of Company Common Stock that are issued to Crook pursuant to the Purchase
Agreement be granted registration rights as set forth herein; and
WHEREAS, all terms not otherwise defined herein shall have the same
meanings ascribed to them in the 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:
1.1.1 The term "Act" means the Securities Act of 1933, as
amended.
1.1.2. The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
1.1.3. 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.
1.1.4. The term "Registrable Securities" means the Common
Stock of the Company ("Common Stock") issued to Crook in accordance with the
terms and conditions of the Purchase Agreement.
<PAGE> 2
Page 2
1.1.5. The term "SEC" shall mean the Securities and Exchange
Commission.
1.2. Obligations of the Company. The Company shall, as soon as
reasonably possible:
1.2.1. Prepare and file with the SEC as soon as commercially
practicable, but in no event later than 180 days after the Closing Date, a
registration statement on Form S-3 with respect to such Registrable Securities
(hereinafter referred to as the "Registration Statement") and use its reasonable
best efforts to cause such registration statement to become effective as soon as
reasonably practicable thereafter, and, subject to the provisions below, use its
reasonable best efforts to, keep such registration statement effective
indefinitely or, if earlier, until Crook has sold all of the Registrable
Securities. If at any time after a registration statement becomes effective, the
Company advises Crook 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,
Crook shall suspend any further sale of Registrable Securities pursuant to the
Registration Statement until the Company advises Crook that the registration
statement has been amended. In such event, the Company shall cause the
registration statement to be amended as soon as reasonably practicable, provided
that the Company shall not be required to amend the registration statement
during any time when the Company's officers and director are prohibited from
buying or selling the Company's Common Stock pursuant to the Company's insider
trading policy. Notwithstanding the foregoing sentence, the Company shall file
any amendment necessary for Crook 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 Crook 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.
1.2.2. 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.
1.2.3. Furnish to Crook such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as Crook may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by her.
1.2.4. 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 Crook, provided that the
<PAGE> 3
Page 3
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.
1.2.5. 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 Crook. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section I with
respect to the Registrable Securities of Crook that Crook shall furnish to the
Company such information regarding herself, the Registrable Securities held by
her, 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 Crook, 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 Crook other than the fees of one counsel to
Crook (not to exceed $5,000).
1.5 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
1.5.1 The Company will indemnify and hold harmless Crook against
any losses, claims, damages, or liabilities (joint or several) to which Crook
may become subject under the Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements' therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, or any rule or
regulation promulgated under the Act, or the 1934 Act; and the Company will pay
to Crook as incurred any legal or other expenses reasonably incurred by Crook in
connection with investigating or defending any such loss, claim, damage,
liability, or action, provided, however, that the indemnify 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 such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with
information furnished expressly for use in connection with such registration by
Crook. In addition, the Company shall not be liable for any untrue statement or
omission in any prospectus if a supplement or
<PAGE> 4
Page 4
amendment thereto correcting such untrue statement or omission was delivered to
Crook prior to the pertinent sale or sales by Crook.
1.5.2 Crook 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 Crook selling securities in such registration statement and any
controlling person of any such Crook, 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 Crook expressly for use in
connection with such registration; and Crook 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 Crook, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 1.5(b) exceed the gross proceeds from the
offering received by such Crook.
1.5.3 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.
1.5.4 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
<PAGE> 5
Page 5
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.
1.5.5 The obligations of the Company, and Crook 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 Crook, make
publicly available other information so long as necessary to permit sales of
Crook's securities pursuant to Rule 144 and 144A. The Company covenants that it
will take such further action as Crook may reasonably request, all to the extent
required from time to time to enable Crook 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
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
2.1.0.1. if to the Company:
Networks Associates, Inc.
2805 Bowers Ave.
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Facsimile No.: (408) 970-9727
<PAGE> 6
Page 6
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.: (415) 493-6811
2.1.0.2 if to the Escrow Agent, to:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
Palo Alto, CA 94301
Attention: Anna Paivah
Telephone No.: 650-614-5720
Facsimile No.: 650-473-1326
2.1.0.3 if to Crook:
19 Concourse Crescent
Lonehill
Sandton
South Africa
Telephone: 27 + 11 + 7031472
Facsimile: 27 + 11 + 4651067
2.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
2.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
2.4. Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person (including, without limitation, those persons listed on any
exhibits hereto) any rights or remedies hereunder; and (c) without the prior
written consent of each party shall not be assigned by operation of law or
otherwise, except that the Company may assign its rights and obligations
hereunder to an affiliate of the Company pro-
<PAGE> 7
Page 7
vided 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 required hereby, shall be void.
2.5. Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
2.6. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
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.
2.8. Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
* * * *
<PAGE> 8
Page 8
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETWORK ASSOCIATES, INC.
By: /s/ Eric Borrman
Title: Finance Director
BRENDA JOYCE CROOK
/s/ B J Crook
<PAGE> 1
Exhibit 4.9
NORDIC LAN TOOLS OY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of February 27, 1998, by and
between Networks Associates, Inc., a Delaware corporation (the "COMPANY"), and
the undersigned shareholders of Nordic Lan Tools Oy (the "SHAREHOLDERS").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, FSA
Combination Corp., a Delaware corporation and a wholly owned subsidiary of the
Company ("FSA"), and the Shareholders are entering into a Stock Purchase
Agreement (the "PURCHASE AGREEMENT") which provides for the purchase (the
"PURCHASE") of all the issued and outstanding shares of Nordic Lan Tools Oy by
FSA in exchange for shares of Company Common Stock:
WHEREAS, the execution and delivery of this Agreement is a condition to
the Closing of the Purchase Agreement;
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.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE> 2
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 reasonable
practicable, but in no event later than 180 days after the Closing Date, a
registration statement on Form S-3 with respect to such Registrable Securities
(hereinafter referred to as the "Registration Statement") and use its
reasonable best efforts to cause such registration statement to become
effective as soon as reasonably practicable 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 as soon as reasonably practicable,
provided that the Company shall not be required to amend the registration
statement during any time when the Company's officers and director are
prohibited from buying or selling the Company's Common Stock pursuant to the
Company's insider trading policy. Notwithstanding the foregoing sentence, the
Company shall file any amendment necessary for the 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 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.
<PAGE> 3
(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 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 The Shareholders (not to exceed $5,000).
1.5. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless the
Shareholders against any losses, claims, damages, or liabilities (joint or
several) to which Shareholder may become subject under the Act, or the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements' therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, or any rule or regulation promulgated
under the Act, or the 1934 Act; and the Company will pay to 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 expressly for use in connection with such registration by
the Shareholders. 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) The Shareholders will each 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
<PAGE> 4
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 the Shareholders
expressly for use in connection with such registration; and the Shareholders
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 the Shareholders, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.5(b) exceed the gross proceeds from the offering received by such Shareholder.
(c) Promptly after receipt by an indemnified party under this
Section 1.5 of notice of the commencement of any action (included 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 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.
<PAGE> 5
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, 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 transmission)
to the parities at the following addresses (or at such other address for a party
as shall be specified by like notice):
(1) if to the Company:
Networks Associates, Inc.
2805 Bowers Ave.
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Facsimile No.: (408) 970-9727
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Kurt J. Berney, Esq.
Facsimile No.: (415) 493-6811
(2) if to the Shareholders, to:
Ms Irina Karlsson
Prinssintie 8 as 1
01260 Vantaa
<PAGE> 6
Mr. Jarmo Rouvinen
Rasintie 4 B
00780 Helsinki
with a copy to:
Asianajotoimisto Jyri Sarpaniemi
Simonkatu 8
00100, Helsinki
Attention: Mr. Jyri Sarpaniemi
Fascimile No.: (358)9-562 5059
(3) if to the Escrow Agent, to:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
Palo Alto, CA 94301
Attention: Anna Paivah
Telephone No.: (650) 614-5720
Fascimile No.: (650) 473-1326
2.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
2.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
2.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person (including, without limitation, those persons listed on any
exhibits hereto) any rights or remedies hereunder; and (c) with 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
<PAGE> 7
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.
2.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
* * * *
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first above written.
NETWORKS ASSOCIATES, INC.
By: /s/ Eric Borrmann
--------------------------------------
Eric Borrmann
Finance Director
Address: 2805 Bowers Avenue
Santa Clara, California
95051-0963
SHAREHOLDERS
By: /s/ Irina Karlsson
--------------------------------------
Irina Karlsson
Address: Prinssintie 8 as 1
01260 Vantaa
By: /s/ Jarmo Rouvinen
--------------------------------------
Jarmo Rouvinen
Address: Rasintie 4 B
00780 Helsinki
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of May 15, 1998, by and
between Networks Associates, Inc., a Delaware corporation (the "COMPANY"), and
the undersigned shareholders of Secure Networks, Inc. (the "SHAREHOLDERS").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, and
the Shareholders are entering into a Stock Purchase Agreement (the "PURCHASE
AGREEMENT") which provides for the purchase (the "PURCHASE") of all of the
issued and outstanding shares of Secure Networks, Inc. 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 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.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE> 2
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 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 Arthur Wong (the "Shareholders' Agent")
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
-2-
<PAGE> 3
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 the Shareholders' Agent (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 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
-3-
<PAGE> 4
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 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
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
-4-
<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 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):
-5-
<PAGE> 6
(1) if to the Company:
Networks Associates, Inc.
2805 Bowers Ave.
Santa Clara, CA 95051
Attention: Richard Hornstein, Esq.
Facsimile No.: (408) 970-9727
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Kurt J. Berney, Esq.
Facsimile No.: (415) 493-6811
(2) if to the Shareholders' Agent, to
Arthur Wong
c/o Code Hunter Wittman
Suite 1400, Scotia Centre
700-2nd St. S.W.
Calgary, Alberta T2P 4V6
Attention: Andrew Oppenheim
Facsimile No.: (403) 263-9193
with a copy to:
Code Hunter Wittman
Suite 1400, Scotia Centre
700-2nd St. S.W.
Calgary, Alberta T2P 4V6
Attention: Andrew Oppenheim
Facsimile No.: (403) 263-9193
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.
-6-
<PAGE> 7
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 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.
* * * *
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETWORKS ASSOCIATES, INC.
By: [SIG]
-----------------------------------------------
Prabhat K. Goyal, Chief Financial Officer, Vice
President of Finance and Administration
Address: 2805 Bowers Avenue
Santa Clara, California 95051-0963
SHAREHOLDERS
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
Exhibit 5.1
May 26, 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 May 26, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of a total of 595,675 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".
Coopers & Lybrand L.L.P.
San Jose, California
May 22, 1998
