<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended: December 31, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number: 000-2058
NETWORKS 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 No.)
3965 FREEDOM CIRCLE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (zip code)
(408) 988-3832
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1999 there were 138,062,661 shares of the
Registrant's Common Stock outstanding, and the aggregate market value of such
shares held by non- affiliates of the Registrant was $4,236,866,941. Shares of
Common Stock held by each executive officer and director and by each entity
affiliated with such persons have been excluded from such calculation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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<PAGE> 2
EXPLANATORY NOTE
This Annual Report on Form 10-K/A ("Form 10-K/A") is being filed as
Amendment No. 1 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 filed with the Securities and Exchange Commission
(the Commission) solely for the purpose of revising and restating the following
items in their entirety.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The following table sets forth the names, ages and principal
occupations of our directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
<S> <C> <C>
Class I Directors:
Virginia Gemmell 50 President, GlidePath, Inc.
Edwin L. Harper 54 Consultant
Class II Director:
Leslie G. Denend 58 Director, Rational Software, Proxim, Inc.,
Adaptive Broadband Corporation and
Informix Corporation
Class III Director:
William L. Larson 43 Chief Executive Officer and Chairman of the Board, Networks
Associates, Inc.
</TABLE>
Ms. Gemmell has been a director of the Company since September 16, 1996.
Ms. Gemmell founded GlidePath, Inc., a consulting firm, and has served as its
President since August 1995. From May 1986 to August 1995, Ms. Gemmell was a
Managing Partner of Synectics, Inc., a consulting firm.
Mr. Harper has been a director of the Company since January 1993. From
June 1996 to December 1998, Mr. Harper was the President and Chief Executive
Officer of SyQuest Technology, Inc., a manufacturer of computer peripherals.
From June 1993 to April 1996, Mr. Harper was President and Chief Executive
Officer of ComByte, Inc., a privately-held PC peripherals company. Mr. Harper
was President and Chief Executive Officer of Colorado Memory Systems, a
manufacturer of computer peripherals, from June 1992 to April 1993, and also
served as President and Chief Operating Officer from September 1990 through May
1992. Mr. Harper currently serves as a director of Apex PC Solutions, Inc.
Mr. Denend has been a director of the Company since June 14, 1995. From
December 1997 to April 1998, Mr. Denend was President of the Company. From June
of 1993 to December 1997, Mr. Denend was Chief Executive Officer and President
of Network General. From February of 1993 to June of 1993, Mr. Denend was Senior
Vice President of Network General Corporation. Mr. Denend serves as a director
of Rational Software, Proxim, Inc., Adaptive Broadband Corporation and Informix
Corporation.
<PAGE> 3
Mr. Larson joined the Company in September 1993 as its Chief Executive
Officer. In October 1993, Mr. Larson was appointed as a director of the Company
and was elected to the additional office of President. In April 1995, Mr. Larson
was also elected Chairman of the Board of Directors. From August 1988 to
September 1993, Mr. Larson was employed as a Vice President of SunSoft, Inc., a
system software subsidiary of Sun Microsystems, Inc., where he was responsible
for worldwide sales and marketing.
MEETINGS OF THE BOARD OF DIRECTORS
During 1998, the Board of Directors held 15 meetings. Each director
attended at least 75% of all Board meetings during 1998.
THE AUDIT COMMITTEE recommends the appointment of the independent
auditors, reviews the scope and results of their examinations and approves all
of their professional services and related fees. It also periodically reviews
our accounting policies and internal accounting and financial controls. The
Audit Committee held three meetings during 1998. Members: John Bolger (to April
30, 1998), Edwin Harper and Leslie Denend (from April 30, 1998).
THE COMPENSATION COMMITTEE reviews and approves executive salary levels
and stock option grants. The Compensation Committee held two meetings during
1998. Members: Virginia Gemmell and Edwin Harper.
THE PRICING COMMITTEE was set up to approve certain resolutions relating
to the Zero Coupon Convertible Debentures issued in February 1998. The Pricing
Committee held one meeting during 1998. Members: William Larson and Leslie
Denend
THE ACQUISITION COMMITTEE was set up in 1998 to review and approve
documents and actions related to the acquisition of The Dr Solomon's Group. The
Acquisition Committee held three meetings during 1998. Members: William Larson
and Leslie Denend.
COMPENSATION OF DIRECTORS
Directors fees, paid only to directors who are not employees, are as
follows:
- $5,000 quarterly retainer
- $1,500 for each regular Board meeting attended,
- $1,000 for each Special meeting attended
- expenses of attending Board and committee meetings.
Under our Stock Option Plan for Outside Directors, non-employee
directors are automatically granted an option to purchase 37,500 shares of our
common stock, when they first become a director. Each year after the initial
grant, they are entitled to receive an additional option grant to purchase up
15,000 shares of our common stock. Prior to an amendment to this option plan in
April 1997, the grants were 50,250 for the initial grant and 16,875 for the
subsequent grants. All options are granted at the fair market value on the date
of grant. The initial grant vests one-third each year over three years from the
date of grant. The subsequent grants vest in full three years from the date of
grant. All options granted under this plan become fully exercisable in the event
of
<PAGE> 4
certain mergers, sales of assets or sales of the majority of our voting stock.
Ms. Gemmell received an option grant of 15,000 shares on September 23, 1998 and
Mr. Harper received an option grant of 15,000 shares on June 16, 1998.
"Fair Market Value" is defined in the plan as the closing price of our
stock on the date the option is granted.
Our employee directors are eligible to receive options and be issued
shares of Common Stock directly under the 1997 Stock Incentive Plan, are also
eligible to participate in our Employee Stock Purchase Plan and, if an executive
officer, the Executive Bonus Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Directors, executive officers and persons 10% stockholders are
required to file reports with respect to their ownership and changes of
ownership of the Company's common stock with the SEC. Based solely on its review
of the copies of such forms received by it, the Company believes that during
1998, all filing requirements applicable to its officers, directors and ten
percent stockholders were met.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Chief
Executive Officer and our four other most highly compensated executive officers
as of December 31, 1998, based on salary and bonus. It also includes information
for two former officers who would have been included in the table if they had
not terminated as officers prior to December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ------------
OTHER SECURITIES ALL OTHER
SALARY ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION AGE YEAR ($)(1) BONUS($) COMPENSATION($) OPTIONS (#) ($)(2)
- --------------------------- --- ---- ------- -------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William L. Larson 43 1998 419,962 453,775 - 300,000 4,308
Chief Executive Officer and 1997 286,268 279,600 - 1,200,000 2,375
Chairman of the Board 1996 248,260 151,044 - 1,771,875 2,375
Prabhat Goyal 44 1998 300,013 134,107 - 225,000 3,250
Chief Financial Officer, 1997 188,469 94,913 - 300,000 2,375
Vice President of Finance and 1996 111,591 45,858 - 450,000 1,684
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Administration
Peter R. Watkins 44 1998 299,628 130,260 - 225,000 3,250
Executive Vice President and 1997 191,289 66,577 11,357(3) 300,000 2,375
General Manager Net 1996 144,488 87,358 108,748(4) 84,375 2,202
Tools Secure and Manager
Zach A. Nelson 37 1998 300,013 147,718 - 225,000 3,250
Executive Vice President and 1997 - - - - -
General Manager of 1996 - - - - -
Worldwide Marketing
and Alliances
Former Officers:
Leslie G. Denend 58 1998 1,051,921 178,850 - 240,000 3,250
President and Director 1997 426,313 273,000 - 266,895 2,375
1996 311,250 241,421 - - 2,375
John R. Stringer 52 1998 659,515 41,771 63,338(5) 225,000 3,156
1997 224,375 26,250 99,860(5) 40,629 -
1996 132,545 24,500 73,327(5) 18,752 -
</TABLE>
- ----------
(1) Salary includes amounts deferred under our 401(k) Plan.
(2) Represents contributions made by us pursuant to our 401(k) Plan.
(3) Represents cost of living allowance for overseas assignment and amounts
reimbursed for payment of certain taxes.
(4) Represents cost of living allowance for overseas assignment.
(5) Represents sales commissions.
Mr. Larson joined Network Associates in September 1993 as its Chief
Executive Officer. In October 1993, Mr. Larson was appointed as a director and
was elected to the additional office of President. In April 1995, Mr. Larson was
also elected Chairman of the Board of Directors. From August 1988 to September
1993, Mr. Larson was employed as a Vice President of SunSoft, Inc., a system
software subsidiary of Sun Microsystems, Inc., where he was responsible for
worldwide sales and marketing.
Mr. Goyal joined Network Associates in March 1996 and was elected as
Vice President of Finance,
<PAGE> 6
Corporate Controller and Treasurer in April 1996. Mr. Goyal became Chief
Financial Officer, Vice President of Finance and Administration and Secretary in
October 1996. From July 1994 to March 1996 Mr. Goyal was Director, Finance and
OEM Development, Solaris Products Group for SunSoft, Inc. From November 1991 to
June 1994, Mr. Goyal served as Director, Finance and Sales Operations of
SunSoft, Inc.
Mr. Nelson joined Network Associates in March 1997 as Vice President and
General Manager of Network Management. From February 1993 to March 1997, Mr.
Nelson was employed in various capacities, most recently as Vice President of
Marketing, for Oracle Corporation. From January 1990 to February 1993, Mr.
Nelson was employed in various capacities, ultimately serving as Director of
Corporate Marketing, at SunSoft, Inc., a system software subsidiary of Sun
Microsystems, Inc.
Mr. Watkins joined Network Associates in May 1995 as Vice President of
International Operations. Mr. Watkins was Vice President of International
Operations from May 1995 to October 1996 and Vice President of Security from
October 1996 to January 1997 when he became Vice President and General Manager
of Security. From January 1991 to April 1995, Mr. Watkins was employed in
various capacities, ultimately serving as Managing Director of European
Operations, at SunSoft, Inc., a system software subsidiary of Sun Microsystems,
Inc.
Our officers serve at the discretion of the Board of Directors. There
are no family relationships among any of our directors and executive officers.
This table shows stock option grants to the executive officers during the
year ended December 31, 1998:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
% OF POTENTIAL REALIZABLE
TOTAL VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR
OPTIONS IN FISCAL PRICE EXPIRATION OPTION TERM(3)
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson 300,000 2.28% $31.3333 01/12/08 $5,911,603 $14,981,163
Prabhat K. Goyal 225,000 1.71% $31.3333 01/12/08 $4,433,702 $11,235,872
Peter R. Watkins 225,000 1.71% $31.3333 01/12/08 $4,433,702 $11,235,872
Zach A. Nelson 225,000 1.71% $31.3333 01/12/08 $4,433,702 $11,235,872
Former Officers:
Leslie G. Denend 240,000 1.81% $31.3333 01/12/08 $4,729,283 $11,984,931
John R. Stringer 225,000 1.70% $31.3333 01/12/08 $4,433,702 $11,235,872
</TABLE>
(1) All of the above options granted in 1998 vest at the rate of one-fourth
one year from the date of grant and 1/48th per month after that. Under
the Incentive Plan, the Board is allowed to modify the terms of
<PAGE> 7
outstanding options. The exercisability of options may be accelerated
upon a change in control. Options are cancelled on an optionee's
termination of employment under certain specified circumstances.
(2) All options were granted at an exercise price equal to the fair market
value of the common stock on the date of grant.
(3) These columns present hypothetical future values that might be realized
on exercise of the options, less the exercise price. These values assume
that the market price of our stock appreciates at a five and ten percent
compound annual rate over the ten-year term of the options. The five and
ten percent rates of stock price appreciation are presented as examples
pursuant to the SEC's Proxy Rules and do not necessarily reflect
management's assessment of our future stock price performance. These
potential realizable values presented are not intended to indicate the
value of the options.
The following table shows stock option exercises and the value of
unexercised stock options held by the executive officers during the year ended
December 31, 1998:
AGGREGATE OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT 12/31/98(#) 12/31/98($)(2)
---------------------- --------------
NAME EXERCISE(#) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson 600,000 $19,933,432.73 1,001,486 1,449,141 $51,384,833.08 $63,415,648.98
Prabhat K. Goyal 152,500 $ 3,298,749.50 149,375 574,688 $ 5,865,413.16 $22,728,293.62
Peter R. Watkins 244,473 $ 8,874,298.88 86,172 568,771 $ 4,137,651.77 $23,775,288.45
Zach A. Nelson 50,000 $ 925,727.50 55,000 420,000 $ 2,176,900.00 $15,575,100.00
Former Officers:
Leslie G. Denend 496,592 $ 8,375,262.09 162,517 282,188 $ 6,512,191.25 $ 9,924,125.25
John R. Stringer 110,499 $ 2,362,733.27 135 225,000 $ 5,436.25 $ 7,857,000.00
</TABLE>
- ----------
(1) All numbers reflect the 3-for -2 stock split effective on May 29, 1998.
(2) Calculated by taking the market price on the date of exercise, less the
exercise price, multiplied by the number of options exercised
(3) Calculated by taking the closing market price of $66.25 on December 31,
1998, less the exercise price, multiplied by the number of options
exercisable or unexercisable. The amounts in these columns may not
represent amounts actually realized by these executive officers.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
William L. Larson entered into an agreement with us dated July 20, 1995
which provides that, if his employment is involuntarily terminated other than
for cause, he will be entitled to receive severance payments for twelve months
after such a termination. The payments would be based on his base salary and
bonus at the time of termination. These payments would stop if he commenced
employment elsewhere. In addition, the agreement provides that if his
employment with us is terminated other than for cause within three months of
our merger, or a sale of substantially all of our assets due to such a
transaction, all of his outstanding options will become fully vested and
immediately exercisable, ten days prior to the consummation of the transaction.
<PAGE> 8
Prabhat K. Goyal entered into an agreement with us dated June 7, 1996,
which provides that if his employment with us is terminated other than for
cause, within three months of our merger or a sale of substantially all of our
assets due to such transaction, all of his outstanding options will become fully
vested and immediately exercisable, ten days prior to the consummation of the
transaction. In addition, the agreement was amended in January 1998 to provide
that in the event that his employment is involuntarily terminated other than for
cause in connection with a change in control, he will be entitled to receive
severance payments for twelve months after such a termination.
Peter R. Watkins entered into an agreement with us dated May 1, 1995,
which provides that if his employment with us is terminated other than for cause
within three months of our merger or a sale of substantially all of our assets
due to such transaction, all of his outstanding options will become fully vested
and immediately exercisable, ten days prior to the consummation of the
transaction. In addition, the agreement was amended in January 1998 to provide
that in the event that his employment is involuntarily terminated other than for
cause in connection with a change in control, he will be entitled to receive
severance payments for twelve months after such a termination.
Zachary A. Nelson entered into an agreement with us dated March 20,
1997, which provides that if his employment with us is terminated other than for
cause within three months of our merger or a sale of substantially all of our
assets due to such transaction, all of his outstanding options will become fully
vested and immediately exercisable, ten days prior to the consummation of the
transaction. In addition, the agreement was amended in January 1998 to provide
that in the event that his employment is involuntarily terminated other than for
cause in connection with a change in control, he will be entitled to receive
severance payments for twelve months after such a termination.
We have entered into change in control agreements will all of our
current executive officers These agreements provide that, in the event of our
"transfer of control", all stock options held by the executive officer will
become fully vested and immediately exercisable.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998, the Compensation Committee of the Board of Directors
consisted of Ms. Gemmell and Mr. Harper, neither of whom has served as our
employee or officer at any time. The Compensation Committee is responsible for
setting and administering policies governing compensation of executive officers,
including the annual Executive Bonus Plan and the Stock Incentive Plan. In
addition, the Compensation Committee reviews compensation levels of other
management level employees, evaluates the performance of management and reviews
other compensation-related issues.
COMPENSATION POLICIES
Our compensation policy is designed to enable us to attract, retain and
reward executive officers who are likely to contribute to our long-term success.
The Compensation Committee also believes that a strong correlation should exist
between executive compensation, business objectives and our overall performance.
In preparing the performance graph for this Proxy Statement, we have
selected the CRSP Total Return Industry Index for NASDAQ Computer and Data
Processing Services Stock Index ("CRSP Index"). The companies which we use for
comparison of salary and compensation information are not necessarily those
included in the CRSP Index, because they were determined not to be competitive
with the Company for executive talent or because compensation information was
not available.
COMPONENTS OF COMPENSATION
There are three components of our executive compensation program which
are intended to attract and retain executive officers and to motivate them to
improve our financial position and to create value for our
<PAGE> 9
shareholders.
Salary
The Compensation Committee strives to offer salaries to its executive
officers which are competitive with salaries offered by companies of similar
size and capitalization in the software industry. Base salaries are reviewed on
an annual basis and are subject to adjustment based upon the individual's
contribution to us and changes in salary levels offered by comparable companies.
In determining executive officers' salaries, the Compensation Committee
considers information provided by our Chief Executive Officer with respect to
individual officer responsibilities and performance, as well as salary surveys
and similar data available from independent sources.
Bonuses
Awards under the Company's Executive Bonus Plan for 1998 were contingent
upon us achieving certain performance goals established by the Board of
Directors. For executive officers other than the Chief Executive Officer, awards
are also contingent on the achievement of individual performance objectives.
Target amounts of bonuses for each executive officer are set annually by the
Committee and are specifically weighted for identified financial, management,
strategic and operational goals. The Committee reviews performance against the
goals and approves payment of the bonuses. In 1998, bonuses awarded under the
plan to Mr. Larson, our Chief Executive Officer, totaled $453,800. The bonus
received by Mr. Larson under the plan was approximately 52% of his total
compensation. Bonuses awarded under the plan in 1998 to other executive officers
represented between 30% and 31% of their total compensation
Equity Incentives
The Committee believes that employee equity ownership is highly
motivating, provides a major incentive to employees in building stockholder
value and serves to align the interests of employees with the interests of our
stockholders. In determining the amount of equity compensation to be awarded to
executive officers in any fiscal year, the Committee considers the position of
the officer, the current stock ownership of the officer, the number of shares
which continue to be subject to vesting under outstanding options and the
expected future contribution of the officer to our performance, giving primary
weight to the officer's position and his expected future contributions. In
addition, we compare the stock ownership and options held by each officer with
the other officers' equity positions and the officer's experience and value to
us.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In 1996, 1997 and 1998, Mr. Larson's base salary increased by
approximately thirteen percent (13%), fifteen percent (15%), and forty-seven
percent (47%) respectively. In determining such adjustments, the Committee
considered, among other things, compensation data for chief executives of
comparable companies and Mr. Larson's performance in 1996, 1997 and 1998.
The Chief Executive Officer evaluates the performance of all other
executive officers on an annual basis and recommends salary adjustments which
are subject to review and approval by the Compensation Committee.
<PAGE> 10
Performance evaluations for individual executive officers are based on
predetermined individual goals proposed by management and approved by the
Compensation Committee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits deductions for
federal income tax purposes, certain executive compensation exceeding $1,000,000
for any executive officer in any year. The stockholders approved amendments to
our 1995 Stock Incentive Plan to enable compensation recognized in connection
with the exercise of options to qualify as an exception to the deduction limit.
The Committee will continue to evaluate the issues relating to executive
compensation and will take appropriate action where necessary. The Committee's
policy is to qualify its executive compensation for deductibility under
applicable tax laws where possible.
COMPENSATION COMMITTEE
Virginia Gemmell
Edwin Harper
COMPARISON OF STOCKHOLDER RETURN
The following graph shows a five-year comparison of cumulative total
returns for our Common Stock, the CRSP Total Return Index for the NASDAQ Stock
Market ("NASDAQ US") and the CRSP Total Return Industry Index for NASDAQ
Computer and Data Processing Services Stocks ("C&DP Index"), each of which
assumes an initial value of $100 and reinvestment of dividends. The information
presented in the graph and table is as of the end of each fiscal year ended
December 31.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD NETWORKS STOCK NASDAQ COMPUTER &
(FISCAL YEAR COVERED) ASSOCIATES, INC. MARKET-US DATA PROCESSING
- --------------------- ---------------- --------- -----------------
<S> <C> <C> <C>
Dec-94 100 100 100
Dec-95 325 141 152
Dec-96 733 174 188
Dec-97 881 213 231
Dec-98 1,656 300 413
</TABLE>
<PAGE> 11
Pursuant to the Proxy Rules, the Compensation Committee Report and the
Stock Performance Graph are not deemed filed with the SEC and are not deemed
incorporated by reference into any filings with the SEC.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of common stock:
a) held by owners of more than 5% of our outstanding common stock. This
information is as of the latest reports by those entities, received by
us.
b) held by the Chief Executive Officer and each of the four other most
highly compensated executive officers during fiscal 1998 (collectively
the "Named Officers") and each of our directors and nominees as of April
15, 1999.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF RIGHT TO OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNERS SHARES OWNED (1) ACQUIRE (2) SHARES
- ------------------------------------- ---------------- ----------- -----------
<S> <C> <C> <C>
Equitable Companies, Inc. (3) ............................. 13,311,760 - 9.6
787 Seventh Ave
New York, NY 10019
American Express Company(4)................................ 10,560,415 - 7.6
American Express Tower
200 Vesey Street
New York, NY 10285
T. Rowe Price Associates, Inc. (5) ........................ 9,216,376 - 6.7
100 East Pratt Street
Baltimore, MD 21202
William L. Larson.......................................... 655 1,844,142 1.3
Leslie G. Denend........................................... 6,300 272,829 *
Virginia Gemmell .......................................... - 33,437 *
Edwin L. Harper............................................ - 25,313 *
Prabhat K. Goyal .......................................... 987 380,936 *
Peter R. Watkins........................................... 2,111 375,567 *
Zach A. Nelson ............................................ 745 239,688 *
Executive officers and directors as a group (7 persons).... 10,798 3,171,912 2.3
Former Officer:
John R. Stringer........................................... - - -
</TABLE>
- ----------
* Less than 1%
<PAGE> 12
(1) Ownership includes direct and indirect (beneficial) ownership, as
defined by SEC rules. To our knowledge, each person, has sole voting and
investment power over the shares unless otherwise noted. The SEC rules
for the determination of beneficial ownership are very complex, however,
generally shares owned directly, plus those controlled (e.g. owned by
members of their immediate families), are considered beneficially owned.
(2) Includes shares that are currently exercisable or will become
exercisable within 60 days of April 15, 1999.
(3) According to Schedule 13G filed with the Securities and Exchange
Commission on October 13, The Equitable Companies, Inc. has the
following power with respect to these shares:
- deemed to have sole power to vote or to direct the vote
1,949,633 shares
- deemed to have shared power to vote or to direct the vote
11,280,280 shares
- deemed to have sole power to dispose or direct the disposition
13,308,740 shares
- deemed to have shared power to dispose or direct the disposition
3,201 shares
(4) According to Schedule 13G filed with the Commission on January 22, 1999,
American Express Company has the following power with respect to these
shares:
- deemed to have shared power to vote or to direct the vote
3,189,115 shares
- deemed to have shared power to dispose or direct the disposition
10,560,415 shares
(5) According to Schedule 13G filed with the Commission on February 12,
1999, T. Rowe Price Associates, Inc. has the following power with
respect to these shares:
- Deemed to have sole power to vote or to direct the vote
1,008,798 shares
- Deemed to have sole power to dispose or direct the disposition
9,219,376 shares
After taking into account the 3:2 stock split which occurred on May 29,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
McAfee.com
In March 1999, some of our executive officers were granted stock options
in McAfee.com, a wholly owned subsidiary of Network Associates. Options for
1,500,000 shares were granted to William L. Larson; options for 750,000 shares
were granted to Prabhat K. Goyal; options for 300,000 shares were granted to
Peter R. Watkins; and options for 300,000 shares were granted to Zachary A.
Nelson.
<PAGE> 13
These grants are based on 30,000,000 McAfee.com shares. The options vest
25% on January 15, 2000 with 1/48 vesting each month thereafter for the
following 36 months. In connection with these grants, we have used the
Noreen-Wolfson model to value these options. The valuation per share is $6.09.
DirectWeb
In December 1999, we agreed to acquire 3,948,199 shares of Series A
Preferred Stock of DirectWeb, Inc. for $2.5 million. DirectWeb, Inc. is a
subscription-based online service offering a complete turn-key Windows 98-based
PC, unlimited Internet access and technical support for a fixed monthly fee. The
shares were acquired in January 1999. In late February 1999, we acquired
4,615,385 shares of DirectWeb Series B Preferred Stock for $6.0 million. In
connection with the formation of DirectWeb, we received a warrant to acquire
3,175,000 shares of DirectWeb common stock for total consideration of $317.50.
As of March 31, 1999, on an as converted basis and excluding shares that may be
acquired upon exercise of our warrant, our total DirectWeb investment
represented approximately 12.3% of DirectWeb's outstanding capital stock. With
respect to the balance, approximately 35.2% is owned by William L. Larson, a
DirectWeb founder and our Chief Executive Officer; 35.4% is owned by Dennis
Cline, a DirectWeb founder and our former Vice President of Worldwide Sales; and
17.1% is owned by unrelated third party investors who, along with us, invested
in DirectWeb's Series A and Series B Preferred Stock. In addition, Virginia
Gemmell, one of our directors, is currently providing consulting services to
DirectWeb at the rate of $2,500 per month. In addition, in April 1999, Ms.
Gemmell entered into a consulting agreement with DirectWeb, pursuant to which
she received an option to purchase 30,000 shares of DirectWeb common stock.
OTHER INFORMATION
May 29, 1998 Stock Split
On May 29, 1998 we issued a dividend of one share of common stock for
every two shares in the form of a three for two stock split. All share numbers
in the Proxy have been restated to reflect the stock split.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Form 10-K on Form 10-K/A to be signed on its behalf by the undersigned,
thereunto duly authorized on this 30th day of April, 1999.
NETWORKS ASSOCIATES, INC.
By: /s/ WILLIAM L. LARSON
-----------------------------------
William L. Larson
Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Amendment No. 1 to Form 10-K on Form 10-K/A has been signed below by the
following persons on April 30, 1999 on behalf of the Registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C>
/s/ WILLIAM L. LARSON Chief Executive Officer and Chairman of the Board April 30, 1999
- --------------------------------- (Principal Executive Officer)
William L. Larson
/s/ PRABHAT K. GOYAL Vice President of Administration, Chief Financial Officer April 30, 1999
- --------------------------------- Treasurer and Secretary (Principal Financial Officer and
Prabhat K. Goyal Principal Accounting Officer)
/s/ LESLIE G. DENEND Director April 30, 1999
- ---------------------------------
Leslie G. Denend
/s/ VIRGINIA GEMMELL Director April 30, 1999
- ---------------------------------
Virginia Gemmell
/s/ EDWIN HARPER Director April 30, 1999
- ---------------------------------
Edwin Harper
</TABLE>
