-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PdWtvQFDxQILubYPuMpsV+uuYf7bWs/jdKZA5AKo18/xs09MIvGsVUus48KU55Xe UO6gDEbDbsgPUPc7GQO+IQ== 0000891618-01-502052.txt : 20020410 0000891618-01-502052.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891618-01-502052 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORKS ASSOCIATES INC/ CENTRAL INDEX KEY: 0000890801 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770316593 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-73112 FILM NUMBER: 1780504 BUSINESS ADDRESS: STREET 1: 3963 FREEDOM CIRCLE CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4083463832 MAIL ADDRESS: STREET 1: 3963 FREEDOM CIRCLE CITY: SANTA CLARA STATE: CA ZIP: 95054 FORMER COMPANY: FORMER CONFORMED NAME: MCAFEE ASSOCIATES INC DATE OF NAME CHANGE: 19930328 S-3 1 f76705ors-3.txt FORM S-3 As filed with the Securities and Exchange Commission on November 9, 2001 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. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------- DELAWARE 000-20558 77-0316593 (STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (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) ---------- GEORGE SAMENUK PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN 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) ---------- Copy to: JEFFREY D. SAPER, ESQ. KURT J. BERNEY, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304-1050 (650) 493-9300 ---------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]______________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.[ ]______________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ----------
CALCULATION OF REGISTRATION FEE ================================================================================================================ PROPOSED PROPOSED MAXIMUM MAXIMUM OFFERING AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE - ---------------------------------------------------------------------------------------------------------------- 5.25% Convertible Subordinated Notes due 2006 $345,000,000 100% $345,000,000 $86,250 - ---------------------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value per share...... (2) (2) (2) (3) ================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933. (2) Includes 19,092,418 shares of common stock initially upon conversion of the notes at the conversion price of $18.07 per share of common stock. Pursuant to Rule 416 under the Securities Act, such number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with a stock split, stock dividend, recapitalization or similar event. (3) Pursuant to Rule 457(i) under the Securities Act, there is no additional filing fee with respect to the shares of common stock issuable upon conversion of the notes because no additional consideration will be received in connection with the exercise of the conversion privilege. ---------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED _______________, 2001 NETWORKS ASSOCIATES, INC. $345,000,000 5.25% Convertible Subordinated Notes Due 2006 and the Common Stock Issuable Upon Conversion of the Notes We issued the notes in a private placement in August 2001. This prospectus will be used by selling securityholders to resell their notes and the common stock issuable upon conversion of their notes. The notes are convertible prior to maturity into common stock at an initial conversion price of $18.07 per share, subject to adjustment in certain events. We will pay interest on the notes on February 15 and August 15 of each year, beginning on February 15, 2002. The notes will mature on August 15, 2006, unless earlier converted or redeemed. We may redeem all or a portion of the notes on or after August 20, 2004. In addition, the holders may require us to repurchase the notes upon a change of control of the company if we are not the surviving company. The reported last sale price of our common stock on the Nasdaq National Market on ____________, 2001 was $[___] per share. Our common stock is traded on the Nasdaq National Market under the symbol "NETA." ---------- The securities offered hereby involve a high degree of risk. SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION THAT YOU SHOULD CONSIDER BEFORE PURCHASING THESE SECURITIES. ---------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This prospectus is dated , 2001 YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. TABLE OF CONTENTS
PAGE ---- Where You Can Find More Information................................................3 Summary ...........................................................................5 The Offering.......................................................................8 Risk Factors......................................................................10 Risks Related to Network Associates...............................................10 Risks Related to the Notes and the Common Stock into which the Notes are Convertible.................................................................30 Use of Proceeds...................................................................35 Ratio of Earnings to Fixed Charges................................................35 Dividend Policy...................................................................35 Description of Notes..............................................................36 United States Federal Income Tax Consequences.....................................53 Selling Securityholders...........................................................59 Plan of Distribution..............................................................63 Indemnification of Directors and Officers.........................................65 Legal Matters.....................................................................65 Experts ..........................................................................65
-2- WHERE YOU CAN FIND MORE INFORMATION We file reports, proxy statements and other information with the Commission, in accordance with the Securities Exchange Act of 1934. You may read and copy our reports, proxy statements and other information filed by us at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 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 233 Broadway, New York, New York 10279. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information about the public reference rooms. Our reports, proxy statements and other information filed with the Commission are available to the public over the Internet at the Commission's World Wide Web site at http://www.sec.gov. The Commission allows us to "incorporate by reference" into this prospectus the information we filed with the Commission. This means that we can disclose important information by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus. Information that we file later with the Commission will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is complete: - Our Annual Report on Form 10-K for the fiscal year ended December 31, 2000 as filed with the Commission on April 2, 2001; - Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 as filed with the Commission on May 15, 2001; - Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001 as filed with the Commission on August 6, 2001; - Our Current Report on Form 8-K as filed with the Commission on August 8, 2001; - Our Current Report on Form 8-K as filed with the Commission on August 14, 2001; - Our Current Report on Form 8-K as filed with the Commission on October 11, 2001; and - The description of our Common Stock which is contained in our Registration Statement on Form 8-A filed with the Commission on August 21, 1992 pursuant to Section 12 of the Exchange Act, the description of our preferred share purchase rights on Form 8-A filed on October 22, 1998, the description of our zero coupon convertible subordinated debentures on Form S-3 filed on May 6, 1998, and any description of any of our securities which is contained in any registration statement filed after the date hereof under Section 12 of the Exchange Act, including any amendment or report filed for the purpose of updating any such description. -3- You may request a copy of these filings, at no cost, by contacting us at the following address: Investor Relations Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 95054 Telephone: (877) 346-3575 You should rely only on the information incorporated by reference or provided in this prospectus or a prospectus supplement or amendment. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume the information in this prospectus is accurate as of any date other than the date on the front this prospectus. -4- SUMMARY This summary highlights some information from this prospectus, and it may not contain all of the information that is important to you. It is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes to the consolidated financial statements, incorporated by reference in this prospectus. You should read the full text of, and consider carefully the more specific details contained in or incorporated by reference into this prospectus. When used in this prospectus, the terms "Networks Associates," "we," "our" and "us" refer to Networks Associates, Inc. and its subsidiaries and not to the selling securityholders. NETWORK ASSOCIATES We are a leading supplier of network security and network management solutions. The majority of our revenue has historically been derived from our McAfee anti-virus product group and our Sniffer network availability and performance management product group. These two flagship product groups form the base from which the balance of our product groups has developed. In recent years, we have focused our efforts on building a full line of complementary network security and network management solutions. On the network security side, we strengthened our anti-virus lineup by adding complementary products in the firewall, intrusion detection, encryption, and virtual private networking categories. On the network management side, we built upon our Sniffer line by adding products in the help desk, asset management, network monitoring, and network reporting categories. We continuously seek to expand our product lines. In order to more effectively market our products, we have combined complementary products into separate product groups, as follows: - McAfee, which primarily markets the McAfee Active Virus Defense product group; - Sniffer Technologies, which primarily markets the Sniffer Total Network Visibility product group; - PGP Security, which primarily markets the PGP Total Network Security product group and which in the fourth quarter of 2001 will be integrated into our other product groups as described below; and - Magic Solutions, which primarily markets the Magic Total Support Desk product group. These product groups represent our infrastructure segment. The organization around our product groups is designed to allow us to, among other things, react quickly to customers' changing needs and specialize our sales forces. In addition to our product groups, we also have one publicly-traded subsidiary, McAfee.com. McAfee.com is an applications service provider, or ASP, targeted at consumers and small to medium-sized businesses. In the fourth quarter of 2001, we plan to integrate the activities of our PGP product group into our McAfee and Sniffer product groups and other products lines will be sold. The PGP product group in recent quarters has accounted for 7% to 9% of net revenue. Specifically, the PGP VPN, PGPfire (our distributed firewall) for corporate users and the PGP E-Business Server will be marketed and sold as McAfee products. The CyberCop vulnerability assessment technology will be integrated into the Sniffer product line. We will -5- look for buyers for the PGP desktop encryption and Gauntlet firewall product lines. In connection with the PGP integration, we expect, among other things: - - to record a restructuring charge of approximately $9.0 to $11.0 million during the fourth quarter of 2001, consisting primarily of the costs related to severance packages for affected employees and other exit costs; - - expense savings of approximately $50 million in fiscal 2002, primarily in the areas of operating expenses; and - - overall revenue to be adversely impacted in at least the near-term as we integrate some of PGP's security products and seek to sell others. PRODUCT GROUPS MCAFEE McAfee's products and services provide solutions designed to enforce anti-virus policies and measure the performance of anti-virus activities. The McAfee product group consists of products and services that provide multi-layer anti-virus protection, management and reporting for desktops, servers, GroupWare, Internet technologies, and wireless technologies. McAfee's services are provided by McAfee's Anti-Virus Emergency Response Team or AVERT. AVERT augments McAfee's product offerings by identifying new viruses and deploying anti-virus solutions to our customers. McAfee customers are primarily corporate customers, including customers in the managed service market, such as ASPs, and managed service providers, or MSPs. Beginning in the fourth quarter of 2001, PGP VPN, PGPfire (our distributed firewall) for corporate users and PGP E-Business Server will be branded and sold as McAfee products. SNIFFER TECHNOLOGIES Sniffer Technologies' products and services provide customers with network and application management solutions designed to maximize network availability and performance. Sniffer Technologies' products capture data, monitor network traffic and collect key network statistics for computer networks. Sniffer Technologies' products are also designed to optimize network and application performance and increase network reliability by uncovering and analyzing network problems and recommending solutions to such problems, automatically and in real-time for mid-level and high-speed networks. Sniffer Technologies' customers are primarily corporate customers, including customers in the managed service market. Beginning in the fourth quarter of 2001, PGP's CyberCop Scanning tools technology will be integrated into the Sniffer Technologies product group. PGP SECURITY In the fourth quarter of 2001, as described above, the PGP Security product group will be integrated into the Sniffer and McAfee product groups. The following describes PGP's business prior to this integration. PGP Security's products help organizations worldwide secure their networks using firewall, encryption, intrusion detection, risk assessment and Virtual Private Network or VPN technologies. PGP Security's products include E-Business Server, Gauntlet Firewall, CyberCop Scanner and E-ppliance. PGP Security's services are offered by its vulnerability research team known as COVERT whose mission is to identify and resolve serious customer vulnerabilities before attackers are able to exploit them. PGP Security's customers include individuals, government agencies, financial institutions, and corporations, including e-businesses. -6- MAGIC SOLUTIONS Magic Solutions' products provide customers with a set of tools to manage their customer support and problem management needs. Magic Solutions' product group consists of products that promote information sharing, facilitate workflow, and improve service delivery. Magic Solutions' customers are primarily corporations. MCAFEE.COM McAfee.com is a security ASP delivering security applications software and related services through an Internet browser. The McAfee.com applications allow users to detect and eliminate viruses on their PCs, repair their PCs from damage caused by viruses, optimize their hard drives and update their PCs' virus protection system with current software patches and upgrades. McAfee.com also offers customers access to McAfee.com Personal Firewall, McAfee.com Wireless Security Center and McAfee.com Internet Privacy Service. McAfee.com's customers include individuals and corporations. Under the terms of our licensing agreement with McAfee.com, McAfee.com's business has historically been targeted exclusively at consumers. We recently entered into a reseller agreement with McAfee.com allowing it to expand its product offerings with McAfee.com for Business. McAfee.com for Business is a new website serving the security needs for small and medium-sized businesses delivering managed applications services that allow businesses to provide anti-virus and firewall security for their desktop PCs. As of September 30, 2001, we owned 36,000,000 shares of McAfee.com Class B common stock, entitled to three votes per share and representing approximately 79% of McAfee.com's outstanding common stock and 92% of its total voting power. SALES AND MARKETING Our sales and marketing efforts are directed primarily at large corporate and government customers, as well as to resellers, distributors and system integrators worldwide. Our North American direct sales force, constituting the majority of our sales force, is organized by product group. We also have direct sales and support operations in Europe, Asia, South America and Australia. To complement our direct sales efforts, we market many of our products through corporate resellers, distributors, and retailers. In addition, original equipment manufacturers, or OEMs, license our products and bundle them with PC hardware or software. ---------- Network Associates' principal executive office is located at 3965 Freedom Circle, Santa Clara, California 95054 and its telephone number is (408) 988-3832. Recent developments On October 11, 2001, we announced our operating results for the third quarter ended September 30, 2001. Our third quarter consolidated net revenues were $209.0 and our net loss was 11.3 million, or $(0.08) per diluted shares. In the third quarter of 2000, our consolidated net revenues were $238.7 million with net income of $4.1 million, or $0.03 per share -7- THE OFFERING Securities Offered................ $345,000,000 aggregate principal amount of 5.25% Convertible Subordinated Notes due 2006. Maturity.......................... August 15, 2006, unless earlier converted or redeemed by us at our option or repurchased by us at your option. Interest Rate..................... 5.25% per year. Interest will be payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2002. The initial interest payment will include accrued interest from August 17, 2001. Conversion Rights................. Holders may convert their notes into our common stock at any time, unless previously redeemed or repurchased, at a conversion price of $18.07 per share (equal to a conversion rate of approximately 55.3403 shares per $1,000 principal amount of notes), subject to adjustment if some events affecting our common stock occur. Redemption of Notes We may redeem all or a portion of the at Our Option................. notes for cash at any time on or after August 20, 2004, at the redemption prices set forth in this prospectus, plus accrued and unpaid interest to, but excluding, the redemption date. We will therefore be required to make six interest payments before being able to redeem any notes. Sinking Fund...................... None. Change of Control................. Upon a change of control of Network Associates, each holder may require us to purchase all or a portion of its notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest thereon to, but excluding, the repurchase date, in cash or, at our option, subject to satisfaction of certain conditions, in whole or in part, in our common stock or other applicable securities if we are not the surviving corporation of the change of control transaction. Events of Default................. If there is an event of default on the notes, the principal amount and premium, if any, on the notes plus accrued and unpaid interest to the date of acceleration may be declared immediately due and payable subject to certain conditions set forth in the indenture. These amounts automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving Network Associates. Subordination..................... The notes are unsecured and will be subordinated to all of our existing and future senior indebtedness, as defined in the indenture, and are pari passu with respect to the $885,500,000 principal amount at maturity of our outstanding Zero Coupon Convertible Debentures -8- due 2018 (the "debentures"). The definition of senior indebtedness for purposes of the notes initially includes only secured indebtedness of Network Associates, but at such time as less than $60 million aggregate principal amount at maturity of the debentures remains outstanding, senior indebtedness will include both secured and unsecured obligations of Network Associates. As of September 30, 2001, we had no indebtedness outstanding that would have constituted senior indebtedness (including indebtedness that would only be included within the definition of senior indebtedness at such time as less than $60 million aggregate principal amount at maturity of the debentures remains outstanding). As of September 30, 2001, our subsidiaries had approximately $539 million of indebtedness and other liabilities outstanding, excluding intercompany liabilities and liabilities of a type not required to be reflected on a balance sheet in accordance with generally accepted accounting principles, to which the notes would have been effectively subordinated. Use of Proceeds................... We will not receive any proceeds from the sale by any selling securityholder of the notes or the underlying common stock. Trading........................... The notes are eligible for trading in the PORTAL market. -9- RISK FACTORS Before you invest in the notes or shares of common stock underlying the notes, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included or incorporated by reference in this prospectus, before you decide whether to purchase the notes or the shares of common stock underlying the notes. The risks set forth below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of the notes and common stock could decline, and you may lose all or part of your investment. Keep these risk factors in mind when you read "forward-looking" statements elsewhere in this prospectus and in the documents incorporated herein by reference. These are statements that relate to our expectations for future events and time periods. Generally, the words "anticipate," "expect," "intend" and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements RISKS RELATED TO NETWORK ASSOCIATES OUR QUARTERLY FINANCIAL RESULTS WILL LIKELY FLUCTUATE. Our quarterly operating results have varied greatly in the past and will likely vary greatly in the future depending upon a number of factors. Many of these factors are beyond our control. Our revenues, gross margins and operating results may fluctuate significantly from quarter to quarter due to, among other things: - volume, size and timing of new licenses and renewals of existing licenses; - our ability to timely and accurately obtain end-user sales information and information related to inventory levels from our distributors; - introduction of new products, product upgrades or updates by us or our competitors; - our ability to successfully integrate PGP Security's products and technology into our McAfee and Sniffer product groups; - the mix of products we sell; - the size and timing of our non-cash stock-based charges; - changes in product prices by us or our competitors; - trends in the computer industry and general economic conditions; - our ability to develop, market and sell our products; -10- - current and future costs or charges related to acquisitions or dispositions of technology or businesses, including our planned disposition of the Gauntlet firewall and our PGP desktop and wireless encryption products; - fluctuations in our expenditure levels related to our efforts to expand our international sales organization; - our investment experience related to our strategic minority equity investments; - the components of our revenue, particularly that portion attributable to our ASP/MSP subscription model, that is deferred; - the effectiveness of our channel strategy and our mix of direct and indirect revenues; - pressure on employee wages as competition for skilled employees increases; and - costs related to extraordinary events including litigation or any reductions in forces. Our business is impacted by seasonal trends and global or regional macroeconomic trends. For example, our net revenue is typically higher in the fourth quarter, as many customers complete annual budgetary cycles, and lower in the summer months when many businesses experience lower sales, particularly in the European market. Our European business has been adversely impacted in recent periods primarily because of the continued weakness of the Euro against the dollar. For some time, our business in Asia and Latin America has been adversely impacted by the adverse economic conditions there. Our business in the U.S. and elsewhere may be adversely impacted by customer concerns about weakening economic conditions and longer payment cycles associated with weak economic conditions. We have not been profitable for the last two years. In addition to risks we face in operating our business, continued economic weakness in the U.S. and other countries could slow or prevent our efforts to successfully expand internationally and regain profitability. THE TIMING AND AMOUNT OF OUR REVENUES ARE SUBJECT TO A NUMBER OF FACTORS THAT MAKE IT DIFFICULT TO ESTIMATE OPERATING RESULTS PRIOR TO THE END OF A QUARTER. We do not maintain a significant level of backlog. As a result, product revenues in any quarter are dependent on contracts entered into or orders booked and shipped in that quarter. Historically, we have experienced a trend toward higher order receipt, and therefore, a higher percentage of revenue shipments toward the end of the last month of a quarter. This trend makes predicting revenues more difficult. We market a significant portion of our products to end-users through intermediaries, such as distributors. We recognize revenue on products sold by our distributors when the distributor sells our products to their customers. To determine our business performance at any point in time or for any given period, we must timely and accurately gather sales information from our intermediaries' information systems, at an increased cost to us. Our intermediaries' information systems may be less accurate or reliable than our internal systems. The timing of closing larger orders sold directly to end-users of our products increases the risk of quarter-to-quarter fluctuation. If orders forecasted for a specific customer for a particular quarter are -11- not realized or revenues are not otherwise recognized in that quarter, our operating results for that quarter could be materially adversely affected. WE FACE RISKS ASSOCIATED WITH THE PLANNED INTEGRATION OF OUR PGP PRODUCT GROUP INTO OUR MCAFEE AND SNIFFER PRODUCT GROUPS. In the fourth quarter of 2001, we plan to integrate the activities of our PGP product group into our McAfee and Sniffer product groups with some PGP products being sold. Risks faced by us in conjunction with this planned integration include: - - overall net revenue may be adversely impacted for at least the near-term as we integrate some of PGP's security products and seek to sell other PGP product lines; - - actual restructuring charges in Q4 2001 may exceed our initial estimate of $9.0 to 11.0 million; - - we may not realize our estimated expense savings of approximately $50 million in fiscal 2002 in full or on a timely basis; - - we may experience increased customer dissatisfaction or customer losses as a result of the integration, particularly from customers that license the Gauntlet firewall and PGP desktop and wireless encryption technologies that we plan to sell; - - we may experience difficulty in integrating the PGP technologies and products and the integration could result in delays in the development of new products or enhancements to existing products; - - management's focus on the integration may distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts; and - - we may be unable to dispose of the Gauntlet firewall and PGP desktop and wireless encryption technologies on favorable terms, on a timely basis, or at all. OUR CUSTOMERS MAY CANCEL OR DELAY THEIR PURCHASES OF OUR PRODUCTS, OR IT COULD TAKE LONGER FOR US TO SELL OUR PRODUCTS. Our products may be considered to be capital purchases by certain customers or prospective customers. Capital purchases are often discretionary and, therefore, are canceled or delayed if the customer experiences a downturn in its business prospects or as a result of economic conditions in general. As a result of weakening economic conditions, the period of time necessary to sell our products may increase and we may be required to spend more on our sales efforts. Cancellations, delays, longer sales cycles and greater sales expenses could adversely affect our results of operations. WE SELL OUR PRODUCTS THROUGH A LIMITED NUMBER OF DISTRIBUTORS, WHO MAY NOT VIGOROUSLY MARKET OUR PRODUCTS OR MAY HAVE DIFFICULTY IN TIMELY PAYING FOR PURCHASED PRODUCTS, AND THE LOSS OF A SIGNIFICANT DISTRIBUTOR COULD INTERRUPT THE DISTRIBUTION OF OUR PRODUCTS. Our distributors may sell other vendor's products that are complementary to, or compete with, our products. While we encourage our distributors to focus on our products through market and support programs, these distributors may give greater priority to products of other suppliers, including competitors. -12- Some of our distributors in the past have, and in the future may, experience financial difficulties worldwide, which may adversely impact our collection of accounts receivable. We regularly review the collectibility and credit worthiness of our distributors to determine an appropriate allowance for doubtful accounts. Our uncollectable accounts could exceed our current or future allowance for doubtful accounts, which would adversely impact our operating results. Substantially all of our indirect sales are made through a limited number of distributors. In addition, our agreements with distributors may be terminated by either party without cause. As a result, we may experience a significant interruption in the distribution of our products if one of our significant distributors terminates its distribution agreement. Such an interruption could have an adverse impact on our financial condition, results of operation and cash flow. WE FACE RISK ASSOCIATED WITH EMPLOYEE RETENTION AND NEW EMPLOYEE ASSIMILATION. Many of our employees are located in areas and have skills in fields where there is high worker mobility and work force turnover. The departure of a large number of our employees or a meaningful number of key non-executive employees could have a material adverse impact on many facets of our business, including our ability to develop new products, upgrade existing products, sell our products and provide adequate internal infrastructure. After April 22, 2000, the end of the 12-month lock-up period for options repriced in April 1999, we experienced a larger than normal level of employee departures as many of these employees elected to terminate their employment with us. We anticipate that we will continue to have difficulties in retaining employees because many of our employees hold options to purchase our stock at prices significantly above the current market price for our stock. We hired a significant number of new employees in 2000 and the first nine months of 2001 and we may continue to add new employees to fill positions vacated by departing employees and to expand our business. We will face challenges in attracting and assimilating qualified new employees, in particular, in key international markets, such as Japan, the United Kingdom, Germany and other regions. Recently, we hired new heads of our Asia-Pacific, European and Latin American operations. We expect that there may be reduced levels of productivity as these individuals are trained and otherwise adapt to our organization. PENDING OR FUTURE LITIGATION COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR RESULTS OF OPERATION AND FINANCIAL CONDITION. From time to time, we have been subject to litigation, including pending putative class action securities litigation against us, our directors and our officers and pending patent infringement claims. Pending or future litigation could result in substantial costs, could cause the diversion of management's attention and resources and could have a material adverse effect on our business, results of operations, financial condition and cash flow. WE FACE RISKS RELATED TO ORGANIZING OUR SALES EFFORTS INTO PRODUCT GROUPS. To more effectively market our products, we have combined complementary products into separate product groups: McAfee, which markets the McAfee Active Virus Defense product group; Sniffer Technologies, which markets the Sniffer Total Network Visibility product line; PGP Security, which markets the PGP Total Network Security product group; and Magic Solutions, which markets the Magic Total Support Desk product group. This structure is intended to allow us to react faster to customers' needs and to focus each product group's sales force on selling its respective product line and the individual point products -13- contained in those product groups. Our U.S. professional services organization is also organized around our product groups. In October 2001, our Board of Directors approved a plan to integrate the activities of our PGP product group into our McAfee and Sniffer product groups and other product lines will be sold. Specifically, the PGP VPN, PGPfire and the PGP E-Business Server will be marketed and sold as McAfee products. The CyberCop technology will be integrated into the Sniffer product line. Our customers and potential customers may not respond to this structure and this structure may be unsuccessful due to, among other things: - uncertainty and customer dissatisfaction surrounding our shift in focus to our product group strategy, including uncertainty as to our level of support for our combined product groups, previously marketed as one line and integration of our various product groups and related products; - customer confusion or irritation related to multiple sales calls from different members of our sales forces; - a loss of potential cross selling opportunities and a lack of lead sharing between the separate product groups' sales representatives who are primarily compensated for sales made by them of products within their respective product groups; - the possibility that our centralized general and administrative group may be unable to meet on a timely basis or at all each product group's individualized infrastructure and support requirements; and - one or more of our product groups may lack sufficient qualified professional services personnel to support its products. WE COULD EXPERIENCE CUSTOMER AND MARKET CONFUSION DUE TO SIMILARITIES IN THE NAMES USED BY OUR PRODUCT GROUPS AND SUBSIDIARIES. Historically, we have spent a significant portion of our total marketing efforts and advertising spending building awareness of the Network Associates name. In more recent periods, our marketing efforts and advertising spending have been focused on building brand awareness at the product group and subsidiary level, rather than at the Network Associates corporate level. This has created and could continue to create confusion in the marketplace and in the investor community. People may be unclear about the relationships between Network Associates and our product groups and our subsidiaries, which often have potentially confusing names and products. For example, our online consumer anti-virus products, our retail and large corporate anti-virus products and our hosted anti-virus products to date have been marketed and sold, respectively, by our publicly traded McAfee.com subsidiary, our retail division which is called McAfee Retail and our McAfee product group. -14- OUR REVENUES MAY BE ADVERSELY IMPACTED BY OUR SHIFT TO A TWO-YEAR SUBSCRIPTION LICENSE THAT INCLUDES ONLY ONE-YEAR OF MAINTENANCE. Historically, our two-year subscription license included two years of maintenance. However, in 2001, we introduced two-year subscription licenses that include the first year of maintenance. During the first year of the subscription license, the customer has the option to purchase the second year of maintenance. We believe this new offering allows the customer greater flexibility in selecting the appropriate level of maintenance support. However, if customers delay the purchase of their second year of maintenance support, this could adversely affect our near term revenue and cash flows. COMPETITORS MAY INCLUDE PRODUCTS SIMILAR TO OURS IN THEIR HARDWARE OR SOFTWARE AND RENDER OUR PRODUCTS OBSOLETE. Vendors of hardware and of operating system software or other software (such as firewall or e-mail software) may enhance their products or bundle separate products to include network security and management software similar to our products. The widespread inclusion of products that perform the same or similar functions as our products within computer hardware or other software could render our products obsolete and unmarketable. Furthermore, even if these incorporated products are inferior or more limited than our products, customers may elect to accept the incorporated products rather than purchase our products. If we are unable to develop new network security and management products to further enhance operating systems or other software and to successfully replace any obsolete products, our business could suffer. WE EXPECT SIGNIFICANT STOCK-BASED COMPENSATION CHARGES. We expect to incur stock-based compensation charges related to employee options repriced in April 1999. The size of these charges could be significant depending on movements in the market value of our common stock and, in some cases, the market value of McAfee.com common stock. We may also incur additional stock-based compensation charges related to executive compensation arrangements. WE HAVE RECENTLY EXPERIENCED SIGNIFICANT CHANGES IN SENIOR MANAGEMENT. On January 3, 2001, our board of directors appointed George Samenuk as our chief executive officer and president. Mr. Samenuk was also subsequently named chairman of our board. On December 26, 2000, the Company announced that Peter Watkins would leave as president and chief operating officer effective December 31, 2000, and William Larson and Prabhat Goyal, our then chief executive officer and chief financial officer, respectively, would leave their positions upon the appointment of the new chief executive officer. After leaving their positions Messrs. Larson, Watkins and Goyal agreed to continue serving the Company as special advisors for one year. In April 2001, Stephen C. Richards was hired as our new executive vice president and chief financial officer. We recently hired new heads of our Asia-Pacific, European and Latin American operations. In October 2001, Zachary Nelson, who was recently named our chief strategy officer, left that position but he will continue to serve as a special advisor to the Company through October 2002. We intend to continue to add new members to senior management, particularly in the international market. Changes in management may be disruptive to our business and may result in the departure of existing employees and/or customers. It may take significant time to locate, retain and integrate qualified management personnel. It may take significant time to integrate recently hired senior management personnel, who may ultimately be unable to effectively work together. -15- OUR MANAGEMENT AND TECHNICAL PERSONNEL ARE CRITICAL TO OUR BUSINESS, THESE INDIVIDUALS MAY NOT REMAIN WITH US IN THE FUTURE. Our ability to achieve our revenue and operating performance objectives will depend in large part on our ability to attract and retain technically qualified and highly skilled sales, consulting, technical, marketing and management personnel. These individuals are not typically subject to an employment agreement or non-competition agreement. Competition for these employees is intense and is expected to remain so for the foreseeable future. We have seen upward pressure on wages as a result of this intense competition for employees, which could cause an increase in our operating expenses. We may not be successful in retaining our existing key personnel and in attracting and retaining the personnel we require, and our failure to retain and hire key employees could adversely affect our business and operating results. Additions of new, and departures of existing, employees, particularly in key positions, can be disruptive and can result in departures of existing employees, which could adversely affect our business. COMPUTER "HACKERS" MAY DAMAGE OUR PRODUCTS AND SERVICES. Due to our high profile in the security software market, we have been a target of computer hackers who have, among other things, created viruses to sabotage or otherwise attack our products and services, including our various websites. A number of websites have been subject to denial of service attacks, where a website is bombarded with information requests eventually causing the website to overload, which causes a delay or disruption of service. If successful, any of these events could damage users' computer systems. In addition, since we do not control diskette duplication by distributors or our independent agents, diskettes containing our software may be infected with viruses. WE DEPEND ON REVENUE FROM OUR FLAGSHIP ANTI-VIRUS AND SNIFFER PRODUCTS. We have historically derived a majority of our net revenues from our 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 our net revenues for the foreseeable future. Because of this concentration of revenue, our business could be harmed by a decline in demand for, or in the prices of, these products as a result of competition, technological change, a change in our pricing model, inclusion of anti-virus or network management and analysis software as a standard part of hardware or operating system software or other software, or a maturation in the markets for these products. WE FACE RISKS ASSOCIATED WITH PAST AND FUTURE TRANSACTIONS. Our industry has experienced, and is expected to continue to experience, a significant amount of consolidation. As part of our growth strategy, we may buy or make investments in complementary companies, products and technologies. Since 1995 we have completed a large number of significant acquisitions involving both public and private companies including the acquisition of CyberMedia and Dr. Solomon in 1998 and Network General and PGP in 1997. We and McAfee.com have also completed a number of smaller acquisitions and we have acquired a number of our international distributors. The integration of an acquired company or technology involves a complex, time consuming and expensive process. Following any acquisition, we must operate as a combined organization utilizing common information communication systems, operating procedures, financial controls and human resource practices. In order to successfully integrate our completed and other potential acquisitions, we may need to, among other things, successfully: -16- - attract and retain key management and other personnel; - integrate the acquired products into our product offerings both from engineering and sales and marketing perspective; - integrate and support preexisting supplier, distribution and customer relationships; - coordinate research and development efforts; - integrate sales forces; and - consolidate duplicate facilities. The difficulties of integrating an acquired company may be exacerbated by the geographic distance between the companies, the complexity of the technologies and operations being integrated, and the disparate corporate cultures being combined. Successful acquisitions may be more difficult to accomplish in the high technology industry than in other industries, and will require the dedication of our management resources. Management's focus on the integration of operations may distract attention from our day-to-day business, and may disrupt key research and development, marketing or sales efforts. In addition, it is common in the technology industry for aggressive competitors to attract customers and recruit key employees away from companies during the integration phase of an acquisition. We have made a number of venture and minority investments in private and publicly-traded companies with complementary products, services and technologies. As of September 30, 2001, the minority venture investments we continue to hold totaled $1.2 million at estimated fair value. The $1.2 million in minority venture investments include investments in public and private companies, amounting to $1.0 million and $200,000, respectively. We classify our investments in public companies in short-term marketable securities and classify our investments in private companies in other long-term assets. In the third quarter of 2001, we recorded a $1.0 million impairment charge in connection with these investments. For the nine months ended 2001, we recorded a $19.1 million impairment charge in connection with these investments. We plan to continue investing and may make acquisitions of other strategic investments in the future. Our available cash and securities may be used to buy or invest in companies or products, which could result in significant acquisition-related charges to earnings and dilution to our stockholders. Moreover, if we buy a company, we may have to incur or assume that company's liabilities, including liabilities that are unknown at the time of acquisition, which may result in a material adverse effect on us. WE WILL EXPERIENCE SIGNIFICANT AMORTIZATION CHARGES AND FACE THE RISK OF FUTURE NON-RECURRING CHARGES IN THE EVENT OF IMPAIRMENT. In connection with our previous acquisitions accounted for under the purchase method of accounting, until we adopt the new Statements of Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other Intangible Assets," we will experience significant charges related to the amortization of purchased goodwill. We will continue to experience significant charges related to amortization of technology. In addition, if we determine that purchased technology and goodwill are impaired, we will be required to take a related non-recurring charge to earnings. For the three and nine months ended September 30, 2001, our amortization expense related to purchased technology and goodwill was $15.5 million and $48.0 million, -17- respectively. We plan to adopt SFAS 142 beginning in fiscal 2002 at which time our goodwill will no longer be amortized but instead reviewed at least annually for impairment. WE MAY BE REQUIRED TO USE A LARGE PORTION OF OUR CASH BALANCES, ISSUE A SIGNIFICANT AMOUNT OF OUR COMMON STOCK OR INCUR ADDITIONAL INDEBTEDNESS IN CONNECTION WITH THE REPURCHASE OF OUR OUTSTANDING DEBENTURES. On February 13, 1998, we issued zero coupon debentures, which have an aggregate face amount at maturity of $885.5 million and generated net proceeds to us of approximately $337.6 million (after deducting fees and expenses). The initial price for the debentures was $391.06 per $1,000 of principal amount at maturity. At the option of the holder, we are required to repurchase the debentures as of February 13, 2003, February 13, 2008 and February 13, 2013 at purchase prices equal to the initial issue price plus the accretion of original issue discount on the debentures to such dates (or $494.52, $625.35 and $790.79 per $1,000 of principal amount at maturity, respectively). In the case of such a required repurchase, at our option, we may pay the aggregate repurchase price in cash, shares of our common stock or a combination of cash and common stock. The number of shares of common stock so issued by us would be based on the fair value of our common stock at the time of any required repurchase. On the same dates and at the same repurchase prices, we may at our option redeem the outstanding debentures for cash. As of September 30, 2001, our aggregate cash, cash equivalents and marketable securities were approximately $956.8 million, including $89.0 million held by McAfee.com. In the quarter ended September 30, 2001, we repurchased zero coupon debentures, which had an aggregate face amount at maturity of $140.0 million, at a net price of $442.50 per $1,000 of principal amount at maturity. Assuming that as of February 13, 2003 all currently outstanding zero coupon debentures are redeemed the aggregate redemption price would equal approximately $368.6 million. In anticipation of any repurchase or optional redemption of the debentures, we may issue additional indebtedness other than the notes to pay all or a portion of the repurchase or redemption price. This indebtedness may be issued in a greater amount than, or on terms less favorable than, the outstanding debentures. OUR HARDWARE BASED PRODUCTS FACE MANUFACTURING, SUPPLY, INVENTORY, LICENSING AND OBSOLESCENCE RISKS. Some of our Sniffer products and E-ppliance products include, in addition to our software, a hardware platform as well as software licensed from other companies. We expect the number of our hardware-based products to increase as, among other things, the data rate in computer networks increases, making a software-only solution a less viable solution. Third-party manufacturers do the manufacturing of these products under contract for us. Reliance on third-party manufacturers involves a number of risks, including the lack of control over the manufacturing process and the potential absence or unavailability of adequate capacity. In the event that any third party manufacturers cannot or will not continue to manufacture our products in required volumes, on a cost-effective basis, in a timely manner or at all, we 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 delays in product shipments. Our hardware-based products contain critical components supplied by a single or a limited number of third parties. We have been required to purchase certain computer platforms around which we design our network fault and performance management products to ensure an available supply of these products for our 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. -18- Some of our hardware-based products incorporate licensed software, such as operating system software. Our ability to successfully market these products depends on our ability to obtain reasonably priced licenses from third-party software providers, as well as on our ability to successfully integrate our hardware and software with this third party. Hardware based products may face greater obsolescence risks than software products. If our hardware products are not easily upgradable to meet future market needs, they may become obsolete. In addition to lost future sales, we could incur losses or other charges in disposing of obsolete inventory, both of which could also materially adversely affect our results of operations. WE FACE RISKS RELATED TO OUR APPLICATION SERVICE PROVIDER STRATEGY. With our ASP or hosted products and services, customers "rent versus buy" the software. For example, McAfee.com is dedicated to updating, upgrading and managing PCs over the Internet for consumers and small to medium-sized businesses. This web-based model is a relatively new concept, and there is a risk that our ASP products and services may fail to gain market acceptance. The growth, market acceptance and ultimate profitability of our ASP services is highly uncertain and subject to a number of factors, including: - our ability to successfully adapt existing products or develop new or enhanced products that operate in a fast, secure and reliable manner over the Internet; - increased expenditures associated with the creation of a new business or delivery platform, such as product development, marketing and technical and administrative support; - the introduction of new products by third-party competitors; - potential unwillingness of customers to pay for ASP subscription-based products and services and our ability to properly price our products and services to generate the greatest revenue opportunities; - our ability to cost effectively offer our ASP products and services; - reluctance by businesses and consumers to change their software purchasing behavior in favor of services hosted on our, or third-party, servers; and - concerns of businesses and consumers about whether the Internet is fast, reliable and secure enough to deliver critical network security and availability services effectively. Our corporate ASP services were historically offered through our myCIO.com subsidiary. In the first quarter of 2001 we reintegrated the operations of myCIO.com with our own. OUR MANAGED SERVICE PROVIDER STRATEGY EXPOSES US TO RISKS IN ADDITION TO THOSE GENERALLY EXPERIENCED AS AN ASP. We also make our hosted products and services available over the Internet in what we refer to as a managed environment. These MSP solutions differ from our ASP solutions, among other ways, in that our solutions are customized to service a specific customer's needs and are monitored and updated by networking professionals for that customer. To successfully offer MSP services we must: -19- - effectively monitor and customize each customer's managed services; - attract and retain qualified networking professionals to manage customer accounts; and - effectively price our products and services to account for the higher costs associated with selling managed services. We also allow intermediaries, such as Internet Service Providers, to sell and host our products and services in a managed environment. This MSP reseller strategy exposes us to additional risks: - we must select, train and maintain qualified and financially stable MSP resellers; - it is more difficult for us to ensure customer satisfaction as we do not have direct customer contact and we rely on our resellers to timely and properly customize and administer our products and services; - we must develop and maintain mutually satisfactory revenue sharing arrangements with our MSP resellers; and - our MSP resellers may compete with our own MSP efforts. WE MAY EXPERIENCE HIGHER OVERALL REVENUE IN THE NEAR-TERM BUT LOWER FUTURE RECURRING REVENUE DUE TO POSSIBLE INCREASED LEVELS OF PERPETUAL LICENSE SALES. We may experience an increase in the number of, and amount of, our net revenue attributable to our sale of perpetual software licenses and hardware. Under a perpetual license, a customer purchases the base-line software and subsequently acquires software upgrades and updates. In contrast, under a time-based license model, customers license the software, including upgrades and updates, for a specified period of time. At the end of the initial license period, the customer must renew its software time-based license to use our software. Sales of perpetual licenses typically result in significantly higher up-front revenue and lower recurring and future revenues as the sales price for upgrades and updates tends to be significantly lower than that of a perpetual license. Factors which may contribute to this increase in perpetual sales include greater sales of hardware-based Sniffer and E-ppliance products where software is bundled onto the hardware platform and a general customer preference for perpetual licenses. To offset potential reductions in future revenue, among other things, it will be incumbent upon us to introduce new software products for sale and we may elect to unbundle some of the products previously offered by us on a bundled subscription basis. WE FACE RISKS RELATED TO OUR RELATIONSHIP WITH MCAFEE.COM. We have entered into various inter-company arrangements. At September 30, 2001, we owned 36,000,000 shares of McAfee.com's Class B common stock, which is generally entitled to three votes per share and converts to shares of McAfee.com Class A common stock if sold by us to a third party. McAfee.com Class A common stock is entitled to one vote per share. At September 30, 2001, our McAfee.com holdings represented approximately 79% of McAfee.com's outstanding capital stock and approximately 92% of its total voting power. Pursuant to our cross license agreement with McAfee.com, we have licensed all our technology to McAfee.com for use in the markets specified below and McAfee.com has licensed its technology to us for our -20- use outside of McAfee.com's markets. Under our license and other agreements with McAfee.com, among other things: - subject to the reseller agreement described below, McAfee.com has the exclusive right to use the licensed technology for providing single-user consumer licenses for our products and services sold over the Internet or for Internet-based products and licensing the technology to original equipment manufacturers for sale to individual consumers; - we are permitted to continue to sell our consumer products through non-online channels, such as traditional retail stores, however McAfee.com's sales of online products and services could significantly reduce sales of these products; - we may not offer a product incorporating third-party technology if those products are competitive with products offered by McAfee.com; - McAfee.com is required to pay us a license fee of 7% of net revenue derived from product sales that include the licensed technology; - the license agreement is perpetual and may only be terminated by us if McAfee.com fails to cure a material breach of the license within 30 days after we notify it of the breach, subject to mandatory dispute resolution prior to the effectiveness of any proposed termination; - we are required to indemnify McAfee.com with respect to existing litigation related to the licensed technology to which we are a party; - generally, we are required to cause to be elected to the McAfee.com board of directors at least two independent directors, which term would exclude any serving Network Associates officer or director; and - if, without the prior approval of our continuing directors (being our current directors and directors approved or not objected to by our current directors), someone acquires 15% or more of our outstanding capital stock or our continuing directors cease to constitute a majority of our board (1) we are required to vote our shares of McAfee.com common stock and otherwise seek to cause the McAfee.com board of directors to consist of at least a majority of independent directors and (2) our shares of McAfee.com Class B common stock will be entitled to only one vote per share instead of three. In March 2001, we entered into reseller agreements with McAfee.com. Under these agreements, McAfee.com may resell our products to business customers, except in Japan, and, in certain countries, we may sell McAfee.com products to OEMs and end-users directly or through ASPs. WE MUST ADAPT TO THE RAPIDLY CHANGING BUSINESS ENVIRONMENT BROUGHT ON BY THE WIDESPREAD USE OF THE INTERNET. We utilize the Internet and depend on its functionality and reliability in many parts of our business, including sales, distribution and support of our products. There are still many uncertainties regarding many facets of the Internet, including reliability, security, access, tax, government regulation and cost. We also run -21- the risk of not adapting to the latest changes in the Internet, which could affect our business operations. If continued growth of the Internet does not develop at the pace we expect, our operating results could be adversely affected. OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE; WE FACE RISK ASSOCIATED WITH PRODUCT DEVELOPMENT. The network security and management market is highly fragmented and characterized by ongoing technological developments, evolving industry standards and rapid changes in customer requirements. Our success will depend on our ability to: - offer a broad range of network security and management software products; - continue to enhance existing products and expand product offerings; - develop and introduce in a timely manner new products with technological advances; - respond promptly to new customer requirements; - comply with evolving industry standards without delays in compliance; - provide upgrades and updates to users frequently and at low cost; and - remain compatible with popular operating systems such as Windows 98, Windows 2000, Windows NT, and NetWare, and develop products that are compatible with new or otherwise emerging operating systems, including the introduction of Windows XP. We may not be able to successfully develop and market, on a timely basis, enhancements to our existing products or new products. Our product enhancements or new products may not adequately address the changing needs of the marketplace. New products with new technological capabilities could replace or shorten the life cycle of our products or cause our customers to defer or cancel purchases of our existing products. We may continue to experience delays in software development as we have at times in the past. Complex software products like ours may contain undetected errors or version compatibility problems, particularly when first released, which could delay or cost us market acceptance. For example, our anti-virus software products have in the past falsely detected viruses that did not actually exist. Difficulties and delays associated with new product introductions, performance or enhancements could have a material adverse effect on our business, financial condition and results of operation. In the fourth quarter of 2001, we plan to integrate a number of PGP Security products and technologies into our McAfee and Sniffer product groups. We may be unsuccessful in integrating these technologies and the integration process could delay the development and enhancement of new and existing products. Our product development efforts are impacted by the adoption or evolution of industry standards. For example, no uniform industry standard has developed in the market for encryption security products. As industry standards are adopted or evolve, we may have to modify existing products or develop and support -22- new versions of existing products. In addition, if no industry standard develops, our products and our competitors' products could be incompatible, which could prevent or delay overall development of the market for a particular product. If our products fail to comply with existing or evolving industry standards in a timely fashion, our business, results of operation and financial condition could be materially and adversely affected. Our long-term success depends on our ability to upgrade and update existing product offerings, modify and enhance acquired products and introduce new products which meet our customers' needs. Future upgrades and updates may include additional functionality, respond to user problems or address compatibility problems with changing operating systems and environments. We believe that our ability to provide these upgrades and updates frequently and at low costs is key to our success. For example, the proliferation of new and changing viruses makes it imperative to update anti-virus products frequently to avoid obsolescence. Failure to release upgrades and updates could have a material adverse effect on our business, results of operations and financial condition. We may not be successful in these efforts. In addition, future changes in Windows 98, Windows 2000, Windows NT, NetWare or other popular operating systems, could cause compatibility problems with our products. Further, delays in the introduction of future versions of operating systems or lack of market acceptance of these future versions would delay or reduce demand for our future products which were designed to operate with these future operating systems. Our 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 our business, results of operation and financial condition. IF THE NETWORK MANAGEMENT AND NETWORK SECURITY MARKETS DO NOT EVOLVE AS WE ANTICIPATE, OUR BUSINESS COULD SUFFER. The markets for our network management and network security products are evolving, and their growth depends upon broader market acceptance of this software, including help desk software. Although the number of PCs attached to large-area networks has increased dramatically, the network management and network security markets continue to be emerging markets. These markets may not continue to develop or may not develop rapidly enough to benefit our business significantly. In addition, there are a number of potential approaches to network management and network security, including the incorporation of management and security tools into network operating systems. Therefore, even if network management and network security tools gain broader market acceptance, potential purchasers may not select our products. To the extent that either the network management or network security market does continue to develop, we expect that competition will increase. WE ARE SUBJECT TO INTENSE COMPETITION IN THE NETWORK MANAGEMENT AND SECURITY MARKETS AND WE EXPECT TO FACE INCREASED COMPETITION IN THE FUTURE. The markets for our products are intensely competitive and we expect competition to increase in the near-term. We believe that the principal competitive factors affecting the markets for our products include: - performance; - functionality; - quality; - customer support; -23- - breadth of product group; - frequency of upgrades and updates; - integration of products; - manageability of products; - brand name recognition; - reputation; and - price. We may be unable to compete effectively against existing and potential competitors. Some of our competitors have longer operating histories, greater name recognition, larger technical staffs, established relationships with hardware vendors and/or greater financial, technical and marketing resources. These factors may provide our competitors with an advantage in penetrating the market with their network security and management products. As is the case in many segments of the software industry, we have been encountering, and we expect to further encounter, increasing competition. This increased competition could reduce average selling prices and, therefore, profit margins. Competitive pressures could result not only in price reductions but also in a decline in sales volume, which could cause our business to suffer. Performance and quality of our anti-virus software products are measured by number and type of viruses detected, the speed at which the products run and ease of use. Our principal competitor in the anti-virus market serviced by our McAfee product groups and McAfee.com is the Peter Norton Group of Symantec. Trend Micro remains the strongest competitor in the Asian anti-virus market. Other competitors include numerous smaller companies and shareware authors that may in the future develop into stronger competitors or be consolidated into larger competitors. Our principal competitors in the security market vary by product type. For firewalls, our principal competitors include CheckPoint, Symantec, and larger companies such as Cisco Systems and Microsoft. For intrusion detection products, we compete with ISS, Symantec and Cisco. The markets for encryption and virtual private network, or VPN, products are highly fragmented with numerous small and large vendors. Public key infrastructure, or PKI, encryption vendors such as Entrust Technologies offer some products that compete with our PGP products. VPN competitors include hardware and software vendors, including telecommunications companies and traditional networking suppliers. Our principal competitor in the network management market is Agilent. Other competitors include Cisco, Computer Associates, Compuware, Concord Communications, DeskTalk Systems, GN Nettest, Network Instruments, Radcom Technologies, Shomiti Systems and Acterna Corporation. Our principal competitors in the help desk market are Computer Associates, FrontRange Solutions, Peregrine and Remedy. We also face competition from large software companies such as Microsoft, Intel, Novell and HP, which may offer network security and management products as enhancements to their operating system. -24- Finally, as the network management market develops, we may face increased competition from a number of 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 companies who are able to provide the necessary software and support capabilities. WE NEED TO EXPAND AND DEVELOP AN EFFECTIVE PROFESSIONAL SERVICES ORGANIZATION; WE RELY ON THIRD-PARTY PROFESSIONAL SERVICES. As our products and computer networks in general increase in complexity, customers require greater professional assistance to design, install, configure and implement our products. To date, we have relied on our limited professional services capabilities and increasingly on outside professional service providers, including our distributors, resellers and system integrators. These third party service providers may provide inadequate levels of professional services. Moreover, reliance on these third parties places a greater burden on them and reduces our ability to control and establish standards for providing these support services. Our reliance on these third parties could delay our recognition of product revenue, harm our relationships or reputation with these third parties or the end users of our products or result in decreased future sales of, or prices for, our products. The failure to develop and maintain an effective professional services organization could have a material adverse effect on our business. To more effectively service our customers' evolving needs, we intend to significantly expand and develop our worldwide professional services organization. We may not succeed in these efforts. Effectively expanding and developing our professional services organization will require that we hire and train more service professionals who must be continually trained and educated to ensure that they possess sufficient technical skills and product knowledge. The market for qualified professionals is intensely competitive, making hiring and retention difficult. We expect significant competition in this market from existing providers of professional services and future entrants. We must also properly price our services to attract customers, while maintaining sufficient margins for these services. We therefore expect that we will have lower profit margins on our service revenues. In addition, we reorganized our U.S. professional services organization, in part, to enable the professional services organization to become more specialized on individual products and product groups. As a result, a particular product group may have insufficient qualified personnel to perform its professional services needs as there will no longer be a "pool" of professional services personnel from which to draw. A product group's lack of sufficient professional services personnel could lead to customer dissatisfaction, missed revenue opportunities and a loss of future business. WE RELY ON THE CONTINUED PROMINENCE OF MICROSOFT TECHNOLOGY. Although we intend to support other operating systems, our mission is to be the leading supplier of network security and management products for Windows NT/Intel based networks. Sales of our products would be materially and adversely affected by market developments that are adverse to the Windows operating environments, including the failure of users and application developers to accept Windows NT. In addition, our ability to develop products using the Windows operating environments is dependent on our ability to gain timely access to, and to develop expertise in, current and future developments by Microsoft, including the introduction of Windows XP. We may not be able to gain the necessary access from Microsoft to its product development. -25- WE MAY FAIL TO SUPPORT OPERATING SYSTEMS WHICH SUCCESSFULLY COMPETE WITH MICROSOFT'S TECHNOLOGY, INCLUDING COMPETING VERSIONS OF THE UNIX OPERATING SYSTEM. We are expanding our product support to include the Unix operating system and the Linux operating system. Sales of our products could be materially and adversely impacted by our failure to support those versions of the Unix operating system or competing operating systems that receive broad market acceptance. The Unix system encompasses many separate operating systems of which we only support a few, including for example, Sun Microsystems' Solaris Unix operating system. WE MUST EFFECTIVELY MANAGE OUR GROWTH. Our business has grown both internally and through acquisitions. This growth has placed, and any future growth would continue to place, a significant strain on our limited personnel, management and other resources. Our ability to manage any future growth, particularly with the anticipated expansion of our international business and our ASP businesses, and growth in distribution business, will require us to: - attract, train, retain, motivate and manage new employees successfully; - effectively integrate new employees into our operations; and - continue to improve our operational, financial, management and information systems and controls. If we continue to grow, our management systems currently in place may be inadequate or we may not be able to effectively manage this growth. We are currently investing in our Internet infrastructure in anticipation of expected growth from the Internet, which may fail to materialize. WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY RIGHTS WHICH OFFER ONLY LIMITED PROTECTION AGAINST POTENTIAL INFRINGERS; WE MAY FACE LITIGATION RELATED TO OUR PROPRIETARY TECHNOLOGY AND RIGHTS. Our success depends significantly upon our proprietary software technology. We rely on a combination of contractual rights, trademarks, trade secrets, patents and copyrights to establish and protect proprietary rights in our software. However, these protections may be inadequate or competitors may independently develop technologies or products that are substantially equivalent or superior to our products. We do not typically obtain signed license agreements from our corporate, government and institutional customers who license products directly from us. Rather, we include an electronic version of a "shrink-wrap" license in all of our electronically distributed software and a printed license in the box for our products distributed through traditional distributors in order to protect our copyrights and trade secrets in those products. Since the licensee has not signed any of these licenses, many legal 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 these rights at all or offer only limited protection for these rights. The steps taken by us to protect our proprietary software technology may be inadequate to deter misuse or theft of this technology. For example, we are aware that a substantial number of users of our anti-virus products have not paid any registration or license fees to us. Changing legal interpretations of liability for unauthorized use of our software, or lessened sensitivity by corporate, government or institutional users to avoiding infringement of intellectual property, could have a material adverse effect on our business, results of operations and financial condition. -26- There has been substantial litigation regarding the intellectual property rights of technology companies. The increased issuance of software patents in recent years has led to and is likely to continue to lead to increased patent and intellectual property litigation in the software industry. In the past we have been, and we currently are, subject to litigation related to our intellectual property. We may also be subject to litigation in connection with our advertising and marketing programs. Although we intend to defend ourselves vigorously against claims asserted against us in the foregoing actions or matters, developments arising out of this pending litigation or any other litigation to which we are or may become a party could have a material adverse effect on our business, results of operation and financial condition. Adverse determinations in litigation could: - result in the loss of our proprietary rights; - subject us to significant liabilities, including monetary liabilities; - require us to seek licenses from third parties; or - prevent us from manufacturing or selling our products. The litigation process is subject to inherent uncertainties and we may not prevail in these matters, or we may be unable to obtain licenses with respect to any patents or other intellectual property rights that may be held valid or infringed upon by our products or us. Uncertainties inherent in the litigation process include, among other things, the complexity of the technologies involved, potentially adverse changes in the law and discovery of facts unfavorable to us. In addition, as we may acquire a portion of software included in our products from third parties, our exposure to infringement actions may increase because we must rely upon such third parties as to the origin and ownership of any software being acquired. Similarly, exposure to infringement claims will increase to the extent that we employ or hire additional software engineers previously employed by competitors, notwithstanding measures taken by these competitors to protect their intellectual property. In the future, litigation may be necessary to enforce and protect trade secrets and other intellectual property rights that we own. We may also be subject to litigation to defend against claimed infringement of the rights of others or determine the scope and validity of the proprietary rights of others. This litigation could be costly and cause diversion of management's attention, either of which could have a material adverse effect on our business, results of operations and financial condition. OUR INTERNATIONAL OPERATION SUBJECT US TO FOREIGN CURRENCY FLUCTUATIONS AND OTHER INHERENT RISKS RELATED TO DOING BUSINESS IN FOREIGN COUNTRIES. For the three months ended September 30, 2001 and 2000, net revenue from international sales represented approximately 34%, and 33%, respectively, of our net revenue. Historically, we have relied upon independent agents and distributors to market our products internationally. We expect that international revenue will continue to account for a significant percentage of net revenue and we have announced our intention to focus on international growth. We also expect that a significant portion of this international revenue will be denominated in local currencies. To reduce the impact of foreign currency fluctuations, we use non-leveraged forward currency contracts. However, our future results of operations may be adversely affected by currency fluctuations or by costs associated with currency risk management strategies. Other risks inherent in international revenue generally include: -27- - 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 activities during the third quarter; - tariffs and other trade barriers; - export restrictions on our encryption and other security products; - uncertainties relative to regional economic circumstances including the continued economic weakness in Asia; - political instability in emerging markets and difficulties in staffing; - hiring and retaining key international employees; and - managing foreign operations. These factors may have a material adverse effect on our future international license revenue. Further, in countries with a high incidence of software piracy, we may experience a higher rate of piracy of our products. In addition, a portion of our international revenue is expected to continue to be generated through independent agents. Since these agents are not our employees and are not required to offer our products exclusively, they may discontinue marketing our products entirely. Also, we may have limited control over these agents, limited access to the names of the customers to whom these agents sell products and limited knowledge of the information provided by, or representations made by, these agents to customers. FALSE DETECTION OF VIRUSES AND ACTUAL OR PERCEIVED SECURITY BREACHES COULD ADVERSELY AFFECT OUR BUSINESS. Our anti-virus software products have in the past and may at times in the future falsely detect viruses that do not actually exist. These false alarms, while typical in the industry, may impair the perceived reliability of our products and may therefore adversely impact market acceptance of our products. In addition, we have in the past been subject to litigation claiming damages related to a false alarm, and similar claims may be made in the future. In addition, an actual or perceived breach of network or computer security at one of our customers, regardless of whether the breach is attributable to our products, could adversely affect the market's perception of our security products. This could adversely affect our business, results of operations and financial condition. OUR CRYPTOGRAPHY TECHNOLOGY IS SUBJECT TO EXPORT RESTRICTIONS AND MAY BECOME OBSOLETE. All of our products are subject to the U.S. Export Administration Regulations, governed by the U.S. Department of Commerce. Certain of our network security products, technology and associated technical assistance, particularly products and technology incorporating encryption, may be subject to export -28- restrictions. Recent changes to U.S. laws enable Network Associates to export more products without restrictions; however, certain products still may not be exported to foreign customers without prior approval from the U.S. government. The list of products and end users for which export approval is required, and the regulatory policies with respect thereto, are subject to revision by the U.S. government at any time. The cost of compliance with U.S. and international export laws and changes in existing laws could affect our ability to sell certain products in certain markets, and could have a material adverse effect on our international revenues. In addition, some of our network security products are dependent on the use of public key cryptography technology. This technology depends in part upon the application of certain mathematical principles known as factoring and discrete logarithms. The security afforded by public key cryptography technology is based on our belief that the factoring of large prime numbers and solving the discrete log problem is not computationally practical. Should an easy factoring method be developed or the discrete log problem be solved, the security afforded by encryption products using 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 our existing products and services obsolete or unmarketable. Moreover, the cryptographic algorithms used in our products can theoretically be solved by computer systems significantly faster and more powerful than those presently available. If these improved techniques for attacking cryptographic systems were ever developed, our business would be adversely affected. PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD ADVERSELY AFFECT OUR BUSINESS. Our network security and management software products are used to protect and manage computer systems and networks that may be critical to organizations. As a result, our sale and support of these products involves the risk of potential product liability and related claims. Our license agreements with our customers typically contain provisions designed to limit our 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 us could have a material adverse effect on our business, results of operations and financial condition. WE FACE RISKS ASSOCIATED WITH U.S. GOVERNMENT CONTRACTING. We are currently engaged in several research and development contracts with agencies of the U.S. government. We believe that the willingness of these government agencies to enter into future contracts with us will in part be dependent upon our continued ability to meet their expectations. Minimum fee awards for companies entering into government contracts are generally between 3% and 7% of the costs incurred by them in performing their duties under the related contract. However, these fee awards may be as low as 1% of the contract costs. Furthermore, these contracts are subject to cancellation at the convenience of the government agencies. Although we have been awarded contract fees of more than 1% of the contract costs in the past, minimum fee awards or cancellations may occur in the future. Reductions or delays in federal funds available for projects we are performing could also have an adverse impact on our government business. Contracts involving the U.S. government are also subject to the risks of disallowance of costs upon audit, changes in government procurement policies, required competitive bidding and, with respect to contracts involving prime contractors or government-designated subcontractors, the inability of those parties to perform under their contracts. In addition, our government customers and potential customers may not respond favorably to the division of our business into product groups and our -29- business and future financial performance could suffer. Any of the foregoing events could adversely affect our results of operations or financial conditions. BUSINESS INTERRUPTIONS MAY IMPEDE OUR OPERATIONS AND ADVERSELY AFFECT OUR BUSINESS. We face a number of potential business interruption risks that are beyond our control. The State of California has recently experienced intermittent power shortages, sharp increases in the cost of energy and even interruptions of service to some business customers. If power shortages continue to be a problem our business may be materially adversely affected. Additionally, we may experience natural disasters that could interrupt our business. Our corporate headquarters is located near a major earthquake fault. The impact of a major earthquake on our facilities, infrastructure and overall operations is not known. Safety precautions have been implemented, however there is no guarantee that an earthquake would not seriously disturb our entire business process. We are largely uninsured for losses and business disruptions caused by an earthquake and other natural disasters. RISKS RELATED TO THE NOTES AND THE COMMON STOCK INTO WHICH THE NOTES ARE CONVERTIBLE OUR INDEBTEDNESS AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW AND WE WILL BE PERMITTED TO INCUR ADDITIONAL INDEBTEDNESS IN THE FUTURE. Our annual debt service obligations on the notes being offered hereby will be approximately $18,112,500 per year in interest payments. In addition, we may be required to repurchase our outstanding debentures, by paying cash, common stock or a combination of cash and common stock, if the holders exercise their right to put the debentures to us in February 2003. We intend to fulfill our debt service and repayment obligations both from cash generated by our operations and from our cash and investments. If we are unable to generate sufficient cash to meet these obligations and need to use existing cash or liquidate investments in order to fund our debt service obligations, we may have to delay or curtail research and development programs. Our current and future indebtedness could have significant additional negative consequences, including: - requiring the dedication of a substantial portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures; - increasing our vulnerability to general adverse economic and industry conditions; - limiting our ability to obtain additional financing; - limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; - placing us at a possible competitive disadvantage to less leveraged competitors and competitors that have better access to capital resources; -30- - affecting our ability to make interest payments on our indebtedness, including the notes; and - in addition, the indenture permits us to incur additional indebtedness in the future, which could magnify the risks described above. WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES, WHICH MAY REDUCE THEIR MARKET PRICE. The notes are a new issue of securities for which there is currently no trading market. Although the notes are eligible for trading in PORTAL, we cannot assure you that an active trading market for the notes will develop or be sustained. Lehman Brothers, Inc., the "initial purchaser," has informed us that it intends to make a market in the notes. The initial purchaser, however, is not obligated to make a market in the notes and may discontinue this market making activity at any time without notice. In addition, market making activity by the initial purchaser will be subject to the limits imposed by the federal securities laws and governmental regulations. As a result, we cannot assure you that any market for the notes will develop, or if one does develop, that it will be actively sustained. In addition, the liquidity of the trading market in the notes and the market price quoted for the notes may be adversely affected by changes in the overall market for convertible securities, changes in our prospects or financial performance or in the prospects for companies in our industry generally. If an active market for our notes fails to develop or be sustained, the trading price of the notes could fall. If an active trading market were to develop, the notes could trade at prices that may be lower than the initial offering price. Whether or not they could trade at lower prices depends on many factors, including: - prevailing interest rates; - the markets for similar securities; - general economic conditions; and - our financial condition, historical financial performance and future prospects. THE NOTES ARE SUBORDINATED TO ALL OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND THE DEBT OF OUR SUBSIDIARIES WHICH MAY INHIBIT OUR ABILITY TO REPAY YOU. The notes are unsecured and are subordinated to all of our existing and future senior indebtedness, as defined in the indenture, and are pari passu with respect to the $885,500,000 principal amount at maturity of our outstanding debentures. The definition of senior indebtedness for purposes of the notes initially includes only secured indebtedness of Network Associates, but at such time as less than $60 million aggregate principal amount at maturity of the debentures remains outstanding, the senior indebtedness will include both secured and unsecured obligations of Network Associates. In the event of our bankruptcy, liquidation or reorganization or upon acceleration of the notes due to an event of default under the indenture and in specified other events, our assets will be available to pay obligations on the notes only after all senior indebtedness has been paid in full in cash or other payment satisfactory to holders of senior indebtedness. As a result, there may not be sufficient assets remaining to pay amounts due on any or all of the outstanding notes. As of September 30, 2001, we had no indebtedness outstanding that would have constituted senior indebtedness (including obligations that would only be included within the definition of senior indebtedness at such time as less than $60 million aggregate principal amount at maturity of the debentures remains outstanding). In -31- addition, the indenture does not limit the creation of additional senior indebtedness or any other indebtedness by us or our subsidiaries. OUR CORPORATE STRUCTURE RESULTS IN SUBSTANTIAL STRUCTURAL SUBORDINATION OF THE NOTES AND MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES. The notes are obligations exclusively of Network Associates. Since a significant portion of our operations are conducted through our subsidiaries, our cash flow and our consequent ability to service debt, including the notes, are dependent upon the earnings of our subsidiaries and the distribution of those earnings to us, or upon loans or other payments of funds by those subsidiaries to us. These subsidiaries are separate and distinct legal entities and have no obligation to make any payments on the notes or to make any funds available for payments on the notes, whether by dividends, loans or otherwise. In addition, the ability of our subsidiaries to make dividend payments or loans or advances to us may be subject to statutory or contractual restrictions and may be contingent on the earnings of the subsidiaries. Our right to receive assets of any of our subsidiaries upon their liquidation or reorganization, and your consequent right to participate in those assets, will be effectively subordinated to any claims creditors may have against our subsidiaries, including trade creditors, unless we are recognized as a creditor to the subsidiary. As of September 30, 2001, our subsidiaries had approximately $539 million of indebtedness and other liabilities outstanding, excluding intercompany liabilities and liabilities of a type not required to be reflected on a balance sheet in accordance with generally accepted accounting principles, to which the notes would have been effectively subordinated. In addition, the indenture does not limit the creation of additional indebtedness by our subsidiaries. OUR ABILITY TO REPURCHASE NOTES WITH CASH UPON A CHANGE OF CONTROL MAY BE LIMITED. In certain circumstances involving a change of control, as defined in "Description of the Notes--Repurchase at Option of Holders Upon a Change of Control" you may require us to repurchase some or all of your notes. We may have insufficient financial resources at such time or may be unable to arrange financing to pay the repurchase price of the notes in cash. Our ability to repurchase the notes in such event may be limited by law, by the terms of other agreements relating to our senior indebtedness and by such indebtedness and agreements as may be entered into, replaced, supplemented or amended from time to time. We may be required to refinance our senior indebtedness in order to make such payments. We may not have the financial ability to repurchase the notes in cash if payment for our senior indebtedness is accelerated. OUR STOCK PRICE HAS BEEN VOLATILE AND IS LIKELY TO REMAIN VOLATILE, WHICH MAY ADVERSELY AFFECT THE PRICE OF OUR STOCK AND THE NOTES. During the 12-month period ended September 30, 2001, our stock price was extremely volatile ranging from a per-share high of $23.00 to low of $4.13. Announcements, litigation developments, and our ability to meet the expectations of investors with respect to our operating and financial results may contribute to current and future stock price volatility. We may not discover, or be able to confirm, revenue or earnings shortfalls until the end of a quarter, which could result in an immediate drop in our stock price. In addition, similar events with respect to McAfee.com, our publicly traded subsidiary, and fluctuations in its stock price may also contribute to the volatility of our stock price. In the past, following periods of volatility in the market price of a company's stock, securities class action litigation has often been instituted. A number of putative class actions were brought against our officers, directors and us. This litigation, and any other -32- litigation if instituted, could result in substantial costs and a diversion of management's attention and resources. FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET OR OPTION EXERCISES AND SALES COULD LOWER THE STOCK PRICE. A substantial number of the shares of our common stock are subject to stock options and our outstanding debentures and the notes may be converted into shares of common stock. We cannot predict the effect, if any, that future sales of shares of common stock or notes, or the availability of shares of common stock or notes for future sale, will have on the market price of our common stock or notes. Sales of substantial amounts of common stock, including shares issued upon the exercise of stock options or the conversion of the notes or our outstanding debentures, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock and notes. OUR MANAGEMENT HAS DISCRETION OVER THE USE OF PROCEEDS FROM THE NOTE OFFERING. We intend to use the proceeds of the note offering for general corporate and working capital purposes and for the possible repayment, repurchase or refunding of our outstanding obligations, including our debentures. Any such repurchase or repayment will be subject to market and other business conditions. We frequently evaluate potential acquisitions of complementary businesses, products and technologies. However, we do not have any agreements or understandings, and there are currently no negotiations, with respect to any acquisitions. Our management will have broad discretion over the use of the net proceeds from the note offering, and investors will be relying on the judgment of our management regarding the application of the proceeds. DELAWARE LAW, OUR CHARTER DOCUMENTS AND CERTAIN PROVISIONS IN THE INDENTURE OF OUR OUTSTANDING DEBENTURES AND THE INDENTURE FOR THE NOTES MAY IMPEDE OR DISCOURAGE A TAKEOVER, WHICH COULD CAUSE THE MARKET PRICE OF ITS SHARES TO DECLINE. Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote of action by its stockholders. 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. In October 1998, our board of directors adopted a shareholders rights plan. Each right under this plan entitles the record holder to buy 1/1000 of a share of our series B participating preferred stock at an exercise price of $200.00. The rights will become exercisable following the tenth day after a person or group announces acquisition of 15% or more of our common stock or announces commencement of a tender or exchange offer the consummation of which would result in ownership by the person or group of 15% or more of our common stock. If the rights become exercisable, the holders of the rights (other than the person acquiring 15% or more of our common stock) will be entitled to acquire in exchange for the $200 exercise price shares of our common stock or shares of any company in which we are merged having a value of $400. We are entitled to redeem the rights at $0.01 per right at any time on or before the tenth day following acquisition by a person or group of 15% or more of our common stock. Certain provisions of Delaware law and our certificate of incorporation and bylaws, such as a classified board, could delay or make a merger, tender offer or proxy contest involving Network Associates more difficult. While these provisions and our rights plan are intended to enable our board of directors to -33- maximize stockholder value, they may have the effect of discouraging takeovers, which may not be in the best interest of certain stockholders. Our rights plan and these provisions could have an adverse effect on the market value of our common stock. The indenture governing our outstanding debentures, as well as the indenture for the notes, may require that we offer to repurchase such debentures or the notes following the occurrence of certain types of change in control transactions. These repurchase provisions could have the effect of discouraging a merger or takeover of us, which may not be in the best interest of certain stockholders and could have an adverse effect on the market value of our common stock. THE NOTES MAY NOT BE RATED OR MAY RECEIVE A LOWER RATING THAN ANTICIPATED. We believe it is likely that one or more rating agencies may rate the notes. If one or more rating agencies assigns the notes a rating lower than expected by investors, the market price of the notes and our common stock could be harmed. -34- USE OF PROCEEDS We will not receive any proceeds from the sale by any selling securityholder of the notes or the underlying common stock. RATIO OF EARNINGS TO FIXED CHARGES The ratio of earnings to fixed charges for each period indicated is as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ----- ----------- Ratio of earnings to fixed charges ................... 23.6x 21.0x 8.5x --x(1) --x(1) --x(1)
These computations include us and our consolidated subsidiaries. In calculating the ratio of earnings to fixed charges, "earnings" consist of net income (loss) before provisions for income taxes plus fixed charges. "Fixed charges" consist of: - interest expense plus the portion of rental expense under operating leases deemed by us to be representative of the interest factor, and - amortization of debt issuance costs. (1) During the 6 months ended June 30, 2001 and the fiscal years ended December 31, 2000 and 1999, there was a deficiency of earnings to cover fixed charges of approximately $96.4 million, $97.8 million and $131 million, respectively. DIVIDEND POLICY We have not paid any cash dividends since our reorganization into a corporate form in October 1992. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future. -35- DESCRIPTION OF NOTES We issued the notes under an indenture dated as of August 17, 2001 between us and State Street Bank and Trust Company of California, N.A., as trustee. The following summarizes some, but not all, of the provisions of the notes and the indenture. A copy of the indenture, the resale registration rights agreement and the form of certificate evidencing the notes have been filed as exhibits to this registration statement. References in this section to "Network Associates," "us," "we," and "our" are solely to Networks Associates, Inc. and not to our subsidiaries. GENERAL We issued $345,000,000 in aggregate principal amount of the notes in a private placement in August 2001. The notes are general unsecured obligations of Network Associates and are junior in right of payment as described under "--Subordination of Notes." The Notes are convertible into our common stock as described under "--Conversion Rights." The Notes were issued only in denominations of $1,000, or in multiples of $1,000. The Notes will mature on August 15, 2006, unless earlier redeemed at our option by us or purchased by us at your option upon a change of control. The notes bear interest at the rate of 5.25% per year. We will pay interest semiannually on February 15 and August 15 of each year beginning February 15, 2002, subject to limited exceptions if the notes are converted, redeemed or purchased prior to the interest payment date. The record dates for the payment of interest are February 1 and August 1. We may, at our option, pay interest on the notes by check mailed to the holders. However, a holder with an aggregate principal amount in excess of $5,000,000 will be paid by wire transfer in immediately available funds at their election. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. We will maintain an office in New York, New York where the notes may be presented for registration, transfer, exchange or conversion. The office is initially an office or agency of the trustee. CONVERSION RIGHTS You may convert any outstanding notes (or portions of outstanding notes) into our common stock, at any time prior to maturity, unless previously redeemed or purchased, initially at the conversion price of $18.07 per share (equal to a conversion rate of approximately 55.3403 shares per $1,000 principal amount of notes), subject to adjustment as described below. We will not issue fractional shares of common stock upon conversion of notes. Instead, we will pay a cash adjustment based upon the closing sale price of our common stock on the business day immediately preceding the conversion date. You may convert notes only in denominations of $1,000 and whole multiples of $1,000. You may exercise conversion rights at any time prior to the close of business on the final maturity date of the notes. However, if you are a holder of notes that have been called for redemption, you must exercise your conversion rights prior to the close of business on the second business day preceding the redemption date, unless we default in payment of the redemption price. In addition, if you have exercised your right to require us to repurchase your notes because a change of control has occurred, you may convert your notes into our common stock only if you withdraw your notice and convert your notes prior to the close of business on the business day immediately preceding the change of control repurchase date. Except as provided below, if you convert your notes into our common stock on any day other than an interest payment date, you will not receive any interest that has accrued on these notes. By delivering to the -36- holder the number of shares issuable upon conversion, determined by dividing the principal amount of the notes being converted by the conversion price, together with a cash payment, if any, in lieu of fractional shares, we will satisfy our obligation with respect to the notes. That is, accrued but unpaid interest will be deemed to be paid in full rather than canceled, extinguished or forfeited. If you convert after a record date for an interest payment but prior to the corresponding interest payment date, you will receive interest accrued and paid on such notes on the interest payment date, notwithstanding the conversion of such notes prior to such interest payment date, because you will have been the holder of record on the corresponding record date. However, at the time of surrender of such notes for conversion, you must pay us an amount equal to the interest that has accrued and will be paid on the notes being converted on the interest payment date. The preceding sentence does not apply, however, to a holder that converts, after a record date for an interest payment date but prior to the corresponding interest payment date, notes that we call for redemption prior to such conversion on a redemption date that is on or prior to third business day after such interest payment date. You will not be required to pay any taxes or duties relating to the issuance or delivery of our common stock if you exercise your conversion rights, but you will be required to pay any tax or duty which may be payable relating to any transfer involved in the issuance or delivery of the common stock in a name other than your name. Certificates representing shares of common stock will be issued or delivered only after all applicable taxes and duties, if any, payable by you have been paid. To convert interests in a global note, you must deliver to DTC the appropriate instructions form for conversion pursuant to DTC's conversion program. To convert a definitive note, you must: - complete the conversion notice on the back of the note, or a facsimile of the conversion notice; - deliver the completed conversion notice and the notes to be converted to the specified office of the conversion agent; - pay all funds required, if any, relating to interest on the notes to be converted to which you are not entitled, as described in the second preceding paragraph; and - pay all taxes or duties, if any, as described in the preceding paragraph. The conversion date will be the date on which all of the foregoing requirements have been satisfied. The notes will be deemed to have been converted immediately prior to the close of business on the conversion date. A certificate for the number of shares of common stock into which the notes are converted, including any cash in lieu of any fractional shares, will be delivered as soon as practicable on or after the conversion date. We will adjust the initial conversion price in certain circumstances subject to certain exceptions, including: - issuances of our common stock as a dividend or distribution on all of our common stock; - certain subdivisions and combinations of our common stock; - issuances to all holders of our common stock of certain rights or warrants to purchase our common stock at less than the current market price of our common stock; -37- - distributions to all holders of our common stock of shares of our capital stock, evidences of our indebtedness or assets, including securities, but excluding: - our common stock; - the rights and warrants referred to in the third bullet point above; - any dividends and distributions in connection with a reclassification, change, consolidation, merger, combination, sale or conveyance resulting in a change in the conversion consideration pursuant to the second succeeding paragraph; or - any dividends or distributions paid exclusively in cash; but including securities of our subsidiaries to the extent we do not elect to reserve such securities on a pro rata basis for the benefit of holders of notes as described below; - distributions consisting exclusively of cash to all holders of our common stock to the extent that such distributions, combined together with: - all other such all-cash distributions made within the preceding 12 months for which no adjustment has been made, plus - any cash and the fair market value of other consideration paid for any tender offers by us or any of our subsidiaries for our common stock expiring within the preceding 12 months for which no adjustment has been made, exceeds 10% of our market capitalization on the record date for such distribution; and - purchases of our common stock pursuant to a tender offer made by us or any of our subsidiaries to the extent that the same involves an aggregate consideration that, together with: - any cash and the fair market value of any other consideration paid in any other tender offer by us or any of our future subsidiaries for our common stock expiring within the 12 months preceding such tender offer for which no adjustment has been made, plus - the aggregate amount of any all-cash distributions referred to in the preceding bullet point to all holders of our common stock within 12 months preceding the expiration of a tender offer for which no adjustments have been made, exceeds 10% of our market capitalization on the expiration of such tender offer. We will not make an adjustment in the conversion price unless such adjustment would require a change of at least 1% in the conversion price then in effect at such time. We will carry forward and take into account in any subsequent adjustment any adjustment that would otherwise be required to be made. Except as stated above, we will not adjust the conversion price for the issuance of our common stock or any securities convertible into or exchangeable for our common stock or carrying the right to purchase any of the foregoing. -38- If we: - reclassify or change any of our common stock, other than changes resulting from a subdivision or combination; or - consolidate or combine with or merge into any person or sell or convey to another person all or substantially all of our property and assets. and the holders of our common stock receive capital stock, other securities or other property or assets, including cash or any combination thereof, with respect to or in exchange for their common stock, the holders of the notes may convert the notes into the consideration they would have received if they had converted their notes immediately prior to such reclassification, change, consolidation, combination, merger, sale or conveyance. If we distribute shares of common stock of a subsidiary of ours to all holders of our common stock, we may elect to reserve the pro rata portion of such shares for the benefit of the holders of notes in lieu of adjusting the conversion price pursuant to the fourth bullet point of the description of conversion price adjustments set forth above. Under the provisions of our rights plan, upon conversion of the notes into common stock, to the extent that the rights plan is still in effect upon such conversion, the holders will receive, in addition to the common stock, the rights described in the rights plan, whether or not the rights have separated from the common stock at the time of conversion, subject to certain limited exceptions, and in such case there will be no adjustment to the conversion price. If a taxable distribution to holders of our common stock or other transaction occurs which results in any adjustment of the conversion price, you may, in certain circumstances, be deemed to have received a distribution subject to U.S. income tax as a dividend. In certain other circumstances, the absence of an adjustment may result in a taxable dividend to the holders of our common stock. See "United States Federal Income Tax Consequences" below. We may from time to time, to the extent permitted by law, reduce the conversion price of the notes by any amount for any period of at least 20 days. In that case, we will give at least 15 days' notice of such decrease. We may make such reductions in the conversion price, in addition to those set forth above, as our board of directors deems advisable to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of stock or fights to acquire stock or from any event treated as such for income tax purposes. OPTIONAL REDEMPTION BY NETWORK ASSOCIATES OPTIONAL REDEMPTION We may not redeem the notes in whole or in part at any time prior to August 20, 2004. At any time on or after August 20, 2004, we may redeem some or all of the notes on at least 20 but not more than 60 days' notice, at the following redemption prices, expressed in percentages of the principal amount:
DURING THE TWELVE MONTHS COMMENCING REDEMPTION PRICE ----------------------------------- ---------------- C> August 20, 2004....................................... 101.3125% August 15, 2005....................................... 100.0000%
-39- We will pay interest accrued and unpaid to, but excluding, the redemption date on notes called for redemption. If the redemption date is an interest payment date, we will pay the interest to the holder of record on the corresponding record date, which may or may not be the same person to whom we will pay the redemption price. PARTIAL REDEMPTION If we do not redeem all of the notes, the trustee will select the notes to be redeemed in principal amounts of $1,000 or whole multiples of $1,000 by lot or on a pro rata basis. If any notes are to be redeemed in part only, we will issue a new note or notes in principal amount equal to the unredeemed principal portion thereof. If a portion of your notes is selected for partial redemption and you convert a portion of your notes, the converted portion will be deemed to be taken from the portion selected for redemption. REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL If a change of control occurs, you will have the right to require us to repurchase all of your notes, or any portion of those notes that is equal to $1,000 or a whole multiple of $1,000 at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus interest accrued and unpaid to, but excluding, the repurchase date. Notwithstanding the foregoing, you will not have a right to require us to repurchase the notes unless prior to that repurchase we have made any applicable change of control offers required by our then outstanding senior indebtedness and have purchased all then outstanding senior indebtedness validly tendered for payment in connection with such change of control offers. At our option, instead of paying the repurchase price in cash, we may pay the repurchase price in whole or in part our common stock (or in the case of a merger in which we are not the surviving corporation, common stock, ordinary shares or American Depository, shares of the surviving corporation or its direct or indirect parent corporation) or a combination of the applicable securities and cash. The number of shares of the applicable common stock, securities or a combination of the applicable common stock or securities will be valued at 95% of the average closing prices of the applicable common stock or securities, for the five trading days immediately preceding and including the third trading day prior to the repurchase date. However, we may not pay the purchase price in the applicable common stock or securities or a combination of the applicable common stock or securities and cash, unless we satisfy certain conditions prior to the repurchase date as provided in the indenture, including: - registration of the shares of the applicable common stock or securities to be issued upon repurchase under the Securities Act and the Exchange Act, if required; - qualification of the shares of the applicable common stock or securities to be issued upon repurchase under applicable state securities laws, if necessary, or the availability of an exemption therefrom; and - listing of the applicable common stock or securities on a United States national securities exchange or quotation thereof in an inter-dealer quotation system of any registered United States national securities association. Within 30 days after the occurrence of a change of control, we are required to give you notice of the occurrence of the change of control and of your resulting repurchase right. Unless otherwise required by law, the repurchase date is 30 days after the date we give notice of a change of control. To exercise the repurchase right, you must deliver prior to the close of business on the business day immediately preceding the -40- repurchase date, written notice to the trustee of your exercise of your repurchase right, together with the notes with respect to which your right is being exercised. You may withdraw this notice by delivering to the paying agent a notice of withdrawal prior to the close of business on the business day immediately preceding the repurchase date. A "change of control" will be deemed to have occurred when any of the following has occurred: (i) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchase, merger or other acquisition transactions of shares of our capital stock entitling that person to exercise 50% or more of the total voting power of all shares of our capital stock entitled to vote generally in elections of directors, other than any acquisition by us, any of our subsidiaries or any of our employee benefit plans; or (ii) our consolidation or merger with or into any other person, any merger of another person into us, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of our properties and assets to another person, other than one or more of our wholly-owned subsidiaries, other than the occurrence of any of the following events: (a) any transaction a result of which holders of 50% or more of the total voting power of all shares of our capital stock entitled to vote generally in elections of directors immediately prior to the transaction have, directly or indirectly, at least 50% of the total voting power of all shares of capital stock of the surviving entity entitled to vote generally in elections of directors of the surviving entity immediately after the transaction; and (b) any merger solely for the purpose of changing our jurisdiction of incorporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity. However, a change of control will be deemed not to have occurred if: (a) the closing sale price per share of our common stock for any five trading days within the period of 10 consecutive trading days ending immediately after the later of the change of control or the public announcement of the change of control, in the case of a change of control under the first clause above, or the period of 10 consecutive trading days ending immediately before the change of control, in the case of a change of control under the second clause above, equals or exceeds 110% of the conversion price of the notes (as adjusted); or (b) at least 90% of the consideration in the transaction or transactions (other than payments for fractional shares and cash payments pursuant to dissenters' appraisal rights) otherwise constituting a change of control consists of shares of common stock traded or to be traded immediately following such change of control on a national securities exchange or the Nasdaq National Market and, as a result of such transaction or transactions, the notes become convertible solely into such common stock (and any rights attached thereto). The beneficial owner shall be determined in accordance with Rule 13d-3 of the Exchange Act. The term "person" includes any syndicate or group which would be deemed to be a "person" under Section 13 (d)(3) of the Exchange Act. The term "all or substantially all" as used in the definition of change in control will likely be interpreted under applicable state law and will be dependent upon particular facts and circumstances. There -41- may be a degree of uncertainty in interpreting this phrase. As a result, we cannot assure you how a court would interpret this phrase under applicable law if you elect to exercise your rights following the occurrence of a transaction which you believe constitutes a transfer of "all or substantially all" of our assets. Rule 13e-4 under the Exchange Act, requires the dissemination of certain information to security holders if an issuer tender offer occurs and may apply if the repurchase option becomes available to holders of the notes. We will comply with this rule to the extent applicable at that time. We may, to the extent permitted by applicable law and any agreement or indenture governing our then outstanding indebtedness, at any time purchase the notes in the open market or by tender at any price or by private agreement. Any note so purchased by us may, to the extent permitted by applicable law, be reissued or resold or may be surrendered to the trustee for cancellation. Any notes surrendered to the trustee may not be reissued or resold and will be canceled promptly. The change of control feature of the notes may in certain circumstances make more difficult or discourage a takeover of Network Associates and, thus, the removal of incumbent management. The repurchase right is not the result of our knowledge of any effort to accumulate any common stock or to obtain control of Network Associates by means of a merger, tender offer, solicitation or otherwise, or part of a plan by us to adopt a series of anti-takeover provisions. Instead, this right is the result of negotiations between us and the initial purchaser. The foregoing provisions would not necessarily protect holders of the notes if highly leveraged or other transactions involving us occur that may adversely affect holders. Our ability to repurchase notes upon the occurrence of a change in control is subject to important limitations. The occurrence of a change of control could cause an event of default under, or be prohibited or limited by, the terms of senior indebtedness that we may incur in the future. As a result, any repurchase of the notes would, absent a waiver, be prohibited under the subordination provisions of the indenture until the senior indebtedness is paid in full. Further, we cannot assure you that we would have the financial resources, or would be able to arrange financing, to pay the repurchase price for all the notes that might be delivered by holders of notes seeking to exercise the repurchase right. Any failure by us to repurchase the notes when required following a change of control would result in an event of default under the indenture, whether or not such repurchase is permitted by the subordination provisions of the indenture. Any such default may, in turn, cause a default under other indebtedness, including senior indebtedness, that we may incur in the future. See "--Subordination of Notes" below. SUBORDINATION OF NOTES The notes are subordinated to the prior payment in full in cash or other payment satisfactory to the holders of senior indebtedness of all of our existing and future senior indebtedness. The subordination provisions of the indenture will not prevent the occurrence of any event of default under the indenture. In the event we distribute our assets upon our dissolution, winding up, bankruptcy, insolvency, liquidation, reorganization, or similar proceeding, holders of our senior indebtedness will be entitled to receive payment in full, in cash or other payment satisfactory to the holders of senior indebtedness, before we may make any payments of principal of, or premium, if any, and interest, including any additional interest, on the notes. Until all senior indebtedness is paid in full in cash or other payment satisfactory to the holders of senior indebtedness, any payment on the notes to which the holders of notes would be entitled shall be made to the holders of senior indebtedness. In the event of our dissolution, winding up, bankruptcy, insolvency, -42- liquidation, reorganization or similar proceeding, holders of senior indebtedness may receive more, ratably, and the holders of notes may receive less, ratably, than our other creditors. If the notes are declared due and payable prior to maturity because of an event of default, we are obligated to notify promptly holders of senior indebtedness. We may not make any payments on the notes until 120 days have passed after the occurrence of this acceleration of the notes. We may then make payments on the notes if we are permitted to make such payments under the indenture at that time. We may not make any payment on the notes if: - a payment default on senior indebtedness occurs and is continuing, without regard to any applicable period of grace, or - any other nonpayment default occurs and is continuing on designated senior indebtedness that permits holders of the designated senior indebtedness to accelerate its maturity and the trustee receives a payment blockage notice from us or from a representative of the designated senior indebtedness. We may resume payments on the notes: - in case of a payment default, the earlier of the date on which the payment default is cured, waived or ceases to exist, and - in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured, waived, or ceases to exist, or 179 days after the date on which the applicable payment blockage notice is received by the trustee if the terms of the indenture otherwise permit payment at that time. No new period of payment blockage for a non-payment default may be commenced pursuant to a payment blockage notice unless and until 365 days have elapsed since the initial effectiveness of the immediately prior payment blockage notice. No nonpayment default that existed or was continuing on the date of delivery of any payment blockage notice to the trustee shall be, or shall be made, the basis for a subsequent payment blockage notice unless such default shall not have been cured or waived for a period of not less than 90 days. "senior indebtedness" means the principal of, premium, if any, interest, including any interest accrued after bankruptcy, original issue discount, rent, end of term payments, fees, costs, expenses, liquidated damages, indemnities, repurchase and other put obligations and other amounts on indebtedness, whether outstanding on the date of the indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by us, including all deferrals, renewals, extensions, refundings, amendments, modifications or supplements to the above. However, senior indebtedness does not include: (1) any indebtedness of Network Associates that is not secured, but this requirement shall only apply so long as there is at least $60 million aggregate principal amount at maturity of our debentures outstanding; (2) the notes; -43- (3) the debentures; (4) indebtedness to any subsidiary of Network Associates, a majority of the voting stock of which is owned, directly or indirectly, by Network Associates: (5) accounts payable or other indebtedness to trade creditors created or assumed by us in the ordinary course of business; and (6) any particular indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that the indebtedness shall not be senior in right of payment to, or is on the same basis with, or is subordinated or junior to, the notes. "indebtedness" means: - all of our obligations and other liabilities for borrowed money, including overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks; - all of our obligations and other liabilities evidenced by bonds, debentures, notes or similar instruments, whether or not the recourse of the lender is to the whole of our assets or to only a portion of our assets; - all of our reimbursement obligations and other liabilities with respect to letters of credit, bank guarantees or bankers' acceptances; - all of our obligations and liabilities in respect of leases required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on our balance sheet; - all of our obligations and liabilities in respect of leases required, in conformity with generally accepted accounting principles, to be accounted for as operating lease, provided either (A) such operating lease requires, at the end of the term thereof, that we make any payment other than accrued periodic rent in the event that we do not acquire the leased real property and related fixtures subject to such lease, or (B) we have an option to acquire the leased real property and related fixtures, whether such option is exercisable at any time or under specified circumstances; - all of our obligations with respect to an interest rate swap, cap or collar agreement or other similar instrument or agreement; - all of our direct or indirect guaranties or similar agreements in respect of, and obligations or liabilities to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of indebtedness, obligations or liabilities of another person of the kind described in the above bullet points; - any indebtedness or other obligations described in the above bullet points secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by us -44- regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by us; and - any and all deferrals, renewals, extensions, refundings, amendments, modifications or supplements, to any indebtedness, obligation or liability of the kind described in the above bullet points. "designated senior indebtedness" means any particular senior indebtedness that expressly provides that such senior indebtedness shall be "designated senior indebtedness" for purposes of the indenture, however such agreement may place limitations and conditions on the right of such senior indebtedness to exercise the rights of designated senior indebtedness. The notes are obligations exclusively of Network Associates. Since a significant portion of our operations are conducted through our subsidiaries, our cash flow and our consequent ability to service debt, including the notes, are dependent upon the earnings of our subsidiaries and the distribution of those earnings to us, or upon loans or other payments of funds by those subsidiaries to, us. These subsidiaries are separate and distinct legal entities and have no obligation to make any payments on the notes or to make any funds available for payments on the notes, whether by dividends, loans or otherwise. In addition, the ability of our subsidiaries to make dividend payments or loans or advances to us may be subject to statutory or contractual restrictions and may be contingent on the earnings of the subsidiaries. Our right to receive assets of any of our subsidiaries upon their liquidation or reorganization, and your consequent right to participate in those assets, will be effectively subordinated to any claims creditors may have against our subsidiaries, including trade creditors, unless we are recognized as a creditor to the subsidiary. As of September 30, 2001, we had no indebtedness outstanding that would have constituted senior indebtedness, and as of the same date our subsidiaries had approximately $539 million of indebtedness and other liabilities outstanding, excluding intercompany liabilities and liabilities of a type not required to be reflected on a balance sheet in accordance with generally accepted accounting principles, to which the notes would have been effectively subordinated. In addition, the notes will rank on the same basis as our $885.5 million principal amount at maturity of debentures currently outstanding so long as there is at least $60 million aggregate principal amount at maturity of the debentures remaining outstanding. Neither we nor our subsidiaries are limited from incurring additional indebtedness, including senior indebtedness, under the indenture. If either the trustee or any holder of the notes receives any payment or distribution of our assets in contravention of any of the subordination provisions of the indenture on the notes before all senior indebtedness is paid in full in cash or other payment satisfactory to the holders of senior indebtedness, then such payment or distribution will be held by the recipient in trust for the benefit of holders of senior indebtedness or their representatives to make payment in full in cash or other payment satisfactory to the holders of senior indebtedness of all senior indebtedness. We will be obligated to pay reasonable compensation to the trustee and to indemnify the trustee against any losses, liabilities or expenses incurred by it in connection with its duties relating to the notes. The trustee's claims for such payments will be senior to those of holders of the notes in respect of all funds collected or held by the trustee. -45- EVENTS OF DEFAULT Each of the following constitutes an event of default under the indenture: (1) our failure to pay when due the principal of or premium, if any, on any of the notes at maturity, upon redemption or exercise of a repurchase right or otherwise, whether or not such payment is prohibited by the subordination provisions of the indenture; (2) our failure to pay an installment of interest on any of the notes for 30 days after the date when due, whether or not such payment is prohibited by the subordination provisions of the indenture; (3) our failure to perform or observe any other term, covenant or agreement contained in the notes or the indenture for a period of 60 days after written notice of such failure, requiring us to remedy the same, shall have been given to us by the trustee or to us and the trustee by the holders of at least 25% in aggregate principal amount of the notes then outstanding; (4) (A) we or one of our significant subsidiaries fails to make any payment at maturity, including any grace period, in respect of any obligation for borrowed money evidenced by a bond, debenture, note or similar instrument (an "instrument") in an amount in excess of $25 million and such failure continues or (B) we or one of our significant subsidiaries defaults with respect to any instrument, which default results in the acceleration of indebtedness evidenced by such instrument in an amount in excess of $25 million without such indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled, in case of (A) and (B) above, for a period of 60 days after written notice to us by the trustee or to us and the trustee by the holders of not less than 25% in principal amount of the notes, provided that if any such failure, default or acceleration referred to above shall cease or be cured, waived, rescinded or annulled, then the event of default shall be deemed to be likewise cured and any acceleration with respect thereto rescinded; or (5) certain events of bankruptcy, insolvency or reorganization with respect to us or one of our significant subsidiaries. The indenture provides that the trustee shall, within 90 days of the occurrence of a default, give to the registered holders of the notes notice of all uncured defaults known to it, but the trustee shall be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such registered holders, except in the case of a default in the payment of the principal of, or premium, if any, or interest on, any of the notes when due or in the payment of any redemption or repurchase obligation. If an event of default specified in clause (5) above occurs and is continuing with respect to us, then automatically the principal of and premium, if any, of all the outstanding notes and the interest thereon shall become immediately due and payable. If an event of default shall occur and be continuing, other than with respect to clause (5) above (the default not having been cured or waived as provided under "--Modifications, Amendments and Meetings" below), the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare the notes due and payable at their principal amount and premium, if any, together with accrued interest, and thereupon the trustee may, at its discretion, proceed to protect and enforce the rights of the holders of notes by appropriate judicial proceedings. Such declaration may be rescinded or annulled either with the written consent of the holders of a majority in aggregate principal amount of the notes then outstanding or a majority in aggregate principal amount of the notes represented at a -46- meeting at which a quorum (as specified under "--Modifications, Amendments and Meetings" below) is present, in each case upon the conditions provided in the indenture. The indenture contains a provision entitling the trustee, subject to the duty of the trustee during default to act with the required standard of care, to be indemnified by the holders of notes before proceeding to exercise any right or power under the indenture at the request of such holders. The indenture provides that the holders of a majority in aggregate principal amount of the notes then outstanding through their written consent, or the holders of a majority in aggregate principal amount of the notes then outstanding represented at a meeting at which a quorum is present by a written resolution, may direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred upon the trustee. We are required to furnish annually to the trustee a statement as to the fulfillment of our obligations under the indenture. CONSOLIDATION, MERGER OR ASSUMPTION We may, without the consent of the holders of notes, consolidate with, merge into or transfer all or substantially all of our assets to any other corporation, limited liability company, partnership, trust or other business entity organized under the laws of the United States or any of its political subdivisions provided that: - the surviving corporation, limited liability company, partnership, trust or other business entity assumes all our obligations under the indenture and the notes; - at the time of such transaction, no event of default, and no event which, after notice or lapse of time, would become an event of default, shall have happened and be continuing; and - certain other conditions are met. We will be discharged of our obligations under the notes upon the surviving entity assuming our obligations under the indenture and the notes and meeting the other requirements specified in the indenture. MODIFICATIONS, AMENDMENTS AND MEETINGS CHANGES REQUIRING APPROVAL OF EACH AFFECTED HOLDER The indenture (including the terms and conditions of the notes) cannot be modified or amended without the written consent or the affirmative vote of the holder of each note affected by such change to: - change the maturity of the principal of or any installment of interest on any note; - reduce the principal amount of, or any premium or interest on any note; - change the currency of payment of such note or interest thereon; - impair the right to institute suit for the enforcement of any payment on or with respect to any note; -47- - modify our obligations to maintain an office or agency in New York City; - except as otherwise permitted or contemplated by the indenture, adversely affect the repurchase option of holders upon a change of control or the conversion rights of holders of the notes; - modify the subordination provisions of the indenture in a manner adverse to the holders of notes; - modify the redemption provisions of the indenture in a manner adverse to the holders of notes; - reduce the percentage in aggregate principal amount of notes outstanding necessary to modify or amend the indenture or to waive any past default; or - reduce the percentage in aggregate principal amount of notes outstanding required for the adoption of a resolution or the quorum required at any meeting of holders of notes at which a resolution is adopted. CHANGES REQUIRING MAJORITY APPROVAL The indenture, including the terms and conditions of the notes, may be modified or amended either: - With the written consent of the holders of at least a majority in aggregate principal amount of the notes at the time outstanding; or - by the adoption of a resolution at a meeting of a quorum of holders by at least a majority in aggregate principal amount of the notes represented at such meeting. CHANGES REQUIRING NO APPROVAL The indenture, including the terms and conditions of the notes, may be modified or amended by us and the trustee, without the consent of the holder of any note, for the purposes of, among other things: - adding to our covenants for the benefit of the holders of notes; - adding collateral to secure the obligations under the notes; - surrendering any right or power conferred upon us; - providing for conversion rights of holders of notes if any reclassification or change of our common stock or any consolidation, merger or sale of all or substantially all of our assets occurs; - providing for the assumption of our obligations to the holders of notes in the case of a merger, consolidation, conveyance, transfer or lease, adding guarantors or obligors on the notes in addition to Network Associates; - reducing the conversion price, provided that the reduction will not adversely affect the interests of the holders of notes; -48- - complying with the requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act of 1939, as amended; - curing any ambiguity or correcting or supplementing any defective provision contained in the indenture; provided that such modification or amendment does not, in the good faith opinion of Network Associates and the trustee, adversely affect the interests of the holders of notes in any material respect; or - adding or modifying any other provisions with respect to matters or questions arising under the indenture which we and the trustee may deem necessary or desirable and which will not adversely affect the interests of the holders of notes in any material respect. MEETINGS The indenture contains provisions for convening meetings of the holders of notes to consider matters affecting their interests. QUORUM The quorum at any meeting called to adopt a resolution will be persons holding or representing a majority in aggregate principal amount of the notes at the time outstanding and, at any reconvened meeting adjourned for lack of a quorum, 25% of such aggregate principal amount. SATISFACTION AND DISCHARGE We may satisfy and discharge our obligations under the indenture while notes remain outstanding, subject to certain conditions, if: - all outstanding notes will become due and payable at their scheduled maturity within one year; or - all outstanding notes are scheduled for redemption within one year, and, in either case, we have deposited with the trustee an amount sufficient to pay and discharge all outstanding notes on the date of their scheduled maturity or the scheduled date of redemption. REGISTRATION RIGHTS We have filed a registration statement, of which this prospectus is a part, pursuant to a resale registration rights agreement we entered into with the initial purchaser in the initial private placement of the notes. Pursuant to the agreement, we will use our reasonable efforts to have this shelf registration statement declared effective by February 13, 2002 and to keep it effective until the earliest of: - two years after the last date of original issuance of any of the notes; - the date when the holders of the notes and the common stock issuable upon conversion of the notes are able to sell all such securities immediately without restriction pursuant to the volume limitation provisions of Rule 144 under the Securities Act; and -49- - the date when all of the notes and the common stock issuable upon conversion of the notes of those holders that complete and deliver in a timely manner the selling securityholder election and questionnaire described below are registered under the shelf registration statement and disposed of in accordance with the shelf registration statement. If: - the shelf registration statement has not been declared effective prior to or on February 13, 2002; or - at any time after February 13, 2002, the registration statement ceases to be effective or fails to be usable and (1) we do not cure the registration statement within five business days by a post-effective amendment or a report filed pursuant to the Exchange Act or (2) if applicable, we do not terminate the suspension period related to disclosure of material non-public information by the 45th or 90th day, as the case may be (or any applicable extension thereof) (each, a "registration default"), then additional interest will accrue on the notes that are registrable securities from and including the day following the registration default to but excluding the day on which the registration default has been cured. Additional interest will be paid semiannually in arrears, with the first semiannual payment due on each February 15 and August 15, and will accrue at a rate per year equal to: - 0.25% of the principal amount of a note to and including the 90th day following such registration default; and - 0.50% of the principal amount of a note from and after the 91st day following such registration default. In no event will additional interest accrue at a rate per year exceeding 0.50%. If a holder has converted some or all of its notes that are registrable securities into common stock, the holder will be entitled to receive equivalent amounts based on the principal amount of the notes converted to the extent such shares are registrable securities. GOVERNING LAW The indenture and the notes will be governed by, and construed in accordance with, the law of the State of New York. INFORMATION CONCERNING THE TRUSTEE State Street Bank and Trust Company of California, N.A., as trustee under the indenture, has been appointed by us as paying agent, conversion agent, registrar and custodian with regard to the notes. Equiserve is the transfer agent and registrar for our common stock. The trustee or its affiliates may from time to time in the future provide banking and other services to us in the ordinary course of their business. -50- GLOBAL NOTES; BOOK-ENTRY FORM The notes are represented by one or more global notes deposited with and registered in the name of DTC or its nominee. Thus, we will not issue certificated securities to you for the notes, except in the limited circumstances described below. Each global note will be issued to DTC, which will keep a computerized record of its participants whose clients have purchased the notes. Each participant will then keep a record of its clients. Unless it is exchanged in whole or in part for a certificated note, a global note may not be transferred. DTC, its nominees and their successors may, however, transfer a global note as a whole to one another, and these transfers are required to be recorded on our records or a register to be maintained by the trustee. Beneficial interests in a global note will be shown on, and transfers of beneficial interests in the global note will be made only through, records maintained by DTC and its participants. DTC has provided us with the following information: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the United States Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered under the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its direct participants deposit with DTC. DTC also records the settlements among direct participants of securities transactions, such as transfers and pledges, in deposited securities through computerized records for direct participants' accounts. This eliminates the need to exchange certificated securities. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC's book-entry system is also used by other organizations such as securities brokers and dealers, banks and trust companies that work through a direct participant. The rules that apply to DTC and its participants are on file with the SEC. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. When you purchase notes through the DTC system, the purchases must be made by or through a direct participant, which will receive credit for the notes on DTC's records. When you actually purchase the notes, you will become their beneficial owner. Your ownership interest will be recorded only on the direct or indirect participants' records. DTC will have no knowledge of your individual ownership of the notes. DTC's records will show only the identity of the direct participants and the amount of the notes held by or through them. You will not receive a written confirmation of your purchase or sale or any periodic account statement directly from DTC. You should instead receive these from your direct or indirect participant. As a result, the direct or indirect participants are responsible for keeping accurate account of the holdings of their customers. The trustee will wire payments on the notes to DTC's nominee. We and the trustee will treat DTC's nominee as the owner of each global note for all purposes. Accordingly, we, the trustee and any paying agent will have no direct responsibility or liability to pay amounts due on a global note to you or any other beneficial owners in that global note. Any redemption notices will be sent by us directly to DTC, which will, in turn, inform the direct participants (or the indirect participants), which will then contact you as a beneficial holder. It is DTC's current practice, upon receipt of any payment of distributions or liquidation amounts, to proportionately credit direct participants' accounts on the payment date based on their holdings. In addition, it is DTC's current practice to pass through any consenting or voting rights to such participants by using an omnibus proxy. Those participants will, in turn, make payments to and solicit votes from you, the ultimate -51- owner of notes, based on their customary practices. Payments to you will be the responsibility of the participants and not of DTC, the trustee or our company. Notes represented by one or more global notes will be exchangeable for certificated securities with the same terms in authorized denominations only if: - DTC is unwilling or unable to continue as depositary or ceases to be a clearing agency registered under applicable law, and a successor is not appointed by us within 90 days; or - we decide to discontinue the book-entry system. If the global note is exchanged for certificated securities, the trustee will keep the registration books for the notes at its corporate office and follow customary practices and procedures regarding those certificated securities. RESTRICTIONS ON TRANSFER; LEGENDS The notes are subject to certain restrictions on transfer set forth on the notes and in the indenture, and certificates evidencing the notes bear a legend regarding such transfer restrictions. -52- UNITED STATES FEDERAL INCOME TAX CONSEQUENCES This section summarizes the material U.S. federal income tax considerations relating to the purchase, ownership, and disposition of the notes and of common stock into which the notes may be converted. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing authorities. These authorities may change, or the Internal Revenue Service, or "IRS," might interpret the existing authorities differently. In either case, the tax consequences of purchasing, owning or disposing of notes or common stock could differ from those described below. The summary generally applies only to "U.S. holders" that purchase notes in the initial offering at their issue price and hold the notes or common stock as "capital assets" (generally, for investment). For this purpose, U.S. holders include citizens or residents of the United States and corporations organized under the laws of the United States or any state. Trusts are U.S. holders if they are subject to the primary supervision of a U.S. court and the control of one of more U.S. persons. Special rules apply to nonresident alien individuals and foreign corporations or trusts or "non-U.S. holders." This summary describes some, but not all, of these special rules. For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or similar entity is attributed to its owners. Consequently, the tax treatment of income earned through a partnership depends on the status of the partner. The summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances, or because they are subject to special rules. Finally, the summary does not describe the effect of the federal estate and gift tax laws on U.S. holders or the effects of any applicable foreign, state, or local laws. INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX LAWS, FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES. U.S. HOLDERS TAXATION OF INTEREST U.S. holders will be required to recognize as ordinary income any interest paid or accrued on the notes, in accordance with their regular method of accounting. In general, if the terms of a debt instrument entitle a holder to receive payments other than fixed periodic interest that exceed the issue price of the instrument, the holder may be required to recognize additional interest as "original issue discount" over the term of the instrument. We believe that the notes were not issued with original issue discount. In certain circumstances, investors in our notes could receive payments in excess of principal or stated interest. First, we may be required to make additional payments to holders of the notes as liquidated damages if we do not file or cause to be declared effective a registration statement, as described under "Description of the Notes--Registration Rights." Second, if, upon a change of control, a holder requires us to repurchase some or all of the holder's notes and we elect to pay the repurchase price in shares of our common stock, the value of the stock could exceed the principal amount of the notes and accrued and unpaid interest. The original issue discount rules allow contingent payments such as these to be disregarded in computing a holder's interest income if the contingency is "remote." We believe that the possibility is remote that a change of control would occur or that we would be required to pay additional interest because of a failure to provide registration rights. Our determination in this regard is binding on U.S. holders unless they disclose their contrary position. If, contrary to expectations, we pay additional interest, U.S. holders would be required to recognize additional interest income. -53- SALE, EXCHANGE OR REDEMPTION OF THE NOTES A U.S. holder will generally recognize capital gain or loss if the holder disposes of a note in a sale, redemption or exchange other than a conversion of the note into common stock. The holder's gain or loss will equal the difference between the proceeds received by the holder and the holder's adjusted tax basis in the note. The proceeds received by the holder will include the amount of any cash and the fair market value of any other property received for the note. The holder's tax basis in the note will generally equal the amount the holder paid for the note. The portion of any proceeds that is attributable to accrued interest will not be taken into account in computing the holder's capital gain or loss. Instead, that portion will be recognized as ordinary interest income to the extent that the holder has not previously included the accrued interest in income. The gain or loss recognized by a holder on a disposition of the note will be long-term capital gain or loss if the holder held the note for more than one year. Long-term capital gains of non-corporate taxpayers are taxed at lower rates than those applicable to ordinary income. The deductibility of capital losses is subject to limitation. If, upon a change of control, a holder requires us to repurchase some or all of the holder's notes and we elect to pay the repurchase price in whole or in part with shares of our common stock, and if the notes are "securities" for U.S. federal income tax purposes, the holder would generally not recognize any loss on the exchange and would recognize any gain realized only to the extent of any cash received. If the holder receives cash in lieu of a fractional share of common stock, however, the holder would be treated as if he received the fractional share and then had the fractional share redeemed for cash. The holder would recognize gain or loss equal to the difference between the cash received and that portion of his basis in the stock attributable to the fractional share. In addition, the value of any portion of the common stock received that is attributable to accrued interest on the notes will be taxed as ordinary income. The holder's aggregate basis in the common stock received in exchange for the notes (including any fractional share for which cash is paid but excluding any shares attributable to accrued interest) would equal his adjusted basis in the note, increased by any gain recognized on the exchange and decreased by the amount of any cash received. The holder's holding period for the common stock so received would include the period during which he held the note. The holder's basis in any shares of common stock attributable to accrued interest would equal the fair market value of those shares when received, and the holding period of those shares would begin on the day after the holder's receipt of those shares. If the notes are not securities for U.S. federal income tax purposes, the holder's exchange of notes upon a change of control would be subject to the general rules for exchanges of notes described in the preceding paragraph, regardless of whether the holder receives shares of our common stock in payment of all or part of the redemption price. The classification of debt instruments as securities for U.S. federal income tax purposes depends on the extent to which the instruments represent an investment in the issuer's business. Because the decided cases turn on the specific facts in each case, we cannot predict whether our notes will be treated as securities for U.S. federal income tax purposes. CONVERSION OF THE NOTES A U.S. holder generally will not recognize any income, gain or loss on converting a note into common stock. If the holder receives cash in lieu of a fractional share of stock, however, the holder would be treated as if he received the fractional share and then had the fractional share redeemed for the cash. The holder would recognize gain or loss equal to the difference between the cash received and that portion of his basis in the stock attributable to the fractional share. The holder's aggregate basis in the common stock (including any fractional share for which cash is paid) will equal his adjusted basis in the note. The holder's holding period for the stock will include the period during which he held the note. -54- DIVIDENDS If, after a U.S. holder converts a note into common stock, we make a distribution in respect of that stock, the distribution will be treated as a dividend, taxable to the U.S. holder as ordinary income, to the extent it is paid from our current or accumulated earnings and profits. If the distribution exceeds our current and accumulated earnings and profits, the excess will be treated first as a tax-free return of the holder's investment, up to the holder's basis in its common stock. Any remaining excess will be treated as capital gain. If the U.S. holder is a U.S. corporation, it would generally be able to claim a deduction equal to a portion of any dividends received. The terms of the notes allow for changes in the conversion price of the notes in certain circumstances. A change in conversion price that allows noteholders to receive more shares of common stock on conversion may increase the noteholders' proportionate interests in our earnings and profits or assets. In that case, the noteholders would be treated as though they received a distribution in the form of our stock. Such a constructive stock distribution could be taxable to the noteholders, although they would not actually receive any cash or other property. A taxable constructive stock distribution would result, for example, if the conversion price is adjusted to compensate noteholders for distributions of cash or property to our shareholders. Not all changes in conversion price that allow noteholders to receive more stock on conversion, however, increase the noteholders' proportionate interests in the company. For instance, a change in conversion price could simply prevent the dilution of the noteholders' interests upon a stock split or other change in capital structure. Changes of this type, if made by a bona fide, reasonable adjustment formula, are not treated as constructive stock distributions. Conversely, if an event occurs that dilutes the noteholders' interests and the conversion price is not adjusted, the resulting increase in the proportionate interests of our shareholders could be treated as a taxable stock distribution to them. Any taxable constructive stock distributions resulting from a change to, or failure to change, the conversion price would be treated like dividends paid in cash or other property. They would result in ordinary income to the recipient, to the extent of our current or accumulated earnings and profits, with any excess treated as a tax-free return of capital or as capital gain. SALE OF COMMON STOCK A U.S. holder will generally recognize capital gain or loss on a sale or exchange of common stock. The holder's gain or loss will equal the difference between the proceeds received by the holder and the holder's adjusted tax basis in the stock. The proceeds received by the holder will include the amount of any cash and the fair market value of any other property received for the stock. The gain or loss recognized by a holder on a sale or exchange of stock will be long-term capital gain or loss if the holder held the stock for more than one year. SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS TAXATION OF INTEREST Payments of interest to nonresident persons or entities are generally subject to U.S. federal income tax at a rate of 30 percent, collected by means of withholding by the payor. Payments of interest on the notes to most non-U.S. holders, however, will qualify as "portfolio interest." and thus will be exempt from the withholding tax, if the holders certify their nonresident status as described below. The portfolio interest exception will not apply to payments of interest to a non-U.S. holder that -55- - owns at least 10 percent of our voting stock (taking into account stock owned directly and also stock owned indirectly under specific attribution rules), or - is a "controlled foreign corporation" that is related to us. In general, a foreign corporation is a controlled foreign corporation if at least 50 percent of its stock is owned, directly or indirectly, by one or more U.S. persons that each owns, directly or indirectly, at least 10 percent of the corporation's voting stock. The portfolio interest exception and several of the special rules for non-U.S. holders described below apply only if the holder certifies its nonresident status. A non-U.S. holder can meet this certification requirement by providing a Form W-8BEN or appropriate substitute form to us, or our paying agent. If the holder holds the note through a financial institution or other agent acting on the holder's behalf, the holder will be required to provide appropriate documentation to the agent. The holder's agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a foreign partnership, the certification requirements generally apply to the partners rather than the partnership. SALE, EXCHANGE OR REDEMPTION OF NOTES Non-U.S. holders generally will not be subject to U.S. federal income tax on any gain realized on the sale, exchange, or other disposition of notes. This general rule, however, is subject to several exceptions. For example, the gain would be subject to U.S. federal income tax if - the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business, - the non-U.S. holder was a citizen or resident of the United States and thus is subject to special rules that apply to expatriates, or - the rules of the Foreign Investment in Real Property Tax Act, or "FIRPTA" (described below), treat the gain as effectively connected with a U.S. trade or business. The FIRPTA rules may apply to a sale, exchange or other disposition of notes if we are, or were within five years before the transaction, a "U.S. real property holding corporation, or "USRPHC." In general, we would be a USRPHC if interests in U.S. real estate comprised most of our assets. We do not believe that we are a USRPHC or that we will become one in the future. So long as our common stock continues to be regularly traded, the FIRPTA rules would apply to a disposition of notes by a non-U.S. holder only if the holder owned, directly or indirectly, more than 5 percent of our common stock (or, if the notes were considered to be "regularly traded," more than 5 percent of our notes) within five years before the holder's disposition of the notes. For this purpose, the non-U.S. holder would be treated as owning the stock that the holder could acquire on conversion of the holder's notes. If all of these conditions were met, and the FIRPTA rules applied to the sale, exchange, or other disposition of notes by a non-U.S. holder, then any gain recognized by the holder would be treated as effectively connected with a U.S. trade or business, and would thus be subject to U.S. federal income tax. -56- CONVERSION OF THE NOTES A non-U.S. holder generally will not recognize any income, gain or loss on converting a note into common stock. Any recognized as a result of the holder's receipt of cash in lieu of a fractional share gain recognize of stock would also generally not be subject to U.S. federal income tax. See "Special Tax Rules Applicable to non-U.S. holders -- Sale of Common Stock" below. DIVIDENDS Dividends paid to a non-U.S. holder on common stock received on conversion of a note will generally be subject to U.S. withholding tax at a 30 percent rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of a tax treaty between the United States and the non-U.S. holder's country of residence. A non-U.S. holder must demonstrate its entitlement to treaty benefits by certifying its nonresident status. Some of the common means of meeting this requirement are described above under "Special Tax Rules Applicable to Non-U.S. Holders -- Taxation of Interest." SALE OF COMMON STOCK Non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange, or other disposition of common stock. This general rule, however, is subject to exceptions, some of which are described under "Special Tax Rules Applicable to Non-U.S. Holders -- Sale, Exchange or Redemption of Notes." INCOME OR GAINS EFFECTIVELY CONNECTED WITH A U.S. TRADE OR BUSINESS The preceding discussion of the tax consequences of the purchase, ownership or disposition of notes or common stock by a non-U.S. holder assumes that the holder is not engaged in a U.S. trade or business. If any interest on the notes, dividends on common stock, or gain from the sale, exchange or other disposition of the notes or stock is effectively connected with a U.S. trade or business conducted by the non-U.S. holder, then the income or gain will be subject to U.S. federal income tax at the regular graduated rates. If a partnership is engaged in a U.S. trade or business, the partners of the partnership are also treated as being engaged in that trade or business. If a non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the holder's country of residence, any "effectively connected" income or gain will be subject to U.S. federal income tax only if it is also attributable to a permanent establishment maintained by the holder in the United States. Payments of dividends that are effectively connected with a U.S. trade or business, and therefore included in the gross income of a non-U.S. holder, will not be subject to the 30 percent withholding tax. To claim exemption from withholding, the holder must certify its qualification, which can be done by filing a Form W-8ECL If the non-U.S. holder is a corporation, that portion of its earnings and profits that is effectively connected with its U.S. trade or business would generally be subject to a "branch profits tax." The branch profits tax rate is generally 30 percent, although an applicable tax treaty might provide for a lower rate. U.S. FEDERAL ESTATE TAX The estates of nonresident alien individuals are subject to U.S. federal estate tax on property with a U.S. situs. The notes will not be U.S. situs property as long as interest on the notes paid immediately before the death of the holder would have qualified as portfolio interest, exempt from withholding tax as described above under "Special Tax Rules Applicable to Non-U.S. Holders - -- Taxation of Interest." Because we are a U.S. corporation, our common stock will be U.S. situs property, and therefore will be included in the taxable -57- estate of a nonresident alien decedent. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent's country of residence. BACKUP WITHHOLDING AND INFORMATION REPORTING The Internal Revenue Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are interest, dividends, and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by "backup withholding" rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or repeatedly failing to report interest or dividends on his returns. The withholding tax rate is currently 30.5 percent, but will be reduced in stages to 28 percent beginning in 2006. The information reporting and backup withholding rules do not apply to payments to corporations, whether domestic or foreign. Payments of interest or dividends to individual U.S. holders of notes or common stock will generally be subject to information reporting, and will be subject to backup withholding unless the holder provides us or our paying agent with a correct taxpayer identification number. Payments to non-U.S. holders will generally be subject to information reporting but not backup withholding. To avoid backup withholding, however, a non-U.S. holder will have to certify its nonresident status. Some of the common means of doing so are described under "Special Rules Applicable to Non-U.S. Holders -- Taxation of Interest." Payments made to U.S. holders by a broker upon a sale of notes or common stock will generally be subject to information reporting and backup withholding. If, however, the sale is made through a foreign office of a U.S. broker, the sale will be subject to information reporting but not backup withholding. If the sale is made through a foreign office of a foreign broker, the sale will generally not be subject to either information reporting or backup withholding. This exception may not apply, however, if the foreign broker is owned or controlled by U.S. persons, or is engaged in a U.S. trade or business. Payments made to non-U.S. holders by a broker upon a sale of notes or common stock will not be subject to information reporting or backup withholding as long as the non-U.S. holder certifies its foreign status. Any amounts withheld from a payment to a holder of notes or common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder. THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING. AND DISPOSING OF OUR NOTES OR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS. -58- SELLING SECURITYHOLDERS We originally issued the notes in a private placement in August 2001. Selling securityholders may offer and sell the notes and the underlying common stock pursuant to this prospectus. The following table contains information as of November 6, 2001, with respect to the selling securityholders and the principal amount of notes and the underlying common stock beneficially owned by each selling security holder that may be offered using this prospectus.
PRINCIPAL AMOUNT AT NUMBER OF MATURITY OF SHARES OF PERCENTAGE NOTES PERCENTAGE COMMON OF COMMON BENEFICIALLY OF STOCK THAT STOCK OWNED THAT NOTES MAY OUTSTANDING NAME MAY BE SOLD OUTSTANDING BE SOLD(1) (2) ---- ----------- ----------- ---------- ----------- 1976 Distribution Trust FBO Jene A. Lauder ........ $ 14,000 * 775 * 1976 Distribution Trust FBO A. R. Lauder/Zinterhofer ............................. 7,000 * 387 * 2000 Revocable Trust FBO A.R. Lauder/Zinterhofer ............................. 7,000 * 387 * Advent Convertible Master (Cayman) L.P. ........... 3,220,000 * 178,196 * AFTRA Health Fund ................................. 190,000 * 10,515 * AIG/National Union Fire Insurance ................. 725,000 * 40,122 * Aloha Airlines Non-Pilots Pension Trust ........... 55,000 * 3,044 * Aloha Pilots Retirement Trust ..................... 35,000 * 1,937 * American Investors Life Insurance Company ......... 500,000 * 27,670 * American Motorist Insurance Company ............... 542,000 * 29,994 * American Samoa Government ......................... 50,000 * 2,767 * Amerus Life Insurance Co. (Amerus Multi-Fund Convertible Account) ........ 750,000 * 41,505 * Arapahoe County Colorado .......................... 53,000 * 2,933 * ARB Minnesota Power and Light ..................... 180,000 * 9,961 * Argent Classic Convertible Arbitrage Fund (Bermuda) Ltd. ................................. 1,000,000 * 55,340 * Argent Convertible Arbitrage Fund Ltd. ............ 1,000,000 * 55,340 * Arkansas PERS ..................................... 1,010,000 * 55,894 * Associated Electric & Gas Insurance Services Limited ........................................ 400,000 * 22,136 * B.C. McCabe Foundation ............................ 300,000 * 16,602 * Bank Austria Cayman Islands LTD ................... 6,375,000 1.85% 352,795 * BBT Fund, L.P. .................................... 16,500,000 4.78% 913,116 * Boilermakers Blacksmith Pension Trust ............. 1,285,000 * 71,112 * British Virgin Islands Social Security Board ...... 41,000 * 2,269 * C & H Sugar, Inc. ................................. 85,000 * 4,704 * CALAMOS(R) Convertible Growth and Income Fund - CALAMOS(R) Investment Trust .................. 2,900,000 * 160,487 * CALAMOS(R) Convertible Technology Fund - CALAMOS(R) Investment Trust .................. 70,000 * 3,874 * Chrysler Corporation Master Retirement Trust ...... 2,960,000 * 163,807 * CIBC World Markets ................................ 2,500,000 * 138,351 * City of New Orleans ............................... 217,000 * 12,009 * City University of New York ....................... 130,000 * 7,194 *
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PRINCIPAL AMOUNT AT NUMBER OF MATURITY OF SHARES OF PERCENTAGE NOTES PERCENTAGE COMMON OF COMMON BENEFICIALLY OF STOCK THAT STOCK OWNED THAT NOTES MAY OUTSTANDING NAME MAY BE SOLD OUTSTANDING BE SOLD(1) (2) ---- ----------- ----------- ---------- ----------- Conseco Fund Group - Conseco Convertible Securities Fund ................................. 500,000 * 27,670 * Convertible Securities Fund ....................... 90,000 * 4,981 * Delaware PERS ..................................... 1,425,000 * 78,860 * Delta Air Lines Master Trust ...................... 770,000 * 42,612 * Delta Pilots D & S Trust .......................... 390,000 * 21,583 * DLB High Yield Fund ............................... 50,000 * 2,767 * Drury University .................................. 25,000 * 1,384 * Duke Endowment .................................... 375,000 * 20,753 * Durango Investments L.P. .......................... 1,500,000 * 83,011 * Estate of James Campbell .......................... 153,000 * 8,467 * Ferox Fund Limited ................................ 1,636,000 * 90,537 * Ferox Fund LP. .................................... 364,000 * 20,144 * Fidelity Advisor Series I: Fidelity Advisor Dividend Growth Fund ........................... 334,000 * 18,484 * Fidelity Advisor Series I: Fidelity Advisor Equity Value Fund .............................. 2,000 * 111 * Fidelity Charles Street Trust: Fidelity Asset Manager .................................. 1,780,000 * 98,506 * Fidelity Charles Street Trust: Fidelity Asset Manager: Growth ......................... 890,000 * 49,253 * Fidelity Charles Street Trust: Fidelity Asset Manager: Income .......................... 60,000 * 3,320 * Fidelity Commonwealth Trust: Fidelity Mid-Cap Stock Fund ............................. 1,075,000 * 59,491 * Fidelity Devonshire Trust: Fidelity Equity - Income Fund .................................... 4,290,000 1.24% 237,410 * Fidelity Financial Trust: Fidelity Convertible Securities Fund .................... 10,000,000 2.89% 553,403 * Fidelity Financial Trust: Fidelity Equity - Income II Fund ................................. 2,430,000 * 134,477 * Fidelity Puritan Trust: Fidelity Puritan Fund ..... 2,460,000 * 136,137 * Fidelity Securities Fund: Fidelity Dividend Growth Fund .................................... 2,300,000 * 127,283 * Fidelity Trend Fund: Fidelity Trend Fund ......... 170,000 * 9,408 * First Union National Bank ......................... 5,000,000 1.44% 276,702 * First Union Risk Management Inc. .................. 10,000,000 2.89% 553,403 * First Union Securities Inc. ....................... 11,250,000 3.26% 622,579 * Froley Revy Investment Convertible Security Fund ........................................... 145,000 * 8,024 * Grady Hospital Foundation ......................... 114,000 * 6,309 * Granville Capital Corporation ..................... 1,000,000 * 55,340 * Hawaiian Airlines Employees Pension Plan -- IAM ............................................ 30,000 * 1,660 * Hawaiian Airlines Pension Plan for Salaried Employees ...................................... 5,000 * 277 * Hawaiian Airlines Pilots Retirement Plan .......... 50,000 * 2,767 * HFR Convertible Arbitrage Account ................. 180,000 * 9,961 * Highbridge International LLC ...................... 500,000 * 27,670 * ICI American Holdings Trust ....................... 510,000 * 28,224 *
-60-
PRINCIPAL AMOUNT AT NUMBER OF MATURITY OF SHARES OF PERCENTAGE NOTES PERCENTAGE COMMON OF COMMON BENEFICIALLY OF STOCK THAT STOCK OWNED THAT NOTES MAY OUTSTANDING NAME MAY BE SOLD OUTSTANDING BE SOLD(1) (2) ---- ----------- ----------- ---------- ----------- IL Annuity and Insurance Company (IL Annuity VMIII Convertible) ............................. 750,000 * 41,505 * Independence Blue Cross ........................... 197,000 * 10,902 * James Campbell Corporation ........................ 197,000 * 10,902 * JMG Capital Partners, LP .......................... 4,500,000 1.30% 249,032 * JMG Triton Offshore Fund, Ltd. .................... 1,000,000 * 55,340 * Local Initiatives Support Corporation ............. 43,000 * 2,380 * Mainstay Convertible Fund ......................... 2,690,000 * 148,866 * Mainstay VP Convertible Portfolio ................. 750,000 * 41,505 * Massachusetts Mutual Life Insurance Company ....... 525,000 * 29,054 * MassMutual Asia, Limited .......................... 15,000 * 830 * MassMutual Corporate Investors .................... 150,000 * 8,301 * MassMutual High Yield Partners II LLC ............. 260,000 * 14,388 * McMahan Securities Co. L.P. ....................... 100,000 * 5,534 * Merrill Lynch Insurance Group ..................... 239,000 * 13,226 * Merrill Lynch, Pierce, Fenner & Smith, Inc. ....... 250,000 * 13,835 * Microsoft Corporation ............................. 505,000 * 27,947 * Morgan Stanley Dean Witter Convertible Securities Trust ............................... 1,500,000 * 83,011 * Motion Picture Industry Health Plan - Active Member Fund .................................... 270,000 * 14,942 * Motion Picture Industry Health Plan - Retiree Member Fund .................................... 115,000 * 6,364 * Municipal Employees ............................... 130,000 * 7,194 * Nabisco Holdings .................................. 25,000 * 1,384 * National Fuel Gas Company Retirement Plan ......... 125,000 * 6,918 * Nations Convertible Securities Fund ............... 2,910,000 * 161,040 * New Orleans Firefighters Pension/Relief Fund ...... 118,000 * 6,530 * New York Life Insurance and Annuity Corporation .................................... 750,000 * 41,505 * New York Life Insurance Company ................... 4,000,000 1.16% 221,361 * New York Life Separate Account #7 ................. 370,000 * 20,476 * Occidental Petroleum Corporation .................. 219,000 * 12,120 * OCM Convertible Trust ............................. 1,820,000 * 100,719 * Ohio Bureau of Workers Compensation ............... 127,000 * 7,028 * Ondeo Nalco ....................................... 180,000 * 9,961 * Oxford, Lord Abbett & Co. ......................... 1,450,000 * 80,243 * Partner Reinsurance Company Ltd. .................. 455,000 * 25,180 * Policemen and Firemen Retirement System of the City of Detroit ............................ 571,000 * 31,599 * Pro Mutual ........................................ 644,000 * 35,639 * Queen's Health Plan ............................... 20,000 * 1,107 * Ramius Capital Group .............................. 425,000 * 23,520 * Raytheon Master Pension Trust ..................... 346,000 * 19,148 * RCG Latitude Master Fund LTP ...................... 1,530,000 * 84,671 * RCG Multi Strategy LP ............................. 170,000 * 9,408 * RJR Reynolds ...................................... 74,000 * 4,095 * Shell Pension Trust ............................... 498,000 * 27,559 *
-61-
PRINCIPAL AMOUNT AT NUMBER OF MATURITY OF SHARES OF PERCENTAGE NOTES PERCENTAGE COMMON OF COMMON BENEFICIALLY OF STOCK THAT STOCK OWNED THAT NOTES MAY OUTSTANDING NAME MAY BE SOLD OUTSTANDING BE SOLD(1) (2) ---- ----------- ----------- ---------- ----------- Southern Farm Bureau Life Insurance ............... 725,000 * 40,122 * Starvest Combined Portfolio ....................... 755,000 * 41,782 * State Employees' Retirement Fund of the State of Delaware .................................... 1,170,000 * 64,748 * State of Connecticut Combined Investment Funds .... 2,485,000 * 137,521 * State of Maryland Retirement Agency ............... 2,752,000 * 152,297 * State of Oregon/Equity ............................ 4,475,000 1.30% 247,648 * State of Oregon/SAIF Corporation .................. 1,850,000 * 102,380 * Sterling Investment Co. ........................... 700,000 * 38,738 * Syngenta AG ....................................... 240,000 * 13,282 * TCW Group, Inc. ................................... 18,325,000 5.31% 1,014,112 * The Grable Foundation ............................. 102,000 * 5,645 * Total Fina Elf Finance USA, Inc. .................. 175,000 * 9,685 * UBS O'Connor LLC f/b/o UBS Global Convertible Portfolio ............... 750,000 * 41,505 * Vanguard Convertible Securities Fund, Inc. ........ 3,560,000 1.03% 197,012 * Variable Insurance Products Fund: Equity - Income Portfolio ............................... 2,000,000 * 110,681 * Zeneca Holdings Trust ............................. 360,000 * 19,923 * Zurich Institutional Benchmarks ................... 100,000 * 5,534 * Any other holder of Notes or future transferee, pledgee, donee or successor of any holder (3) (4) .............................. 170,289,000 49.36% 9,423,822 6.81%
- ---------- * Less than 1%. (1) Assumes conversion of all of the holder's notes at a conversion price of $18.07 per share of common stock. However, this conversion price will be subject to adjustment as described under "Description of Notes--Conversion of Notes." As a result, the amount of common stock issuable upon conversion of the notes may increase or decrease in the future. (2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 138,455,083 shares of common stock outstanding as of September 30, 2001. In calculating this amount, we treated as outstanding the number of shares of common stock issuable upon conversion of all of that particular holder's notes. However, we did not assume the conversion of any other holder's notes. (3) Information about other selling security holders will be set forth in prospectus supplements, if required. (4) Assumes that any other holders of notes, or any future transferees, pledgees, donees or successors of or from any such other holders of notes, do not beneficially own any common stock other than the common stock issuable upon conversion of the notes at the initial conversion rate. We prepared this table based on the information supplied to us by the selling securityholders named in the table. The selling securityholders listed in the above table may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their notes since the date on which the information in the above table is presented. Information about the selling securityholders may change from over time. Any changed information will be set forth in prospectus supplements. Because the selling securityholders may offer all or some of their notes or the underlying common stock from time to time, we cannot estimate the amount of the notes or underlying common stock that will be held by the selling securityholders upon the termination of any particular offering. See "Plan of Distribution." -62- PLAN OF DISTRIBUTION We will not receive any of the proceeds of the sale of the notes and the underlying common stock offered by this prospectus. The notes and the underlying common stock may be sold from time to time to purchasers: - directly by the selling securityholders; or - through underwriters, broker-dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the selling securityholders or the purchasers of the notes and the underlying common stock. The selling securityholders and any such broker-dealers or agents who participate in the distribution of the notes and the underlying common stock may be deemed to be "underwriters." As a result, any profits on the sale of the notes and underlying common stock by selling securityholders and any discounts, commissions or concessions received by any such broker-dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. If the selling securityholders were to deemed underwriters, the selling securityholders may be subject to certain statutory liabilities of, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. If the notes and underlying common stock are sold through underwriters or broker-dealers, the selling securityholders will be responsible for underwriting discounts or commissions or agent's commissions. The notes and underlying common stock may be sold in one or more transactions at: - fixed prices; - prevailing market prices at the time of sale; - varying prices determined at the time of sale; or - negotiated prices. These sales may be effected in transactions: - on any national securities exchange or quotation service on which the underlying common stock may be listed or quoted at the time of the sale, including the Nasdaq National Market, in the case of the common stock; - in the over-the-counter market; - in transactions otherwise than on such exchanges or services or in the over-the-counter market; or - through the writing of options. -63- These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade. In connection with sales of the notes and underlying common stock or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers. These broker-dealers may in turn engage in short sales of the notes and underlying common stock in the course of hedging their positions. The selling securityholders may also sell the notes and underlying common stock short and deliver notes and underlying common stock to close out short positions, or loan or pledge notes and underlying common stock to broker-dealers that in turn may sell the notes and underlying common stock. To our knowledge, there are currently no plans, arrangements or understandings between any selling securityholders and any underwriter, broker-dealer or agent regarding the sale of the notes and the underlying common stock by the selling securityholders. Selling securityholders may not sell any or all of the notes and the underlying common stock offered by them pursuant to this prospectus. In addition, we cannot assure you that any such selling securityholder will not transfer, devise or gift the notes and the underlying common stock by other means not described in this prospectus. Our common stock trades on the Nasdaq National Market under the symbol "NETA." We do not intend to apply for listing of the notes on any securities exchange or for quotation through Nasdaq. Accordingly, no assurance can be given as to the development of liquidity or any trading market for the notes. See "Risk Factors--We cannot assure you that an active trading market will develop for these notes which may reduce their market price." There can be no assurance that any selling securityholder will sell any or all of the notes or underlying common stock pursuant to this prospectus. In addition, any notes or underlying common stock covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus. The selling securityholders and any other person participating in such distribution will be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the notes and the underlying common stock by the selling securityholders and any other such person. In addition, Regulation M of the Exchange Act may restrict the ability of any person engaged in the distribution of the notes and the underlying common stock to engage in market-making activities with respect to the particular notes and the underlying common stock being distributed for a period of up to five business days prior to the commencement of such distribution. This may affect the marketability of the notes and the underlying common stock and the ability of any person or entity to engage in market-making activities with respect to the notes and the underlying common stock. Pursuant to the registration rights agreement filed as an exhibit to this registration statement, we and the selling securityholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act or will be entitled to contribution in connection with these liabilities. We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the notes and underlying common stock to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. -64- INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Second Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Our Restated Bylaws provide that we shall indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by law. We believe that indemnification under our Restated Bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our Restated Bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether we would have the power to indemnify him or her against such liability under the General Corporation Law of Delaware. We currently have secured such insurance on behalf of our officers and directors. We have entered into agreements to indemnify our directors and officers, in addition to indemnification provided for in our Bylaws. Subject to certain conditions, these agreements, among other things, indemnify our directors and officers for certain expenses (including attorney's fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of us, arising out of such person's services as a director or officer of ours, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities and Exchange Act of 1933, as amended. Our Second Restated Certificate of Incorporation, as amended, and Bylaws provide for indemnification of our officers, directors, employees and other agents to the maximum extent permitted by the Delaware Law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling Network Associates pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. LEGAL MATTERS The validity of the issuance of Networks Associates' securities offered by this prospectus will be passed upon for Networks Associates, Inc. by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2000, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. -65- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses to be paid by the Registrant in connection with this offering. All amounts are estimates except for the registration fee: Securities and Exchange Commission registration fee... $86,250 Trustee's fees and expenses........................... $11,500 Accounting fees and expenses.......................... $15,500 Legal fees and expenses............................... $50,000 Miscellaneous......................................... $36,750 -------- Total......................................... $200,000 ======== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NETWORKS ASSOCIATES The Registrant's Second Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. The Registrant's Restated Bylaws provide that the Registrant shall indemnify its directors and officers and may indemnify its employees and other agents to the fullest extent permitted by law. The Registrant believes that indemnification under its Restated Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Registrant's Restated Bylaws also permit the Registrant to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Registrant would have the power to indemnify him or her against such liability under the General Corporation Law of Delaware. The Registrant currently has secured such insurance on behalf of its officers and directors. The Registrant has entered into agreements to indemnify its directors and officers, in addition to indemnification provided for in the Registrant's Bylaws. Subject to certain conditions, these agreements, among other things, indemnify the Registrant's directors and officers for certain expenses (including attorney's fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Registrant, arising out of such person's services as a director or officer of the Registrant, any subsidiary of the Registrant or any other company or enterprise to which the person provides services at the request of the Registrant. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities and Exchange Act of 1933, as amended. The Registrant's Second Restated Certificate of Incorporation, as amended, and Bylaws provide for indemnification of its officers, directors, employees and other agents to the maximum extent permitted by Delaware Law. II-1 ITEM 16. EXHIBITS The following exhibits are filed herewith or incorporated by reference herein:
EXHIBIT NUMBER EXHIBIT TITLE ------ ------------- 4.1 Second Restated Certificate of Incorporation of Networks Associates, Inc., as amended on December 1, 1997. (1) 4.2 Restated Bylaws of Networks Associates, Inc. (2) 4.3 Indenture by and between Networks Associates, Inc. and State Street Bank and Trust Company of California, N.A., as Trustee, dated as of August 17, 2001. 4.4 Resale Registration Rights Agreement between Networks Associates, Inc. and Lehman Brothers Inc., dated as of August 17, 2001. 4.5 Form of Note (included in Exhibit 4.3). 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 24.1 Power of Attorney of certain directors and officers of Networks Associates, Inc. (see page II-4 of this Form S-3). 25.1 Form T-1 Statement of Eligibility of Trustee for Indenture under the Trust Indenture Act of 1939.
- ------------ (1) Incorporated by reference from the Registrant's Registration Statement on Form S-4 filed with the Commission on March 25, 1998. (2) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q as filed with the Commission on August 6, 2001. 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: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act, (b) 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) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement, (c) 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; II-2 provided, however, that clauses (a) and (b) do not apply if the information required to be included in a post-effective amendment by such clauses is contained in periodic reports filed with or furnished to the Securities and Exchange Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (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 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. (4) That, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in this 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 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under 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 such liabilities, other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any 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-3 SIGNATURES Pursuant to the requirements of the Securities Act, 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 on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, the State of California, on November 9, 2001. NETWORKS ASSOCIATES, INC. By: /s/ Stephen C. Richards ------------------------------------- Name: Stephen C. Richards Title: Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Stephen C. Richards and Kent H. Roberts, and each of them acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments 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 each of said attorneys-in-fact, or any substitute, 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 and on the dates indicated:
NAME TITLE DATE ---- ----- ---- /s/ George Samenuk President, Chief Executive Officer November 5, - ------------------------------------------ and Chairman of the Board of 2001 George Samenuk Directors (Principal Executive Officer) /s/ Stephen C. Richards Executive Vice President and Chief November 9, - ------------------------------------------ Financial Officer (Principal 2001 Stephen C. Richards Financial and Accounting Officer) and Attorney-in-Fact /s/ Edwin L. Harper Director November 9, - ------------------------------------------ 2001 Edwin L. Harper /s/ Leslie G. Denend Director November 9, - ------------------------------------------ 2001 Leslie G. Denend /s/ Virginia Gemmell Director November 9, - ------------------------------------------ 2001 Virginia Gemmell /s/ Robert M. Dutkowsky Director October 29, - ------------------------------------------ 2001 Robert M. Dutkowsky /s/ Robert Pangia Director November 9, - ------------------------------------------ 2001 Robert Pangia
II-4 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE ------ ------------- 4.1 Second Restated Certificate of Incorporation of Networks Associates, Inc., as amended on December 1, 1997. (1) 4.2 Restated Bylaws of Networks Associates, Inc. (2) 4.3 Indenture by and between Networks Associates, Inc. and State Street Bank and Trust Company of California, N.A., as Trustee, dated as of August 17, 2001. 4.4 Resale Registration Rights Agreement between Networks Associates, Inc. and Lehman Brothers Inc., dated as of August 17, 2001. 4.5 Form of Note (included in Exhibit 4.3). 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants. 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 24.1 Power of Attorney of certain directors and officers of Networks Associates, Inc. (see page II-4 of this Form S-3). 25.1 Form T-1 Statement of Eligibility of Trustee for Indenture under the Trust Indenture Act of 1939.
- ---------- (1) Incorporated by reference from the Registrant's Registration Statement on Form S-4 filed with the Commission on March 25, 1998. (2) Incorporated by reference from the Registrant's Quarterly Report on Form 10-Q as filed with the Commission on August 6, 2001. EX-4.3 3 f76705orex4-3.txt EXHIBIT 4.3 Exhibit 4.3 ================================================================================ INDENTURE BETWEEN NETWORKS ASSOCIATES, INC. AND STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE 5.25% CONVERTIBLE SUBORDINATED NOTES DUE 2006 DATED AS OF AUGUST 17, 2001 ================================================================================ i CROSS-REFERENCE TABLE*
Trust Indenture Indenture Act Section Section - ----------- ------- 310(a)(1)............................................................... 5.11 (a)(2).............................................................. 5.11 (a)(3).............................................................. n/a (a)(4).............................................................. n/a (a)(5).............................................................. 5.11 (b)................................................................. 5.3; 5.11 (c)................................................................. n/a 311(a).................................................................. 5.12 (b)................................................................. 5.12 (c)................................................................. n/a 312(a).................................................................. 2.9 (b)................................................................. 14.3 (c)................................................................. 14.3 313(a).................................................................. 5.7 (b)(1).............................................................. n/a (b)(2).............................................................. 5.7 (c)................................................................. 5.7; 14.2 (d)................................................................. 5.7 314(a)(1), (2), (3)..................................................... 9.4; 14.2 (a)(4).............................................................. 9.5; 14.6 (b)................................................................. n/a (c)(1).............................................................. 14.5 (c)(2).............................................................. 14.5 (c)(3).............................................................. n/a (d)................................................................. n/a (e)................................................................. 14.6 (f)................................................................. n/a 315(a).................................................................. 5.1(a) (b)................................................................. 5.6; 14.2 (c)................................................................. 5.1(b) (d)................................................................. 5.1(c) (e)................................................................. 4.14 316(a)(last sentence)................................................... 2.13, 7.2 (a)(1)(A)........................................................... 4.5 (a)(1)(B)........................................................... 4.4 (a)(2).............................................................. n/a
i
Trust Indenture Indenture Act Section Section - ----------- ------- (b)................................................................. 4.7 (c)................................................................. 7.4 317(a)(1)............................................................... 4.8 (a)(2).............................................................. 4.9 (b)................................................................. 2.6 318(a).................................................................. 14.1 (b)................................................................. n/a (c)................................................................. 14.1
- ------------------- "n/a" means not applicable. *This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. ii TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE........................................ 1 Section 1.1. Definitions................................................................. 1 Section 1.2. Incorporation by Reference of Trust Indenture Act...........................13 Section 1.3. Rules of Construction.......................................................14 ARTICLE 2 THE SECURITIES....................................................................14 Section 2.1. Title and Terms.............................................................14 Section 2.2. Form of Securities..........................................................16 Section 2.3. Legends.....................................................................17 Section 2.4. Execution, Authentication, Delivery and Dating of the Securities............21 Section 2.5. Registrar and Paying Agent..................................................22 Section 2.6. Paying Agent to Hold Assets in Trust........................................23 Section 2.7. General Provisions Relating to Registration, Transfer and Exchange..........23 Section 2.8. Book-Entry Provisions for the Global Securities.............................25 Section 2.9. Holder Lists................................................................26 Section 2.10. Persons Deemed Owners......................................................26 Section 2.11. Mutilated, Destroyed, Lost or Stolen Securities............................26 Section 2.12. Treasury Securities........................................................27 Section 2.13. Temporary Securities.......................................................27 Section 2.14. Cancellation...............................................................28 Section 2.15. CUSIP Numbers..............................................................28 Section 2.16. Defaulted Interest.........................................................28 Section 2.17. Transfer Provisions........................................................29 ARTICLE 3 SATISFACTION AND DISCHARGE OF INDENTURE...........................................31 Section 3.1. Discharge of Liability on Securities........................................31 Section 3.2. Repayment to the Company....................................................31 ARTICLE 4 DEFAULTS AND REMEDIES.............................................................32 Section 4.1. Events of Default...........................................................32 Section 4.2. Acceleration of Maturity; Rescission and Annulment..........................34 Section 4.3. Other Remedies..............................................................34 Section 4.4. Waiver of Past Defaults.....................................................35 Section 4.5. Control by Majority.........................................................35 Section 4.6. Limitation on Suit..........................................................35 Section 4.7. Unconditional Rights of Holders to Receive Payment and to Convert...........36 Section 4.8. Collection of Indebtedness and Suits for Enforcement by the Trustee.........36 Section 4.9. Trustee May File Proofs of Claim............................................37 Section 4.10. Restoration of Rights and Remedies.........................................38 Section 4.11. Rights and Remedies Cumulative.............................................38 Section 4.12. Delay or Omission Not Waiver...............................................38 Section 4.13. Priorities.................................................................38
Section 4.14. Undertaking for Costs......................................................39 Section 4.15. Waiver of Stay or Extension Laws...........................................39 ARTICLE 5 THE TRUSTEE.......................................................................40 Section 5.1. Certain Duties and Responsibilities.........................................40 Section 5.2. Certain Rights of Trustee...................................................41 Section 5.3. Individual Rights of Trustee................................................42 Section 5.4. Money Held in Trust.........................................................42 Section 5.5. Trustee's Disclaimer........................................................43 Section 5.6. Notice of Defaults..........................................................43 Section 5.7. Reports by Trustee to Holders...............................................43 Section 5.8. Compensation and Indemnification............................................43 Section 5.9. Replacement of Trustee......................................................44 Section 5.10. Successor Trustee by Merger, Etc...........................................45 Section 5.11. Corporate Trustee Required; Eligibility....................................45 Section 5.12. Collection of Claims Against the Company...................................45 ARTICLE 6 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..............................45 Section 6.1. Company May Consolidate, Etc., Only on Certain Terms........................45 Section 6.2. Successor Corporation Substituted...........................................46 ARTICLE 7 AMENDMENTS, SUPPLEMENTS AND WAIVERS...............................................47 Section 7.1. Without Consent of Holders of Securities....................................47 Section 7.2. With Consent of Holders of Securities.......................................48 Section 7.3. Compliance with Trust Indenture Act.........................................49 Section 7.4. Revocation of Consents and Effect of Consents or Votes......................49 Section 7.5. Notation on or Exchange of Securities.......................................49 Section 7.6. Trustee to Sign Amendment, Etc..............................................50 ARTICLE 8 MEETING OF HOLDERS OF SECURITIES..................................................50 Section 8.1. Purposes for Which Meetings May Be Called...................................50 Section 8.2. Call Notice and Place of Meetings...........................................50 Section 8.3. Persons Entitled to Vote at Meetings........................................51 Section 8.4. Quorum; Action..............................................................51 Section 8.5. Determination of Voting Rights; Conduct and Adjournment of Meetings.........52 Section 8.6. Counting Votes and Recording Action of Meetings.............................52 ARTICLE 9 COVENANTS.........................................................................53 Section 9.1. Payment of Principal, Redemption Price, Change of Control Purchase Price and Interest. ..............................................................53 Section 9.2. Maintenance of Offices or Agencies..........................................53 Section 9.3. Corporate Existence.........................................................54 Section 9.4. Reports.....................................................................54 Section 9.5. Compliance Certificate......................................................54 Section 9.6. Resale of Certain Securities................................................55
iv ARTICLE 10 REDEMPTION OF SECURITIES.........................................................56 Section 10.1. Optional Redemption........................................................56 Section 10.2. Notice to Trustee..........................................................56 Section 10.3. Selection of Securities to Be Redeemed.....................................56 Section 10.4. Notice of Redemption.......................................................57 Section 10.5. Effect of Notice of Redemption.............................................58 Section 10.6. Deposit and Payment of Redemption Price....................................58 Section 10.7. Securities Redeemed in Part................................................59 ARTICLE 11 PURCHASE AT THE OPTION OF A HOLDER UPON A CHANGE OF CONTROL......................59 Section 11.1. Purchase Right.............................................................59 Section 11.2. Change of Control Notice...................................................61 Section 11.3. Delivery of Change of Control Purchase Notice; Form of Change of Control Purchase Notice; Withdrawal of Change of Control Purchase Notice...62 Section 11.4. Exercise of Purchase Rights................................................63 Section 11.5. Deposit and Payment of the Purchase Price..................................64 Section 11.6. Effect of Delivery of Change of Control Purchase Notice and Purchase.......64 Section 11.7. Physical Securities Purchased in Part......................................65 Section 11.8. Covenant to Comply With Securities Laws Upon Purchase of Securities........65 Section 11.9. Repayment to the Company...................................................65 ARTICLE 12 CONVERSION OF SECURITIES.........................................................66 Section 12.1. Conversion Right; Expiration of Conversion Right; Conversion Price.........66 Section 12.2. Exercise of Conversion Right...............................................66 Section 12.3. Fractions of Shares........................................................68 Section 12.4. Adjustment of Conversion Price.............................................68 Section 12.5. Notice of Adjustments of Conversion Price..................................77 Section 12.6. Notice Prior to Certain Actions............................................78 Section 12.7. Company to Reserve Common Stock............................................79 Section 12.8. Common Stock to be Fully Paid and Nonassessable............................79 Section 12.9. Taxes on Conversions.......................................................79 Section 12.10. Cancellation of Converted Securities......................................79 Section 12.11. Effect of Reclassification, Consolidation, Merger or Sale.................79 Section 12.12. Responsibility of Trustee for Conversion Provisions.......................81 ARTICLE 13 SUBORDINATION....................................................................81 Section 13.1. Subordination to Senior Debt...............................................81 Section 13.2. Subrogation................................................................84 Section 13.3. Obligation of the Company is Absolute and Unconditional....................84 Section 13.4. Maturity of or Default on Senior Debt......................................85 Section 13.5. Payments on Securities Permitted...........................................85 Section 13.6. Effectuation of Subordination by Trustee...................................85 Section 13.7. Knowledge of Trustee.......................................................85 Section 13.8. Trustee's Relation to Senior Debt..........................................86 Section 13.9. Rights of Holders of Senior Debt Not Impaired..............................86
v Section 13.10. Modification of Terms of Senior Debt......................................86 Section 13.11. Certain Conversions Not Deemed Payment....................................87 ARTICLE 14 OTHER PROVISIONS OF GENERAL APPLICATION..........................................87 Section 14.1. Trust Indenture Act Controls...............................................87 Section 14.2. Notices....................................................................88 Section 14.3. Communication by Holders with Other Holders................................89 Section 14.4. Acts of Holders of Securities..............................................89 Section 14.5. Certificate and Opinion as to Conditions Precedent.........................90 Section 14.6. Statements Required in Certificate or Opinion..............................91 Section 14.7. Effect of Headings and Table of Contents...................................91 Section 14.8. Successors and Assigns.....................................................91 Section 14.9. Separability Clause........................................................91 Section 14.10. Benefits of Indenture.....................................................91 Section 14.11. Governing Law.............................................................91 Section 14.12. Counterparts..............................................................92 Section 14.13. Legal Holidays............................................................92 Section 14.14. Recourse Against Others...................................................92
EXHIBITS EXHIBIT A: Form of Security....................................................A-1 EXHIBIT B: Form of Conversion Notice...........................................B-1 EXHIBIT C: Form of Change of Control Purchase Notice...........................C-1 EXHIBIT D: Rule 144A Certificate...............................................D-1
vi INDENTURE, dated as of August 17, 2001 (this "INDENTURE"), between Networks Associates, Inc., a corporation duly organized and existing under the laws of the State of Delaware, having its principal office at 3965 Freedom Circle, Santa Clara, California 95054 (the "COMPANY") and State Street Bank and Trust Company of California, N.A., a national banking association organized and existing under the laws of the United States of America, as Trustee (the "TRUSTEE"), having its principal corporate trust office at 633 West 5th Street, Los Angeles, California 90071. RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 5.25% Convertible Subordinated Notes due 2006 (the "SECURITIES") having the terms, tenor, amount and other provisions hereinafter set forth, and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are duly executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders (as defined below) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. For all purposes of this Indenture and the Securities, the following terms are defined as follows: "ACT", when used with respect to any Holder of a Security, has the meaning specified in Section 14.4(a). "ADDITIONAL INTEREST" means all amounts, if any, payable pursuant to Section 3 of the Registration Rights Agreement. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT MEMBER" has the meaning specified in Section 2.8. "APPLICABLE STOCK" means (i) the Common Stock and (ii) in the event of a merger, consolidation or other similar transaction involving the Company that is otherwise permitted hereunder in which the Company is not the surviving corporation, the common stock, ordinary shares or American Depositary Shares of such surviving corporation or its direct or indirect parent corporation. "BANKRUPTCY LAW" means Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors. "BOARD OF DIRECTORS" means either the board of directors of the Company or any committee of that board empowered to act for it with respect to this Indenture. "BOARD RESOLUTION" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "BUSINESS DAY", when used with respect to any Place of Payment or Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment or Place of Conversion, as applicable, or the banking institutions in San Francisco, California, are authorized or obligated by law to close. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (however designated) in equity of such Person, whether now outstanding or issued after the date of this Indenture, including, without limitation, all common stock and preferred stock. "CHANGE OF CONTROL" means the occurrence of any of the following after the original issuance of the Securities when any of the following has occurred: (i) the acquisition by any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2), respectively, of the Exchange Act) deemed to be a "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchase, merger or other acquisition transactions of shares of the Company's Capital Stock entitling such person to exercise 50% or more of the total voting power of all shares of the Company's Capital Stock entitled to vote generally in elections of directors, other than any acquisition by the Company, any of its Subsidiaries or any of its employee benefit plans; or 2 (ii) any consolidation or merger of the Company with or into any other person (which for purposes of this definition has the meaning set forth in Section 13(d)(3) of the Exchange Act), any merger of another person into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the properties and assets of the Company to another person (other than to one or more of the Company's wholly owned Subsidiaries), other than in each case (x) any transaction a result of which holders of Capital Stock of the Company immediately prior to such transaction have the entitlement to exercise, directly or indirectly, at least 50% of the total voting power of all shares of Capital Stock of the Company entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction or (y) any such merger solely for the purpose of changing the jurisdiction of incorporation of the Company and resulting in a reclassification, conversion or exchange of outstanding Common Stock solely into shares of the common stock of the surviving entity; provided, however, that a Change of Control shall not be deemed to have occurred if (A) the Trading Price per share of the Common Stock for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the Change of Control or the public announcement of the Change of Control, in the case of a Change of Control under clause (i) above, or the period of 10 consecutive Trading Days ending immediately before the Change of Control, in the case of a Change of Control under clause (ii) above, shall equal or exceed 110% of the Conversion Price of the Securities in effect on each such Trading Day; or (B) at least 90% of the consideration in the transaction or transactions (other than payments for fractional shares and cash payments pursuant to dissenters' appraisal rights) constituting a Change of Control consists of shares of common stock traded or to be traded immediately following such Change of Control on a national securities exchange or the Nasdaq National Market and, as a result of the transaction or transactions, the Securities become convertible solely into such common stock (and any rights attached thereto). "CHANGE OF CONTROL NOTICE" has the meaning specified in Section 11.2. "CHANGE OF CONTROL PURCHASE DATE" has the meaning specified in Section 11.1 hereof. "CHANGE OF CONTROL PURCHASE NOTICE" has the meaning specified in Section 11.2 hereof. "CHANGE OF CONTROL PURCHASE PRICE" has the meaning specified in Section 11.1 hereof. "CLOSING DATE" means August 17, 2001 or such later date on which the Securities may be delivered pursuant to the Purchase Agreement. "COMMISSION" means the Securities and Exchange Commission or any successor agency. 3 "COMMON STOCK" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 12.11 hereof, shares issuable on conversion of the Securities shall include only shares of the class designated as Common Stock, par value $0.01 per share, of the Company at the date of execution of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company, provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "COMPANY" means the corporation named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "COMPANY ORDER" means a written order signed in the name of the Company by any Officer. "CONVERSION AGENT" means any Person authorized by the Company to convert Securities in accordance with Article 12. Initially, the Conversion Agent shall be State Street Bank and Trust Company of California, N.A. "CONVERSION DATE" means, with respect to any Holder, the date on which such Holder has satisfied all the requirements to convert its Securities pursuant to Section 12.2. "CONVERSION PRICE" has the meaning specified in Section 12.1(c). "CONVERSION RECORD DATE" has the meaning specified in Section 12.4(g). "CORPORATE TRUST OFFICE" means for purposes of presentation or surrender of Securities for payment, registration, transfer, exchange or conversion or for service of notices or demands upon the Company or for any other purpose of this Indenture, the office of the Trustee at which at any particular time its corporate trust business shall be administered, which at the date of this Indenture is located at 633 West 5th Street, 12th Floor, Los Angeles, California, Attention: Corporate Trust Administration (Networks Associates, Inc. 5.25% Convertible Subordinated Notes due 2006). "CORPORATION" means any corporation, association, limited liability company, company and business trust. "CURRENT MARKET PRICE" has the meaning set forth in Section 12.4(g). 4 "CUSTODIAN" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "DEBENTURES" means the Company's Zero Coupon Convertible Subordinated Debentures due 2018 issued by the Company pursuant to the Indenture, dated as of February 13, 1998, by and between the Company and State Street Bank and Trust Company of California, N.A., as trustee thereunder. "DEFAULT" means an event which is, or after notice or lapse of time or both would be, an Event of Default. "DEFAULTED PAYMENT" has the meaning specified in Section 4.1(a). "DEFAULTED INTEREST" has the meaning specified in Section 2.16. "DEPOSITARY" means The Depository Trust Company, its nominees and their respective successors. "DESIGNATED SENIOR DEBT" means any particular Senior Debt in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Debt shall be "Designated Senior Debt" for purposes of this Indenture; provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Debt to exercise the rights of Designated Senior Debt. If any payment made to any holder of any Designated Senior Debt or its Representative with respect to such Designated Senior Debt is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Designated Senior Debt effective as of the date of such rescission or return. "DOLLAR" or "$" means a U.S. dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "EVENT OF DEFAULT" has the meaning specified in Section 4.1. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and the rules and regulations of the Commission thereunder. "EXPIRATION TIME" has the meaning specified in Section 12.4(f). "FAIR MARKET VALUE" has the meaning set forth in Section 12.4(g). "GAAP" has the meaning set forth in Section 1.3. "GLOBAL SECURITY" has the meaning specified in Section 2.2. 5 "HOLDER", when used with respect to any Security, including any Global Security, means the Person in whose name the Security is registered in the Register. "INDEBTEDNESS" means, with respect to any Person, at any date of determination (without duplication): (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (including obligations of the Company in respect of overdrafts, foreign exchange contracts, currency exchange agreements, interest rate protection agreements, and any loans or advances from banks, whether or not evidenced by notes or similar instruments) or evidenced by bonds, debentures, notes or similar instruments (whether or not the recourse of the lender is to the whole of the assets of such Person or to only a portion thereof), (b) all reimbursement obligations and other liabilities (contingent or otherwise) of such Person with respect to letters of credit, bank guarantees or bankers' acceptances, (c) all obligations and liabilities (contingent or otherwise) in respect of leases of such Person (i) required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the balance sheet of such Person, or (ii) required, in conformity with generally accepted accounting principles, to be accounted for as an operating lease, provided either (A) such operating lease requires, at the end of the term thereof, that such Person make any payment other than accrued periodic rent in the event that such Person does not acquire the leased real property and related fixtures subject to such lease, or (B) such Person has an option to acquire the leased real property and related fixtures, whether such option is exercisable at any time or under specific circumstances, (d) all obligations of such Person (contingent or otherwise) with respect to an interest rate swap, cap or collar agreement or other similar instrument or agreement, (e) all direct or indirect guaranties or similar agreements by such Person in respect of, and obligations or liabilities (contingent or otherwise) of such Person to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of indebtedness, obligations or liabilities of another Person of the kind described in clauses (a) through (d), (f) any indebtedness or other obligations described in clauses (a) through (d) secured by any mortgage, pledge, lien or other encumbrance existing on property which is owned or held by such Person, regardless of whether the indebtedness or other obligation secured thereby shall have been assumed by such Person and 6 (g) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any indebtedness, obligation or liability of the kind described in clauses (a) through (f). "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "INITIAL PURCHASER" mean Lehman Brothers Inc., as the initial purchaser under the Purchase Agreement. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as that term is defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act. "INSTRUMENT" means any bond, debenture, note or similar instrument. "INTEREST" means, with respect to any Security, the interest payable on such Security based upon the applicable Interest Rate and, if applicable, any Defaulted Interest. "INTEREST PAYMENT DATE" means each of February 15 and August 15, provided, however, that if any such date is not a Business Day, the Interest Payment Date shall be the next succeeding Business Day. "INTEREST RATE" has the meaning specified in Section 2.1(c). "MATURITY" means the date on which the Principal with respect to any Outstanding Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by acceleration, conversion, call for redemption, exercise of a purchase right or otherwise. "NASDAQ NATIONAL MARKET" means the National Association of Securities Dealers Automated Quotation National Market or any successor national securities exchange or automated over-the-counter trading market in the United States. "NON-ELECTING SHARE" has the meaning specified in Section 12.11. "OFFICER" of the Company means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, any Vice President, the Secretary or any Assistant Secretary of the Company. "OFFICERS' CERTIFICATE" means, with respect to the Company, a certificate signed by both (1) the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and (2) so long as not the same as the officer signing pursuant to clause (1), the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Trustee. 7 "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel to the Company (and may include directors or employees of the Company) and in form and substance acceptable to the Trustee, which acceptance shall not be unreasonably withheld. "OUTSTANDING", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except Securities: (i) previously canceled by the Trustee or delivered to the Trustee for cancellation; (ii) for the payment or redemption of which money in the necessary amount has been previously deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided, however, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture; (iii) which have been paid in exchange for or in lieu of other Securities which have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) previously converted into Common Stock pursuant to Article 12; provided, however, that in determining whether the Holders of the requisite Principal of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent, waiver, amendment or modification hereunder, Securities held for the account of the Company or of any of its Affiliates shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in making such a determination or relying upon any such quorum, consent or vote, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. "PAYING AGENT" has the meaning specified in Section 2.5. "PAYMENT BLOCKAGE NOTICE" has the meaning specified in Section 13.1(d). "PERSON" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. 8 "PHYSICAL SECURITIES" means Securities issued in definitive, fully registered form without interest coupons, substantially in the form of Exhibit A hereto, with the applicable legend as provided in Section 2.3. "PLACE OF CONVERSION" means any city in which any Conversion Agent is located. "PLACE OF PAYMENT" means any city in which any Paying Agent is located. "PREDECESSOR SECURITY" of any particular Security, means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.11 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "PRINCIPAL" means, with respect to any Outstanding Security, the principal amount of that Security, including the Redemption Price, if applicable, and the Change of Control Purchase Price, if applicable, payable with respect to that Security. "PURCHASE AGREEMENT" means the Purchase Agreement, dated August 13, 2001, among the Company and the Initial Purchaser relating to the offering and sale of the Securities. "PURCHASE RIGHT" has the meaning provided in Section 11.1. "PURCHASED SHARES" has the meaning assigned to it in Section 12.4(f). "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REDEMPTION DATE", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE", when used with respect to any Security to be redeemed, means the price per Security at which such Security may be redeemed pursuant to Section 10.1. "REFERENCE DEALER" means a dealer engaged in the trading of convertible securities selected by the Company for the purpose for which such dealers are quoted or otherwise to which they are referred herein. "REFERENCE PERIOD" has the meaning set forth in Section 12.4(d). "REGISTER" has the meaning specified in Section 2.5. "REGISTRAR" has the meaning specified in Section 2.5. "REGISTRATION RIGHTS AGREEMENT" means the Resale Registration Rights Agreement dated as of August 17, 2001, among the Company and the Initial Purchaser. 9 "REGULAR RECORD DATE" for the Interest payable on the Securities means the February 1 and the August 1 (whether or not a Business Day), as applicable, next preceding the corresponding Interest Payment Date. "REPRESENTATIVE" means (a) the indenture trustee or other trustee, agent or representative for any Senior Debt or (b) with respect to any Senior Debt that does not have any such trustee, agent or other representative, (i) in the case of such Senior Debt issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Debt, any holder or owner of such Senior Debt acting with the consent of the required Persons necessary to bind such holders or owners of such Senior Debt and (ii) in the case of all other such Senior Debt, the holder or owner of such Senior Debt. "RESPONSIBLE OFFICER", when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "RESTRICTED SECURITIES" means the Securities defined as such in Section 2.3. "RESTRICTED SECURITIES LEGEND" has the meaning set forth in Section 2.3(a). "REVIEWED AGREEMENTS" means, with respect to any Person, any agreement filed or which would be required to be filed as an Exhibit to an Annual Report on Form 10-K of such Person pursuant to Item 601(b)(10) of Regulation S-K of the Exchange Act if such Form 10-K was filed as of the date that a legal opinion is delivered pursuant to this Indenture covering the period of time from the date of the last Form 10-K filed on behalf of such Person and up to an including the date of such opinion, as certified to such counsel by such Person. "RIGHTS AGREEMENT" means the Preferred Shares Rights Agreement, dated as of October 20, 1998, between the Company and BankBoston, N.A. "RULE 144" means Rule 144 as promulgated under the Securities Act (including any successor rule thereof), as the same may be amended from time to time. "RULE 144A" means Rule 144A as promulgated under the Securities Act (including any successor rule thereof), as the same may be amended from time to time. "SECURITIES" has the meaning ascribed to it in the first paragraph under the caption "Recitals of the Company". "SECURITIES ACT" means the Securities Act of 1933, as amended and the rules and regulations of the Commission thereunder. "SECURITIES CUSTODIAN" means State Street Bank and Trust Company of California, N.A., as custodian with respect to the Securities in global form, or any successor entity thereto. 10 "SENIOR DEBT" means the principal of, premium, if any, interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), original issue discount, rent and end of term payments payable on or in connection with, and, to the extent not included in the foregoing, all amounts payable as fees, costs, expenses, liquidated damages, indemnities, repurchase and other put obligations and other amounts to the extent accrued or due on or in connection with, Indebtedness of the Company, whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the foregoing). Notwithstanding the foregoing, the term Senior Debt shall not include any of the following: (1) any Indebtedness of the Company that is not secured; provided, however that this clause (i) shall no longer be an exception to the term Senior Debt upon and after this first date that there is no longer at least $60 million aggregate principal amount at maturity of the Debentures outstanding; provided further that any Debentures purchased, redeemed or otherwise acquired by the Company shall be deemed to be outstanding unless and until such Debentures have been canceled or retired, (2) Indebtedness evidenced by the Securities, (3) the Debentures, (4) Indebtedness of the Company to any subsidiary of the Company, a majority of the voting stock of which is owned, directly or indirectly, by the Company, (5) accounts payable or other indebtedness to trade creditors created or assumed by the Company in the ordinary course of business and (6) any particular Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof expressly provides that such Indebtedness shall not be senior in right of payment to, or is pari passu with, or is subordinated or junior to, the Securities. If any payment made to any holder of any Senior Indebtedness or its Representative with respect to such Senior Indebtedness is rescinded or must otherwise be returned by such holder or Representative upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the reinstated Indebtedness of the Company arising as a result of such rescission or return shall constitute Senior Indebtedness effective as of the date of such rescission or return. "SHELF REGISTRATION STATEMENT" has the meaning set forth in the Registration Rights Agreement. "SIGNIFICANT SUBSIDIARY" has the meaning assigned to it under Rule 405 of the Securities Act. 11 "STATED MATURITY" has the meaning assigned to it in Section 2.1. "SUBSIDIARY" means a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code Section 77aaa-77bbbb), as in effect on the date of this Indenture; provided, however, that in the event the TIA is amended after such date, "TIA" means, to the extent required by such amendment, the Trust Indenture Act of 1939, as so amended, or any successor statute. "TRADING DAY" means: (1) if the applicable security is quoted on the Nasdaq National Market, a day on which the Nasdaq National Market is open for business; (2) if that security is not quoted on the Nasdaq National Market, a day on which trades may be made on the New York State Exchange; (3) if that security is not so listed on the New York Stock Exchange and not quoted on the Nasdaq National Market, a day on which the principal U.S. securities exchange on which the securities are listed is open for business; or (4) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "TRADING PRICE" of a security on any date of determination means: (1) the closing sales price as reported by the Nasdaq National Market on such date; (2) if such security is not so reported, the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security (regular way) on the New York Stock Exchange on such date; (3) if such security is not listed for trading on the New York Stock Exchange on any such date, the closing sale price as reported in the composite transactions for the principal U.S. securities exchange on which such security is so listed; (4) if such security is not listed on a U.S. national or regional securities exchange, the last price quoted by Interactive Data Corporation for such security on such date or, if Interactive Data Corporation is not quoting such price, a similar quotation service selected by the Company; 12 (5) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security on such date from at least two dealers recognized as market-makers for such security selected by the Company for this purpose; or (6) if such security is not so quoted, the average of that last bid and ask prices for such security on such date from a dealer engaged in the trading of convertible securities selected by the Company for this purpose. "TRIGGER EVENT" has the meaning specified in Section 12.4(d). "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "VICE PRESIDENT", when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "VOTING STOCK" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. SECTION 1.2. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Securities; "INDENTURE SECURITY HOLDER" means a Holder; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; and "OBLIGOR" on the Securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. 13 SECTION 1.3. RULES OF CONSTRUCTION. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States prevailing at the time of any relevant computation hereunder ("GAAP"); (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (4) all references to section and article numbers in this Indenture shall refer to sections and articles hereof, unless otherwise specified. ARTICLE 2 THE SECURITIES SECTION 2.1. TITLE AND TERMS. (a) The Securities shall be designated as the "5.25% Convertible Subordinated Notes due 2006" of the Company. The aggregate Principal of Securities which may be authenticated and delivered under this Indenture is limited to $300 million (or $345 million if the option set forth in Section 2 of the Purchase Agreement is exercised in full), except for Securities authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of other Securities pursuant to Sections 2.7, 2.8, 2.12, 7.5, 10.7, 11.7 or 12.2 hereof. The Securities shall be issuable in denominations of $1,000 or integral multiples thereof. (b) The Securities shall mature on August 15, 2006 (the "STATED MATURITY"). (c) The Securities shall bear Interest from August 17, 2001 until the Principal thereof is paid or made available for payment, or until such date on which the Securities are converted, redeemed or purchased as provided herein, at a rate of 5.25% per annum (the "INTEREST RATE"). Interest shall be payable semiannually in arrears on each Interest Payment Date. (d) Interest on the Securities shall be computed (i) for any full semi-annual period for which a particular Interest Rate is applicable, on the basis of a 360-day year of twelve 30-day months and (ii) for any period for which a particular Interest Rate is applicable for less than a full semiannual period for which interest is calculated, on the basis of a 30-day month and, for such periods of less than a month, the actual number of days elapsed over a 30-day month. 14 (e) Interest shall be due and payable on a Security as follows: (1) A registered Holder of any Security as of the close of business on a Regular Record Date shall be entitled (except as otherwise indicated in this Section 2.1(e)) to receive and shall receive, as the registered Holder as of such Regular Record Date, Interest on such Security on the corresponding Interest Payment Date (other than any Security whose Stated Maturity is prior to such Interest Payment Date). (2) In the event that a Security becomes subject to redemption pursuant to Article 10 and the Redemption Date occurs after a Regular Record Date and prior to the corresponding Interest Payment Date, the Person whose Securities become subject to redemption (and only such Person rather than the Holder as of such Regular Record Date) shall be entitled to receive and shall receive accrued and unpaid Interest from the preceding Interest Payment Date (or such earlier date on which Interest was last paid) to but not including the Redemption Date on such Security, even if such Person is not the Holder of such Security, and in such circumstances no Interest shall be paid to the Holder of such Security as of the close of business on the Regular Record Date; provided that in the event that the Redemption Date is the Interest Payment Date, the Holder of a Security as of the close of business on a Regular Record Date shall be entitled to receive such Interest in accordance with Section 2.1(e)(i) hereof and not the Person submitting the Securities for redemption on such Redemption Date. (3) In the event that a Security becomes subject to purchase pursuant to Article 11 and the Change of Control Purchase Date occurs after a Regular Record Date and prior to the corresponding Interest Payment Date, the Person whose Securities become subject to purchase (and only such Person rather than the Holder as of such Regular Record Date) shall be entitled to receive and shall receive accrued and unpaid Interest from the preceding Interest Payment Date (or such earlier date on which Interest was last paid) to but not including the Change of Control Purchase Date on such Security, even if such Person is not the Holder of such Security, and in such circumstances no Interest shall be paid to a registered Holder of any Security as of the close of business on the Regular Record Date; provided that in the event that the Change of Control Purchase Date is the Interest Payment Date, the Holder of a security as of the close of business on a Regular Record Date shall be entitled to receive such Interest in accordance with Section 2.1(e)(i) hereof and not the Person submitting the Securities for purchase on such Change of Control Purchase Date. (4) In the event that a Security is converted pursuant to Article 12, the Holder who converts such Security on any date other than an Interest Payment Date shall not be entitled to accrued and unpaid Interest from the preceding Interest Payment Date until the Conversion Date, or otherwise, on such Security, such amounts being deemed to have been paid by receipt of shares of Common Stock in full rather than canceled, extinguished or forfeited; and any Holder which converts a Security after a Regular Record Date but prior to the 15 corresponding Interest Payment Date will receive accrued and unpaid Interest for such period on such Interest Payment Date but will be required to remit to the Company an amount equal to that Interest at the time such Holder surrenders the Security for conversion, provided that such Holder will not be required to remit such Interest if, prior to conversion, the Company has called such Security for redemption on a Redemption Date that is on or prior to the third Business Day after such Interest Payment Date and the Holder converts such Security prior to the applicable Redemption Date. (f) In addition to the amounts set forth in Sections 2.1(e), Holders shall be entitled to receive Additional Interest, if any, in addition to receipt or payment of the any Interest on such Security pursuant and subject to the Registration Rights Agreement, but in no event shall a Holder be required to repay any amounts of Additional Interest such Holder receives following the remittance of Interest as specified in Section 2.1(e)(4). Any amounts related to Additional Interest shall be received or paid on dates corresponding to the payment date of Interest on such Security pursuant to the Registration Rights Agreement. (g) Payment of any Principal of (to the extent paid in cash), premium, if any, Redemption Price, Change of Control Purchase Price and Interest and Additional Interest, if any, on Global Securities shall be payable by the Company to the Depositary in immediately available funds. (h) Payment of any Principal on Physical Securities shall be made at the office or agency of the Company maintained for such purpose, initially the Corporate Trust Office of the Trustee. Interest and Additional Interest, if any, on Physical Securities will be payable by (i) a U.S. Dollar check drawn on a bank in The City of New York mailed to the address of the Person entitled thereto as such address shall appear in the Register, or (ii) upon written application to the Registrar not later than the relevant record date by a Holder of an amount of Principal of Securities in excess of $5,000,000, wire transfer in immediately available funds, which application shall remain in effect until the Holder notifies, in writing, the Registrar to the contrary. (i) The Securities may be redeemable at the option of the Company as provided in and subject to Article 10. (j) The Securities shall be purchased by the Company at the option of Holders as provided in and subject to Article 11. (k) The Securities shall be convertible at the option of the Holders as provided in and subject to Article 12. (l) The Securities shall be subordinated in right of payment to Senior Debt of the Company as provided and subject to in Article 13 hereof. SECTION 2.2. FORM OF SECURITIES. (a) Except as otherwise provided pursuant to this Section 2.2, the Securities are issuable in fully registered, without coupons, in substantially the Form of Exhibit A hereto, with 16 applicable legends as are provided for in Section 2.3. The Securities are not issuable in bearer form. The terms and provisions contained in the form of Security shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (b) The Securities are being offered and sold by the Company pursuant to the Purchase Agreement. Securities offered and sold to QIBs in accordance with Rule 144A, as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in fully registered form without interest coupons, substantially in the form of Exhibit A hereto, with the applicable legends as provided in Section 2.3 (each a "GLOBAL SECURITY" and collectively the "GLOBAL SECURITIES"). Each Global Security shall be duly executed by the Company and authenticated and delivered by the Trustee, and shall be registered in the name of the Depositary or its nominee and retained by the Trustee, as Securities Custodian, at its Corporate Trust Office. The aggregate Principal of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Securities Custodian, and of the Depositary or its nominee, as hereinafter provided. (c) Physical Securities acquired by QIBs in accordance with Rule 144A may be exchanged for interests in Global Securities pursuant to Sections 2.8(d) and 2.17(b) only. Physical Securities shall be duly executed by the Company and authenticated and delivered by the Trustee shall be registered in the name of the Institutional Accredited Investor purchasing such Security pursuant to Section 2.17(a). SECTION 2.3. LEGENDS. (a) RESTRICTED SECURITIES LEGENDS. Each Security issued hereunder shall, upon issuance, bear the legend set forth in Section 2.3(a)(i), and each share of Common Stock issued upon conversion of any Security issued hereunder, shall, upon issuance, bear the legend set forth in Section 2.3(a)(ii) (each such legend, a "RESTRICTED SECURITIES LEGEND"), and such legend shall not be removed except as provided in Section 2.3(a)(iii). Each Security that bears or is required to bear the Restricted Securities Legend set forth in Section 2.3(a)(i) (together with each share of Common Stock issued upon conversion of such Security that bears or is required to bear the Restricted Securities Legend set forth in Section 2.3(a)(ii), collectively, the "RESTRICTED SECURITIES") shall be subject to the restrictions on transfer set forth in this Section 2.3(a) (including the Restricted Securities Legend set forth below), and the Holder of each such Restricted Security, by such Holder's acceptance thereof, shall be deemed to have agreed to be bound by the restrictions on transfer set forth herein. As used in Section 2.3(a), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. (i) Restricted Securities Legend for Securities. 17 Except as provided in Section 2.3(a)(iii), until two years after the original issuance date of any Security, any certificate evidencing such Security (and all Securities issued in exchange therefor or substitution thereof, other than share of Common Stock, if any, issued upon conversion thereof which shall bear the legend set forth in Section 2.3(a)(ii), if applicable) shall bear a Restricted Securities Legend in substantially the following form: THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT, OR IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO NETWORKS ASSOCIATES, INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) TO AN INSTITUTIONAL INVESTOR THAT IT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. (ii) Restricted Securities Legend for Common Stock Issued Upon Conversion of the Securities. 18 Until two years after the original issuance date of any Security, any stock certificate representing Common Stock issued upon conversion of such Security shall bear a Restricted Securities Legend in substantially the following form: THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT, OR IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO NETWORKS ASSOCIATES, INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) TO AN INSTITUTIONAL INVESTOR THAT IT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT OF 1933 PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. (iii) Removal of the Restricted Securities Legends. Each Security or share of Common Stock issued upon conversion of any Security (other than shares of Common Stock issued upon conversion of a Security that previously were sold pursuant to a registration statement that has been declared effective under the Securities Act 19 and which continues to be effective at the time of such sale) shall bear the applicable Restricted Securities Legend set forth in Section 2.3(a)(i) or 2.3(a)(ii), as applicable, until the earlier of: (1) the date which is two years after the original issuance date of such Security; and (2) the date such Security has, or such shares of Common Stock, have been sold either pursuant to the exemption provided by Rule 144 under the Securities Act (if available) or pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such sale). The Holder must give notice thereof to the Trustee, as applicable. In the event Rule 144(k) as promulgated under the Securities Act is amended to shorten the two-year period under Rule 144(k), then, the references in the restrictive legends set forth above to "TWO YEARS", and in the corresponding transfer restrictions described above, the Securities and the shares of Common Stock will be deemed to refer to such shorter period, from and after receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel to that effect. As soon as practicable after the Company knows of the effectiveness of any such amendment to shorten the two-year period under Rule 144(k), unless such changes would otherwise be prohibited by, or would cause a violation of, the federal securities laws applicable at the time, the Company will provide to the Trustee an Officers' Certificate and an Opinion of Counsel as to the effectiveness of such amendment and the effectiveness of such change to the restrictive legends and transfer restrictions. Notwithstanding the foregoing, the Restricted Securities Legend may be removed if there is delivered to the Company such satisfactory evidence, which may include an opinion of independent counsel, as may be required by the Company in its sole discretion that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Securities or Common Stock will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the written direction of the Company, shall authenticate and deliver in exchange for such Securities another Security or Securities having an equal aggregate Principal and Stated Maturity that does not bear such legend. If the Restricted Securities Legend has been removed from a Securities as provided above, no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other Security is a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a Restricted Securities Legend to appear thereon. Any Security (or security issued in exchange or substitution thereof) as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the Restricted Securities Legend set forth in Section 2.3(a)(i) as set forth therein have been satisfied may, upon surrender of such Security for exchange to the Registrar in accordance with the provisions of Section 2.7 hereof, be exchanged for a new Security or Securities, of like tenor and aggregate Principal and Stated Maturity which shall not bear the Restricted Securities Legend required by Section 2.3(a)(i). 20 Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the Restricted Securities Legend set forth in Section 2.3(a)(ii) as set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Company, be exchanged for a new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the Restricted Securities Legend required by Section 2.3(a)(ii). (b) GLOBAL SECURITY LEGEND. Each Global Security shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. SECTION 2.4. EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF THE SECURITIES. (a) Two Officers shall execute the Securities on behalf of the Company by manual or facsimile signature. Securities bearing the manual or facsimile signatures of individuals who were at the time of the execution of the Securities the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of authentication of such Securities. (b) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such 21 Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. No Security shall be entitled to any benefit under this Indenture, or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. The Trustee may appoint an authenticating agent or agents reasonably acceptable to the Company with respect to the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. (c) Each Security shall be dated the date of its authentication. The Trustee shall authenticate and deliver Securities for original issue in an aggregate amount of Principal of up to $300 million (or $345 million if the option granted to the Initial Purchaser set forth in Section 2 of the Purchase Agreement is exercised in full) upon one or more Company Orders without any further action by the Company. The aggregate amount of Principal (not including the Redemption Price, if applicable, or the Change of Control Purchase Price, if applicable) of Securities Outstanding at any time may not exceed the amount set forth in the foregoing sentence. SECTION 2.5. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "REGISTRAR") and an office or agency where Securities may be presented for payment (the "PAYING AGENT"). The Registrar shall keep a register of the Securities (the "REGISTER") and of their transfer and exchange. The Company may appoint one or more co-Registrars and one or more additional Paying Agents for the Securities. The term "Paying Agent" includes any additional paying agent and the term "Registrar" includes any additional registrar. The Company may change any Paying Agent or Registrar without prior notice to any Holder. The Company will cause each Paying Agent (if such Paying Agent is other than State Street Bank and Trust Company of California, N.A.) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums of money or Common Stock held by it for the payment of any amounts due and payable in respect of the Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in this Indenture; (2) give the Trustee notice of any Default by the Company in the making of any such payment; and 22 (3) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company shall give prompt written notice to the Trustee of the name and address of any Paying Agent who is not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent or Registrar; provided, however, that none of the Company, its subsidiaries or the Affiliates of the foregoing shall act: (1) as Paying Agent in connection with redemptions, offers to purchase and discharges, except as otherwise specified in this Indenture, and (2) as Paying Agent or Registrar if a Default or Event of Default has occurred and is continuing. The Company hereby initially appoints State Street Bank and Trust Company of California, N.A. as Registrar and Paying Agent for the Securities. SECTION 2.6. PAYING AGENT TO HOLD ASSETS IN TRUST. Not later than 11:00 a.m. (New York City time) on or prior to each due date of payments in respect of any Security, the Company shall deposit with one or more Paying Agents a sum of money in immediately available funds or Common Stock sufficient to make such payments when so becoming due. The Company at any time may require a Paying Agent to pay all money or Common Stock or Applicable Stock held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money or Common Stock or Applicable Stock so paid over to the Trustee. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money and Common Stock held by the Paying Agent for the making of payments in respect of the Securities and shall notify the Trustee of any Default by the Company in making any such payment. At any time during the continuance of any such Default, the Paying Agent shall, upon the written request of the Trustee, forthwith pay to the Trustee all money and Common Stock so held in trust. If the Company shall act as a Paying Agent, it shall, prior to or on each such due date, segregate and hold in trust for the benefit of the Holders a sum sufficient with monies held by all other Paying Agents, to pay such amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as provided in this Indenture, and shall promptly notify the Trustee of its action or failure to act. SECTION 2.7. GENERAL PROVISIONS RELATING TO REGISTRATION, TRANSFER AND EXCHANGE. The Securities are issuable only in registered form. A Holder may transfer a Security only by written application to the Registrar stating the name of the proposed transferee 23 and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register. Furthermore, any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Holder of such Global Security (or its agent) and that ownership of a beneficial interest in the Global Security shall be required to be reflected in a book-entry. Notwithstanding the foregoing, in the case of a Restricted Security, a beneficial interest in a Global Security that is transferred in reliance on an exemption from the registration requirements of the Securities Act other than in accordance with Rule 144 or Rule 144A may only be transferred for a Physical Security. When Securities are presented to the Registrar with a request to register the transfer or to exchange them for an equal amount of Principal of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if the requirements hereunder for such transactions are met (including that such Securities are duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder). Subject to Section 2.4, to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Sections 2.14, 7.5 or 10.7). Neither the Company nor the Registrar shall be required to exchange or register a transfer of any Securities (or any portion thereof): (1) for a period of 15 days prior to the day of any selection of Securities for redemption under Article 10 hereof; (2) so selected for redemption or, if a portion of any Security is selected for redemption, such portion thereof selected for redemption; (3) surrendered for conversion or, if a portion of any Security is surrendered for conversion, such portion thereof surrendered for conversion; or (4) surrendered for purchase (and not validly and timely withdrawn) pursuant to Article 11. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 24 SECTION 2.8. BOOK-ENTRY PROVISIONS FOR THE GLOBAL SECURITIES. (a) The Global Securities initially shall: (1) be registered in the name of the Depositary; and (2) be delivered to the Trustee as custodian for such Depositary, for credit to the accounts of the members of, participants in, the Depositary (the "AGENT MEMBERS") holding the Securities evidenced thereby; and (3) bear the Restricted Securities Legend set forth in Section 2.3(a)(i) until such time as such Restricted Securities Legend may be removed in accordance with Section 2.3. Agent Members shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Securities Custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing contained herein shall prevent the Company, the Trustee or any agent of the Company or Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and the Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) The registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (c) A Global Security may not be transferred, in whole or in part, to any Person other than the Depositary, and no such transfer to any such other Person may be registered. Beneficial interests in a Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.17 hereof. (d) If at any time: (1) the Depositary notifies the Company in writing that it is no longer willing or able to continue to act as Depositary for the Global Securities, or the Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary for the Global Securities is not appointed by the Company within 90 days of such notice or cessation; or (2) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Physical Securities under this Indenture in exchange for all or any part of the Securities represented by a Global Security or Global Securities. 25 then the Depositary shall surrender such Global Security or Global Securities to the Trustee for cancellation and the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate and Company Order for the authentication and delivery of Securities, shall authenticate and deliver in exchange for such Global Security or Global Securities, Physical Securities in an aggregate amount of Principal equal to the aggregate amount of Principal of such Global Security or Global Securities. Such Physical Securities shall be registered in such names as the Depositary shall identify in writing as the beneficial owners of the Securities represented by such Global Security or Global Securities (or any nominee thereof). (e) Notwithstanding the foregoing, in connection with any transfer of beneficial interests in a Global Security to the beneficial owners thereof pursuant to Section 2.8(d) hereof, the Registrar shall reflect on its books and records the date and a decrease in the aggregate amount of Principal of such Global Security in an amount equal to the aggregate amount of Principal of the beneficial interest in such Global Security to be transferred. SECTION 2.9. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with Section 312(a) of the TIA. If the Trustee is not the Registrar, the Company shall furnish to the Trustee prior to or on each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders relating to such Interest Payment Date or request, as applicable. SECTION 2.10. PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of Principal of, or premium, if any, on the Security or the payment of any Redemption Price or Change of Control Purchase Price in respect thereof and Interest thereon, or Additional Interest, if any, for any purpose under this Indenture, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 2.11. MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and aggregate amount of Principal and bearing a number not contemporaneously outstanding. If there is delivered to the Company and the Trustee (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and 26 (2) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of actual notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and, upon request, the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and amount of Principal, and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the condition set forth in the preceding paragraph. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 2.11 in lieu of any destroyed, lost or stolen Security shall constitute an original contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 2.11 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.12. TREASURY SECURITIES. In determining whether the Holders of the requisite amount of Principal of Outstanding Securities are present at a meeting of Holders for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any Affiliate of the Company shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only such Securities of which the Trustee has received written notice and are so owned shall be so disregarded. SECTION 2.13. TEMPORARY SECURITIES. Pending the preparation of Securities in definitive form, the Company may execute and the Trustee shall, upon written request of the Company, authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the Securities in definitive form but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the 27 Company and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the Securities in definitive form. Without unreasonable delay, the Company will execute and deliver to the Trustee Securities in definitive form (other than in the case of Securities in global form) and thereupon any or all temporary Securities (other than any such Securities in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 9.2 and the Trustee shall authenticate and deliver in exchange for such temporary Securities an equal amount of Principal of Securities in definitive form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Securities in definitive form authenticated and delivered hereunder. SECTION 2.14. CANCELLATION. All Securities surrendered for payment, redemption, purchase, conversion, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered shall be canceled promptly by the Trustee, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. Upon written instructions of the Company, the Trustee shall dispose of canceled Securities in accordance with its procedures for the disposition of cancelled securities in effect as of the date of such disposition. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless the same are delivered to the Trustee for cancellation. SECTION 2.15. CUSIP NUMBERS. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any such notice and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. SECTION 2.16. DEFAULTED INTEREST. If the Company fails to make a payment of Principal of, premium, if any, Redemption Price, Change of Control Purchase Price, or Interest or Additional Interest, if any, on any Security when due and payable, it shall pay such Interest on such amounts (to the extent lawful), which shall be calculated using the applicable Interest Rate (such amounts, the "DEFAULTED INTEREST"); provided that, if the Company elects to satisfy its obligation to pay the Change of Control Price in Applicable Stock pursuant to Section 11.1 and fails to have such shares delivered to the applicable Holders, then it shall pay Defaulted Interest on the amount of cash that would otherwise have been payable pursuant to Section 11.1 if it had not made that election. It may elect to pay such Defaulted Interest, plus any other Interest payable on it, to the Persons who are Holders on which the interest is due on a subsequent special record date. The 28 Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security. The Company shall fix any such special record date and payment date for such payment. At least 15 days before any such special record date, the Company shall mail to Holders affected thereby a notice that states the special record date, the Interest Payment Date and amount to be paid. SECTION 2.17. TRANSFER PROVISIONS. Unless a Security is (i) transferred after the time period referred to in Rule 144(k) under the Securities Act or (ii) sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such sale), the following provisions shall apply to any sale, pledge or other transfer of Securities: (a) TRANSFERS OF SECURITIES TO AN INSTITUTIONAL ACCREDITED INVESTOR WHICH IS NOT A QIB. The following provisions shall apply with respect to the registration of any proposed transfer of Securities to an Institutional Accredited Investor which is not a QIB: (i) The Registrar shall register the transfer if the proposed transferee has delivered to the Trustee (A) a certificate substantially in the form of Exhibit D annexed hereto and (B) such opinion of counsel and other evidence satisfactory to the Company that such transfer is in compliance with the Securities Act, as requested by the Company. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in Global Securities, upon receipt by the Registrar of the documents required by clause (i) of this Section 2.17(a) and instructions given in accordance with the procedures of the Depositary and the Registrar, the Registrar shall reflect on its books and records and shall instruct the Depositary to note or cause to be noted on such Global Securities, the date and a decrease in the Principal of the Global Securities in an amount equal to the Principal of the beneficial interest in the Global Securities to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount registered in the name of the transferee. (iii) If the Securities to be transferred consist of Physical Securities, upon receipt by the Registrar of the documents required by clause (i) of this Section 2.17(a), the Company shall execute and the Trustee shall authenticate and deliver, new Physical Securities registered in the name of the transferee and the Trustee shall cancel the Physical Securities presented for transfer. (b) TRANSFER OF SECURITIES TO A QIB. The following provisions shall apply with respect to the registration of any proposed transfer of Securities to a QIB: (i) If the Securities to be transferred consist of a beneficial interest in the Global Securities, the transfer of such interest may be effected only through the book-entry systems maintained by the Depositary. 29 (ii) If the Securities to be transferred consist of Physical Securities, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating (or has otherwise advised the Company and the Registrar in writing) that the sale has been made: in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating or has otherwise advised the Company and the Registrar in writing that: (1) it is purchasing the Securities for its own account or an account with respect to which it exercises sole investment discretion, in each case for investment and not with a view to distribution; (2) it and any such account is a QIB within the meaning of Rule 144A; (3) it is aware that the sale to it is being made in reliance on Rule 144A; (4) it acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information; and (5) it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. In addition, the Registrar shall reflect on its books and records the date and an increase in the Principal of the Global Securities in an amount equal to the aggregate Principal of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. (c) OTHER EXCHANGES. In the event that Global Securities are exchanged for Securities in definitive registered form pursuant to Section 2.8 prior to the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with the provisions of clauses (a) and (b) above (including the certification requirements intended to ensure that such transfers comply with Rule 144A) and such other procedures as may from time to time be adopted by the Company. (d) GENERAL. By its acceptance of any Security or shares of Common Stock issuable upon conversion of the Securities bearing the Restricted Securities Legend, each Holder of such Security or shares of Common Stock acknowledges the restrictions on transfer of such Security or shares of Common Stock set forth in this Indenture and agrees that it will transfer such Security and such Common Stock only as provided in this Indenture. 30 The Registrar shall not register a transfer of any Security unless such transfer complies with the restrictions on transfer of such Security set forth in this Indenture. The Registrar shall be entitled to receive and conclusively rely on written instructions from the Company verifying that such transfer complies with such restrictions on transfer. In connection with any transfer of Securities, each Holder agrees by its acceptance of the Securities to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may conclusively rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all certifications, letters, notices and other written communications received pursuant to Section 2.8 hereof or this Section 2.17 in accordance with its customary procedures for the retention of records relating to the transfer of securities. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE 3 SATISFACTION AND DISCHARGE OF INDENTURE SECTION 3.1. DISCHARGE OF LIABILITY ON SECURITIES. When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.11) for cancellation or (ii) all outstanding Securities have become due and payable at their scheduled maturity within one year or all outstanding Securities are scheduled for redemption within one year and the Company deposits with the Trustee cash sufficient to pay all amounts due and owing on all outstanding Securities on the date of their scheduled maturity or the scheduled date of redemption (other than Securities replaced pursuant to Section 2.11), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 5.8, cease to be of further effect. The Trustee shall join in the execution of a document prepared by the Company acknowledging satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and Opinion of Counsel and at the cost and expense of the Company. SECTION 3.2. REPAYMENT TO THE COMPANY. The Trustee and the Paying Agent shall return to the Company upon written request any money or securities held by them for the payment of any amount with respect to the Securities that remains unclaimed for two years, subject to applicable unclaimed property law. After return to the Company, Holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person and the Trustee and the Paying Agent shall have no further liability to 31 the Holders with respect to such money or securities for that period commencing after the return thereof. ARTICLE 4 DEFAULTS AND REMEDIES SECTION 4.1. Events of Default. An "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the Company defaults in the payment of the Principal or premium, if any (a "DEFAULTED PAYMENT") on any Outstanding Security when the same becomes due and payable at its Stated Maturity, upon redemption, purchase, upon declaration, when due for purchase, by the Company or otherwise, whether or not such payment is prohibited by Article 13 hereof; (b) the Company defaults in the payment of an installment of Interest or Additional Interest, if any, on any Security when it becomes due and payable and such default continues for a period of 30 days, whether or not such payment is prohibited by Article 13 hereof; (c) the Company fails to perform or observe any other term, covenant or agreement contained in the Securities or this Indenture and the default continues for a period of 60 days after written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate Principal of the Outstanding Securities; (d) the Company or a Significant Subsidiary (i) fails to make any payment at maturity, including any grace period, in respect of any obligation for borrowed money evidenced by an Instrument in an amount in excess of $25 million and such failure continues or (ii) defaults with respect to any Instrument, which default results in the acceleration of Indebtedness represented by such Instrument in an amount in excess of $25 million without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled, in the case of the foregoing (i) and (ii), for a period of 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate Principal of the Outstanding Securities; provided that if any such failure, default or acceleration referred to in this Section 4.1(d) shall cease or be cured, waived, rescinded or annulled, then such Event of Default shall be deemed to be likewise cured and any acceleration with respect thereto rescinded; (e) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any Significant Subsidiary 32 bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary, under any applicable U.S. federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (f) the commencement by the Company or any Significant Subsidiary, of a voluntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary, to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable U.S. federal or state law, or the consent by the Company or any Significant Subsidiary to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by the Company or any Significant Subsidiary, of an assignment for the benefit of creditors, or the admission by the Company or any Significant Subsidiary in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Significant Subsidiary expressly in furtherance of any such action. A Default under clause (c) or (d) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% of the Principal of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time specified in clause (c) or (d) above after actual receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Trustee shall, within 90 days of the occurrence of a Default, give to the Holders of the Securities notice of all uncured Defaults known to it and written notice of any event which with the giving of notice or the lapse of time, or both, would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto; provided, however, the Trustee shall be protected in withholding such notice if it, in good faith, determines that the withholding of such notice is in the best interest of such Holders, except in the case of a Default in the payment of the Principal of, or premium, if any, or Interest on any of the Securities when due or in the payment of any redemption or Purchase Right. SECTION 4.2. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an Event of Default with respect to Outstanding Securities (other than an Event of Default specified in Section 4.1(e) or 4.1(f) hereof with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in Principal of the Outstanding Securities, 33 by written notice to the Company, may declare due and payable 100% of the Principal and premium, if any, of all Outstanding Securities, plus any accrued and unpaid Interest and Additional Interest, if any, to the date of payment. Upon a declaration of acceleration, such Principal and premium, if any, and accrued and unpaid Interest and Additional Interest, if any, to the date of payment shall be immediately due and payable. If an Event of Default specified in Section 4.1(e) and 4.1(f) occurs with respect to the Company, the Principal and premium, if any, and accrued and unpaid Interest and Additional Interest, if any, on the Outstanding Securities shall become and be immediately due and payable, without any declaration or other act on the part of the Trustee or any Holder. The Holders either (a) through notice to the Trustee of not less than a majority of the Principal of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority of the Principal of the Outstanding Securities represented at such meeting, may, on behalf of the Holders of all of the Securities, rescind and annul an acceleration and its consequences (including waiver of any defaults) if: (1) all existing Events of Default, other than the nonpayment of a Defaulted Payment on the Securities which have become due solely because of the acceleration, have been remedied, cured or waived, and (2) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 4.1(d) and the default with respect to the Instrument for money borrowed which gave rise to such Event of Default has ceased or been cured, waived, rescinded or annulled, then such Event of Default shall be deemed to be likewise cured and any acceleration with respect thereto rescinded. No such rescission shall affect any subsequent Default or impair any right consequent thereon. SECTION 4.3. OTHER REMEDIES. If an Event of Default with respect to Outstanding Securities occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the Defaulted Payment or Interest due and payable on the Securities or to enforce the performance of any provision of the Securities. The Trustee may maintain a proceeding in which it may prosecute and enforce all rights of action and claims under this Indenture or the Securities, even if it does not possess any of the Securities or does not produce any of them in the proceeding. SECTION 4.4. WAIVER OF PAST DEFAULTS. The Holders, either (a) through the written consent of not less than a majority of the Principal of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a 34 majority of the Principal of the Outstanding Securities represented at such meeting, may, on behalf of the Holders of all of the Securities, waive an existing Default or Event of Default, except a Default or Event of Default: (1) set forth in Sections 4.1(a) and (b), provided, however, that subject to Section 4.7, the Holders of a majority of the Principal of the Outstanding Securities may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration); or (2) in respect of a covenant or provision hereof which, under Section 7.2 hereof, cannot be modified or amended without the consent of the Holders of each Outstanding Security affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 4.5. CONTROL BY MAJORITY. The Holders of a majority of the Principal of the Outstanding Securities (or the Holders of a majority in aggregate Principal of Securities outstanding represented at a meeting at which a quorum is present or by written resolution) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that: (1) conflicts with any law or with this Indenture; (2) the Trustee determines may be unduly prejudicial to the rights of the Holders not joining therein; or (3) may expose the Trustee to personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 4.6. LIMITATION ON SUIT. No Holder of any Security shall have any right to pursue any remedy with respect to this Indenture or the Securities (including, instituting any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee) unless: (1) such Holder has previously given written notice to the Trustee of an Event of Default that is continuing; (2) the Holders of at least 25% of the Principal of the Outstanding Securities shall have made written request to the Trustee to pursue the remedy; 35 (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to it against any costs, expenses and liabilities incurred in complying with such request; (4) the Trustee has failed to comply with the request for 60 days after its receipt of such notice, request and offer of indemnity; and (5) during such 60-day period, no direction inconsistent with such written request has been given to the Trustee by the Holders of a majority of the Principal amount of the Outstanding Securities (or such amount as shall have acted at a meeting pursuant to the provisions of this Indenture); provided, however, that no one or more of such Holders may use this Indenture to prejudice the rights of another Holder or to obtain preference or priority over another Holder. SECTION 4.7. UNCONDITIONAL RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the Principal, premium, if any, Redemption Price, Change of Control Purchase Price, Interest or Additional Interest, if any, in respect of the Securities held by such Holder, on or after the respective due dates, to convert the Securities in accordance with Article 12 or to bring suit for the enforcement of any such payment on or after such respective dates or the right to convert, and such rights shall not be impaired or affected adversely without the consent of such Holder. SECTION 4.8. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY THE TRUSTEE. The Company covenants that if: (1) a Default or Event of Default is made in the payment of Interest or Additional Interest, if any, on any Security when such Interest or Additional Interest, if any, becomes due and payable and such Default or Event of Default continues for a period of 30 days; or (2) a Default or Event of Default is made in the payment of the Principal on any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration when due for purchase by the Company or otherwise, then the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the entire Principal then due and payable (as expressed therein or as a result of any acceleration effected pursuant to Section 4.2 hereof) on such Securities for any such amounts and, to the extent legally enforceable, Interest and Additional Interest, if any, on such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. 36 If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 4.9. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or the property of the Company or its creditors, the Trustee (irrespective of whether the Principal, premium, if any, Redemption Price, Change of Control Purchase Price, Interest or Additional Interest, if any, in respect of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any such amount) shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of the Principal, premium, if any, Redemption Price, Change of Control Purchase Price, Interest or Additional Interest, if any, owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding and (2) to collect and receive any monies, Common Stock, Applicable Stock or other property, payable or deliverable on any such claim and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceedings is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 5.8. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of any Holder of a Security, any plan of reorganization, 37 arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding. SECTION 4.10. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.11. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.11, no right or remedy conferred in this Indenture upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.12. DELAY OR OMISSION NOT WAIVER. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities, as applicable. SECTION 4.13. PRIORITIES. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee: FIRST: to the payment of all amounts due to the Trustee under Section 5.8; SECOND: to Holders for amounts due and unpaid on the Securities for the Principal, premium, if any, Redemption Price, Change of Control Purchase Price, Interest or Additional Interest, if any, as applicable, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and THIRD: any remaining amounts shall be repaid to the Company. 38 The Trustee may fix a special record date and payment date for any payment to Holders pursuant to this Section 4.13. At least 15 days before such special record date, the Trustee shall mail to each Holder and the Company a notice that states the special record date, the payment date and the amount to be paid. SECTION 4.14. UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Security by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% of the Principal of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of (i) payments pursuant to Section 4.7, repurchase rights in accordance with Article 11 or (iii) conversion rights in accordance with Article 12. This Section 4.14 shall be in lieu of Section 315(e) of the TIA and such Section 315(e) is hereby expressly excluded from this Indenture, as permitted by the TIA. SECTION 4.15. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 5 THE TRUSTEE SECTION 5.1. CERTAIN DUTIES AND RESPONSIBILITIES. (a) Except during the continuance of an Event of Default, (1) The Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture or the TIA, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed 39 therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided, however, that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates or opinions to determine whether or not, on their face, they conform to the requirements to this Indenture (but need not investigate or confirm the accuracy of any facts stated therein). (b) In case an Event of Default actually known to a Responsible Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section 5.1; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with a direction received by it of the Holders of a majority of the Principal of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. (d) Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 5.1. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability, cost or expense (including, without limitation, reasonable fees and expenses of counsel). (f) The Trustee shall not be obligated to pay interest on any money or other assets received by it unless otherwise agreed in writing with the Company. Assets held in trust by the Trustee need not be segregated from other funds except to the extent required by law. 40 (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (h) The Trustee shall not be deemed to have notice or actual knowledge of any Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact a Default is received by the Trustee pursuant to Section 14.2 hereof, and such notice references the Securities and this Indenture. (i) The rights, privileges, protections, immunities and benefits given to the Trustee hereunder, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each Paying Agent, authenticating agent, Conversion Agent or Registrar acting hereunder. (j) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. SECTION 5.2. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of Section 5.1 hereof and subject to Section 315(a) through (d) of the TIA: (1) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (3) The Trustee may act through attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care. (4) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith which it believed to be authorized or within the discretion or rights or powers conferred upon it by this Indenture, unless the Trustee's conduct constitutes negligence. 41 (5) The Trustee may consult with counsel of its selection and the advice of such counsel as to matters of law or legal interpretation shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (6) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (7) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. SECTION 5.3. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as such term is defined in Section 310(b) of the TIA), it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee (to the extent permitted under Section 310(b) of the TIA) or resign. Any agent may do the same with like rights and duties. The Trustee is also subject to Sections 5.11 and 5.12 hereof. SECTION 5.4. MONEY HELD IN TRUST. Money held by the Trustee in trust hereunder shall not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise expressly agreed with the Company. SECTION 5.5. TRUSTEE'S DISCLAIMER. The recitals contained herein and in the Securities (except for those in the certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity, sufficiency or priority of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 5.6. NOTICE OF DEFAULTS. Within 90 days after the occurrence of any Default or Event of Default hereunder of which a Responsible Officer of the Trustee has received written notice, the Trustee shall give notice to Holders, unless such Default or Event of Default shall have been cured or waived; provided, however, that, except in the case of a Default or Event of Default described in Sections 4.1(a) or (b), the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the best interest of the Holders. The second sentence of this Section 5.6 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso is hereby expressly excluded from this 42 Indenture, as permitted by the TIA. The Trustee shall not be deemed to have knowledge of a Default unless a Responsible Officer of the Trustee has received written notice of such Default. SECTION 5.7. REPORTS BY TRUSTEE TO HOLDERS. The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required by Section 313 of the TIA at the times and in the manner provided by the TIA. A copy of each report at the time of its mailing to Holders shall be filed with the SEC, if required, and each stock exchange, if any and if required, on which the Securities and the Common Stock are listed. The Company shall promptly notify the Trustee if and when the Securities become listed on any stock exchange. SECTION 5.8. COMPENSATION AND INDEMNIFICATION. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as agreed to in writing by the Trustee and the Company (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except to the extent that any such expense, disbursement or advance is due to its negligence or bad faith. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.1, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. The Company also covenants to indemnify the Trustee and its officers, directors, employees and agents for, and to hold such Persons harmless against, any loss, liability or expense incurred by them, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder or the performance of their duties hereunder, including the costs and expenses of defending themselves against or investigating any claim of liability in the premises, except to the extent that any such loss, liability or expense was due to the negligence or willful misconduct of such Persons. The obligations of the Company under this Section 5.8 to compensate and indemnify the Trustee and its officers, directors, employees and agents and to pay or reimburse such Persons for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. Such additional indebtedness shall be a lien prior to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby subordinated to such senior claim. "Trustee" for purposes of this Section 5.8 shall include any predecessor Trustee, in its capacity as Trustee, but the negligence or willful misconduct of any Trustee shall not affect the indemnification of any other Trustee. 43 SECTION 5.9. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 5.9. The Trustee may resign and be discharged from the trust hereby created by so notifying the Company in writing. The Holders of at least a majority of the Principal of Outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company must remove the Trustee if: (i) the Trustee fails to comply with Section 5.10 hereof or Section 310 of the TIA; (ii) the Trustee becomes incapable of acting; (iii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; or (iv) a Custodian or public officer takes charge of the Trustee or its property. If the Trustee resigns or is removed or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. The Trustee shall be entitled to payment of its fees and reimbursement of its expenses while acting as Trustee. Within one year after the successor Trustee takes office, the Holders of at least a majority of the Principal of Outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. Any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee if the Trustee fails to comply with Section 5.10. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation or removal, the resigning or removed Trustee, as applicable, may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The Company shall issue a notice of the successor Trustee's succession to the Holders. Upon payment of its charges, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject nevertheless to its lien, if any, provided for in Section 5.8 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 5.9 hereof, the Company's obligations under Section 5.8 hereof shall continue for the benefit of the retiring Trustee with respect to expenses, losses and liabilities incurred by it prior to such replacement. 44 SECTION 5.10. SUCCESSOR TRUSTEE BY MERGER, ETC. Subject to Section 5.11 hereof, if the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business (including the administration of this Indenture) to, another corporation or national banking association, the successor entity without any further act shall be the successor Trustee as to the Securities. SECTION 5.11. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. The Trustee shall at all times satisfy the requirements of Section 310(a)(1), (2) and (5) of the TIA. The Trustee shall at all times have (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall at all times have), a combined capital and surplus of at least $50 million as set forth in its (or its related bank holding company's) most recent published annual report of condition. The Trustee is subject to Section 310(b) of the TIA. SECTION 5.12. COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee is subject to Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated therein. ARTICLE 6 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 6.1. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in the event that the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership, trust or other business entity organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia; (2) in the event that the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the entity surviving such transaction or transferee entity is not the Company, then such surviving or transferee entity shall expressly 45 assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of all and any amounts when due on all the Securities and the performance of every covenant of this Indenture, the Securities and the Registration Rights Agreement (to the extent any obligations of the Company thereunder remain outstanding) on the part of the Company to be performed or observed and shall have provided for conversion rights provided in Article 12; (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (4) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 6.2. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger by the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person, in accordance with Section 6.1 hereof, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. In the event of any such conveyance or transfer, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 6.1 hereof), except in the case of a lease to another Person, the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities and may be dissolved and liquidated. ARTICLE 7 AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 7.1. WITHOUT CONSENT OF HOLDERS OF SECURITIES. Without the consent of any Holders of Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may amend this Indenture and the Securities to: (a) add to the covenants of the Company for the benefit of the Holders of Securities; (b) add collateral to secure the obligations of the Company under the Securities; 46 (c) surrender any right or power herein conferred upon the Company; (d) provide for conversion rights of Holders of Securities if any reclassification or change of the Company's Common Stock or any consolidation, merger or sale of all or substantially all of the Company's assets occurs; (e) provide for the assumption of the Company's obligations to the Holders of Securities in the case of a merger, consolidation, conveyance, transfer or lease pursuant to Article 6 hereof; (f) add guarantors or obligors with respect to the Securities in addition to the Company; (g) reduce the Conversion Price; provided, however, that such reduction in the Conversion Price shall not adversely affect the interest of the Holders of Securities (after taking into account tax and other consequences of such reduction); (h) comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; (i) cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture which the Company may deem necessary or desirable and which shall not be inconsistent with the provisions of this Indenture; provided, however, that such action pursuant to this clause (g) does not, in the good faith opinion of the Company, adversely affect the interests of the Holders of Securities in any material respect; (j) add or modify any other provisions herein with respect to matters or questions arising hereunder which the Company and the Trustee may deem necessary or desirable and which will not adversely affect the interests of the Holders of Securities; and (k) make any changes or modifications to this Indenture necessary in connection with the registration of any Securities under the Securities Act as contemplated in the Registration Rights Agreement; provided, however, that such action pursuant to this clause (k) does not, in the good faith opinion of the Company and the Trustee, adversely affect the interests of the Holders in any material respect. SECTION 7.2. WITH CONSENT OF HOLDERS OF SECURITIES. Except as provided below in this Section 7.2, this Indenture or the Securities may be amended, modified or supplemented, and noncompliance in any particular instance with any provision of this Indenture or the Securities may be waived, in each case (i) with the written consent of the Holders of at least a majority of the Principal of the Outstanding Securities or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of a majority of the Principal of the Outstanding Securities represented and voting at such meeting pursuant to Section 8.4. 47 Without the written consent or the affirmative vote of each Holder of Securities affected thereby, an amendment or waiver under this Section 7.2 may not: (a) change the Stated Maturity of the Principal or premium, if any, or any installment of Interest and Additional Interest, if any, on, any Security; (b) reduce the Principal, Redemption Price, Change of Control Purchase Price of or Interest or Additional Interest, if any, payable on any Security; (c) change the currency of any amount owed or owing under the Security or any interest thereon from U.S. Dollars; (d) impair the right of any Holder to institute suit for the enforcement of any payment in or with respect to any Security; (e) modify the obligation of the Company to maintain an office or agency in The City of New York pursuant to Section 9.2; (f) except as otherwise permitted or contemplated by the Indenture, adversely affect the purchase right of the Holders of the Securities as provided in Article 11 or the right of the Holders of the Securities to convert any Security as provided in Article 12; (g) modify the provisions of Article 10 in a manner adverse to the Holders of the Securities; (h) modify the provisions of Article 13 in a manner adverse to the Holders of the Securities; (i) modify any of the provisions of this Section, or reduce the percentage of voting interests required to waive a default, except to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (j) reduce the requirements of Section 8.4 hereof for quorum or voting, or reduce the percentage of the Principal of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver provided for in this Indenture. It shall not be necessary for any Act of Holders of Securities under this Section 7.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 7.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. 48 SECTION 7.4. REVOCATION OF CONSENTS AND EFFECT OF CONSENTS OR VOTES. Until an amendment, supplement or waiver becomes effective, a written consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security; provided, however, that unless a record date shall have been established, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective on receipt by the Trustee of written consents from or affirmative votes by, as applicable, the Holders of the requisite percentage of the Principal of the Outstanding Securities, and thereafter shall bind every Holder of Securities; provided, however, if the amendment, supplement or waiver makes a change described in any of the clauses (a) through (j) of Section 7.2, the amendment, supplement or waiver shall bind only each Holder of a Security which has consented to it or voted for it, as applicable, and every subsequent Holder of a Security or portion of a Security that evidences the same indebtedness as the Security of the consenting or affirmatively voting Holder, as applicable. SECTION 7.5. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment, supplement or waiver changes the terms of a Security: (a) the Trustee may require the Holder of a Security to deliver such Securities to the Trustee, the Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Security thereafter authenticated; or (b) if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 7.6. TRUSTEE TO SIGN AMENDMENT, ETC. The Trustee shall sign any amendment authorized pursuant to this Article 7 if the Trustee reasonably determines the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If the Trustee reasonably determines the amendment does adversely affect the rights, duties, liabilities or immunities of the Trustee, the Trustee may but need not sign it. In signing or refusing to sign any amendment hereunder, the Trustee shall be entitled to receive and shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment is authorized or permitted by this Indenture and that all conditions precedent relating thereto have been complied with. 49 ARTICLE 8 MEETING OF HOLDERS OF SECURITIES SECTION 8.1. PURPOSES FOR WHICH MEETINGS MAY BE CALLED. A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. SECTION 8.2. CALL NOTICE AND PLACE OF MEETINGS. (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 8.1, to be held at such time and at such place in The City of New York. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 14.2, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% of the Principal of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 8.1 hereof, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as applicable, may determine the time and the place in The City of New York for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section 8.2. SECTION 8.3. PERSONS ENTITLED TO VOTE AT MEETINGS. To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 8.4. QUORUM; ACTION. The Persons entitled to vote a majority of the Principal of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less 50 than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.2(a), except that such notice need be given only once and not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the Principal of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% of the Principal of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by Section 7.2) shall be effectively passed and decided if passed or decided by the Persons entitled to vote not less than a majority of the Principal of Outstanding Securities represented and voting at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting. SECTION 8.5. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 14.4 hereof and the appointment of any proxy shall be proved in the manner specified in Section 14.4 hereof. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 14.4 hereof or other proof. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 8.2(b), in which case the Company or the Holders of Securities calling the meeting, as applicable, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority of the Principal of the Outstanding Securities represented at the meeting. 51 (c) At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each $1,000 amount of Principal of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy. (d) Any meeting of Holders of Securities duly called pursuant to Section 8.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority of the Principal of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 8.6. COUNTING VOTES AND RECORDING ACTION OF MEETINGS. The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the amount of Principal and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 8.2 and, if applicable, Section 8.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE 9 COVENANTS SECTION 9.1. PAYMENT OF PRINCIPAL, REDEMPTION PRICE, CHANGE OF CONTROL PURCHASE PRICE AND INTEREST. The Company will duly and punctually pay the Principal, premium, if any, Redemption Price, Change of Control Purchase Price, Interest or Additional Interest, if any, on the Securities when and if at any time any such foregoing amounts are due and payable in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee as directed by the Trustee, no later than the day of the Stated Maturity of any Security, the date of any installment of Interest and Additional Interest, if any, or any other date such payment is otherwise due. If Additional Interest is payable by the Company pursuant to the Registration Rights Agreement, the Company shall deliver to the Trustee a certificate to such effect stating (i) the amount of Additional Interest so payable and 52 (ii) the date on which such Additional Interest is payable. Unless and until a Responsible Officer of the Trustee receives such a certificate, the Trustee may assume without inquiry that no Additional Interest is payable. SECTION 9.2. MAINTENANCE OF OFFICES OR AGENCIES. The Company hereby appoints the Trustee's Corporate Trust Office as its office where Securities may be: (i) presented or surrendered for payment; (ii) surrendered for registration of transfer or exchange; (iii) surrendered for conversion; and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will maintain in The City of New York an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served, and the office and agency of State Street Bank and Trust Company, N.A., an Affiliate of the Trustee, which has an office at 61 Broadway, New York, New York 10006, Attention: Corporate Trust Administration (Network Associates, Inc., 5.25% Convertible Subordinated Notes due 2006) shall be such office or agency of the Company for such aforesaid purposes. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 14.2 hereof, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency in The City of New York, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made at, and notices and demands may be served on, the Corporate Trust Office of the Trustee. SECTION 9.3. CORPORATE EXISTENCE. Subject to Article 6 hereof, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the rights (charter and statutory) of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right if (a) the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders or (b) the Company shall no longer continue to have such right as a result of a good faith, arms-length transaction with a Person that is not an Affiliate of the Company. 53 SECTION 9.4. REPORTS. (a) The Company shall deliver to the Trustee within 15 days after it files them with the Commission copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act; provided, however, the Company shall not be required to deliver to the Trustee any materials for which the Company has sought and received confidential treatment by the SEC. The Company also shall comply with the other provisions of Section 314(a) of the TIA. (b) If at any time the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of a Security, the Company, will promptly furnish or cause to be furnished to such Holder or to a prospective purchaser of such Security designated by such Holder, as applicable, the information, if any, required to be delivered by it pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A in connection with the resale of such Security; provided, however, that the Company shall not be required to furnish such information in connection with any request made on or after the date which is two years from the later of the date such security was last acquired from the Company or an "affiliate" (as defined under Rule 144 under the Securities Act) of the Company. SECTION 9.5. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company, an Officer's Certificate signed by two Officers of the Company (one of which must be the principal executive officer, principal financial officer or principal accounting officer) stating that in the course of the performance by the signers of their duties as Officers of the Company, they would normally have knowledge of any failure by the Company to comply with all conditions, or Default by the Company with respect to any covenants, under this Indenture, and further stating whether or not they have knowledge of any such failure or Default and, if so, specifying each such failure or Default and the nature thereof. When any Registration Default (as defined in the Registration Rights Agreement) occurs, the Company shall promptly deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying the nature of such Registration Default. In addition, the Company shall deliver to the Trustee on each Interest Payment Date during the continuance of a Registration Default and on the first Interest Payment Date following the cure of a Registration Default (to the extent that Additional Interest is then due and payable on such Interest Payment Date), an Officer's Certificate specifying the amount of Additional Interest which have accrued and which are then owing under the Registration Rights Agreement. SECTION 9.6. RESALE OF CERTAIN SECURITIES. During the period of two years after the last date of original issuance of any Securities, the Company shall not, and shall not permit any of its controlled "affiliates" (as defined under Rule 144 under the Securities Act) to, resell any Securities, or shares of Common 54 Stock issuable upon conversion of the Securities, which constitute "restricted securities" under Rule 144, that are acquired by any of them within the United States except pursuant to an effective registration statement under the Securities Act or an applicable exemption therefrom. The Trustee shall have no responsibility or liability in respect of the Company's performance of its agreement in the preceding sentence. ARTICLE 10 REDEMPTION OF SECURITIES SECTION 10.1. OPTIONAL REDEMPTION. (a) At any time on or after August 20, 2004, except for Securities that it is required to purchase pursuant to Section 11.1 or required to convert pursuant to Section 12.1, the Company may, at its option, redeem the Securities in whole at any time or in part from time to time, and prior to the Stated Maturity of such Securities, upon notice as set forth in Section 10.4, at the Redemption Price (expressed in percentages of the Principal) set forth below if, but only if, redeemed on a Redemption Date occurring during the 12-month period beginning on of the dates indicated:
Redemption During the Twelve Months Commencing Price ----------------------------------- ---------- August 20, 2004......................... 101.3125% August 20, 2005......................... 100.0000%
(b) If the Company exercises its option to redeem the Securities pursuant to this Section 10.1, a Holder may nevertheless exercise its right to have its Securities purchased pursuant to Section 11.1, if applicable, and to convert such Securities pursuant to Article 12, in each case, until the close of business two Business Days immediately preceding the Redemption Date. (c) The Company shall pay any Interest and Additional Interest, if any, to the Holder of the Securities called for redemption pursuant to Section 10.1(a), accrued but not paid to, but excluding, the Redemption Date pursuant to Section 2.1(e); provided, however, that if the Redemption Date is an Interest Payment Date, the Company shall pay the Interest to the Holder of the Security at the close of business on the Regular Record Date with respect to such Interest Payment Date. SECTION 10.2. NOTICE TO TRUSTEE. If the Company elects to redeem Securities pursuant to the provisions of Section 10.1 hereof (such election to be ordered by a Board Resolution), it shall notify the Trustee at least 30 days prior to the intended Redemption Date (unless a shorter notice shall be satisfactory to the Trustee) of (i) such intended Redemption Date, (ii) the amount of Principal of Securities to be redeemed and (iii) the CUSIP numbers of the Securities to be redeemed. 55 SECTION 10.3. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all the Securities are to be redeemed, the Trustee shall select the particular Securities to be redeemed from the Outstanding Securities on a pro rata basis or by lot. The Trustee may select for redemption portions of the Principal of Securities that have denominations larger than $1,000. Securities and portions thereof that the Trustee selects shall be in amount of Principal in integral multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. The Trustee shall promptly notify the Company and the Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the amount of Principal thereof to be redeemed. If any Security selected for partial redemption is converted or elected to be purchased in part before termination of the conversion right or purchase right with respect to the portion of the Security so selected, the converted or purchased portion of such Security shall be deemed to be the portion selected for redemption; provided, however, that the Holder of such Security so converted or purchased and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion or purchase of such Security subject to Section 2.1(e). Securities which have been converted or purchased during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the amount of Principal of such Securities which has been or is to be redeemed. SECTION 10.4. NOTICE OF REDEMPTION. Notice of redemption shall be given in the manner provided in Section 14.2 to the Holders of Securities to be redeemed. Such notice shall be given not less than 20 nor more than 60 days prior to the intended Redemption Date. All notices of redemption shall state: (1) such intended Redemption Date; (2) the Redemption Price and Interest and Additional Interest, if any, accrued and unpaid to, but excluding, the Redemption Date, if any; (3) if fewer than all the Outstanding Securities are to be redeemed, the amount of Principal of Securities to be redeemed and the amount of Principal of Securities which will be Outstanding after such partial redemption; 56 (4) that on the Redemption Date the Redemption Price and Interest and Additional Interest, if any, accrued and unpaid to, but excluding, the Redemption Date, if any, will become due and payable upon each such Security to be redeemed; (5) the Conversion Price, the date on which the right to convert the Principal of the Securities to be redeemed will terminate and the places where such Securities may be surrendered for conversion; (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued and unpaid Interest and Additional Interest, if any, and (7) the CUSIP number of the Securities. The notice given shall specify the last date on which exchanges or transfers of Securities may be made pursuant to Section 2.7, and shall specify the serial numbers of Securities and the portions thereof called for redemption. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written requests delivered at least 20 days prior to the date of the mailing of such Notice (unless a shorter period shall be acceptable to the Trustee), by the Trustee in the name of and at the expense of the Company. SECTION 10.5. EFFECT OF NOTICE OF REDEMPTION. Notice of redemption having been given as provided in Section 10.4 hereof, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid Interest) such Securities shall cease to bear Interest. Upon surrender of any such Security for redemption in accordance with such notice, such Security shall be paid by the Company at the Redemption Price; provided, however, that if the Redemption Date is an Interest Payment Date, the installment of Interest on the Securities shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Date. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the Principal and premium, if any, shall, until paid, bear Interest from the Redemption Date at the Interest Rate. SECTION 10.6. DEPOSIT AND PAYMENT OF REDEMPTION PRICE. Prior to or on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of money in immediately available funds sufficient to pay the Redemption Price, and accrued and unpaid Interest and Additional Interest, if any, in respect to all the Securities to be redeemed on 57 that Redemption Date. The Trustee and Paying Agent shall then cause such funds to be paid to the Holders of the Securities being redeemed in accordance with this Article. If any Security delivered for redemption shall not be so redeemed by payment to the Holders thereof on the Redemption Date, the Principal of such Security shall, until it is redeemed, bear Interest on the Redemption Date to but not including the actual date of redemption at the applicable Interest Rate, and each such Security shall remain convertible into shares of Common Stock pursuant to Article 12 until such Security shall have been so redeemed. If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive Interest as provided in Section 2.1(e)) be paid to the Company upon request by the Company or, if then held by the Company, shall be discharged from such trust. SECTION 10.7. SECURITIES REDEEMED IN PART. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 9.2 hereof (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or the Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in an amount of Principal equal to and in exchange for the unredeemed portion of the Security so surrendered. ARTICLE 11 PURCHASE AT THE OPTION OF A HOLDER UPON A CHANGE OF CONTROL SECTION 11.1. PURCHASE RIGHT. (a) In the event that a Change in Control shall occur, each Holder shall have the right (the "PURCHASE RIGHT"), at the Holder's option, but subject to the provisions of Section 11.2 hereof, to require the Company to purchase, and upon the exercise of such right the Company shall purchase, all of such Holder's Securities not theretofore called for redemption, or any portion of the Principal thereof that is equal to $1,000 or an integral multiple thereof as directed by such Holder pursuant to Section 11.3 (provided that no single Security may be purchased in part unless the portion of the Principal of such Security to be Outstanding after such purchase is equal to $1,000 or an integral multiple thereof), on the date (the "CHANGE OF CONTROL PURCHASE DATE") that is a Business Day no earlier than 30 days nor later than 60 days after the date of the Change of Control Notice at a purchase price equal to 100% of the Principal of the Securities to be purchased (the "CHANGE OF CONTROL PURCHASE PRICE"), plus accrued and unpaid Interest and Additional Interest, if any, to, but excluding, the Change of Control Purchase Date; provided, however, that (i) if the Change of Control Purchase Date is an Interest Payment Date, installments of Interest and Additional Interest, if any, on the Securities shall be payable to the 58 Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Date according to their terms and the provisions of Section 2.1 hereof and (ii) no Holder shall have a Purchase Right upon a Change of Control unless prior to any payment of the Change of Control Purchase Price on the Change of Control Purchase Date the Company shall have made any applicable change of control offers required by the Company's Senior Debt and has purchased all Senior Debt validly tendered for payment in connection with such change of control offers. (b) Notwithstanding anything to the contrary stated in this Section 11.1, the Company may elect to satisfy its obligation with respect to the Holders' Purchase Right (in cash or Applicable Stock or a combination thereof) by delivering to the applicable Holders the number of shares of Applicable Stock equal to (i) the Change of Control Purchase Price (to the extent not paid in cash) divided by (ii) 95% of the average of the Trading Prices per share of Applicable Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Change of Control Purchase Date; provided, however that the Company may not elect to satisfy its obligations with respect to the Holders' Purchase Right by delivering any shares of Applicable Stock in respect thereof unless the following conditions have been satisfied: (1) the Company has not given a Change of Control Notice of an election to pay entirely in cash and it timely gives a Change of Control Notice including an election to purchase all or a specified percentage of the Securities with shares of Applicable Stock as provided herein; (2) the shares of Applicable Stock have been registered under the Securities Act and the Exchange Act, in each case, if required; (3) the Applicable Stock has been listed on a national securities exchange or such shares of Applicable Stock have been admitted for quotation in an inter-dealer quotation system of any registered United States national securities association; (4) any necessary qualification or registration under applicable state securities laws has been obtained or an exemption from such qualification and registration is available; and (5) the Trustee has received an Officers' Certificate and an Opinion of Counsel each stating that the shares of Applicable Stock to be issued by the Company in payment of the Change of Control Purchase Price in respect of Securities have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Change of Control Purchase Price in respect of the Securities, will be validly issued, fully paid and non-assessable to such counsel's knowledge, free from preemptive rights under the certificate of incorporation or corresponding organizational document of the Company or the surviving corporation or any of the Reviewed Agreements, and, in the case of such Officers' Certificate, shall also set forth the number of shares of Applicable Stock to be issued for each $1,000 amount of Principal of Securities and the 59 Trading Prices per share of Applicable Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Change of Control Purchase Date. If the foregoing conditions are not satisfied with respect to a Holder or Holders prior to the close of business on the last day prior to the Change of Control Purchase Date and the Company has elected to purchase the Securities pursuant to this Section 11.1 through the issuance of shares of Applicable Stock, the Company shall pay the entire Change of Control Purchase Price of the Securities of such Holder or Holders in cash. Upon determination of the actual number of shares of Applicable Stock to be issued upon purchase of Securities pursuant to this Section 11.1, the Company shall be required to disseminate a press release through Dow Jones & Company, Inc. or Bloomberg Business News containing this information or publish the information on the Company's Web site or through such other public medium as the Company may use at that time. SECTION 11.2. CHANGE OF CONTROL NOTICE. No later than 30 days after the occurrence of a Change of Control, the Company shall mail a written notice of the Change of Control (the "CHANGE OF CONTROL NOTICE") by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law) pursuant to Section 14.2. The Change of Control Notice shall include a form of notice (the "CHANGE OF CONTROL PURCHASE NOTICE") to be completed by the Holder and delivered to the Paying Agent pursuant to Section 11.3, and shall state the following: (1) that it is a Change of Control Notice pursuant to this Section; (2) the events causing a Change of Control and the date of such Change of Control; (3) the procedures with which such Holder must comply to exercise its right to have its Securities purchased pursuant to Section 11.1, including the date by which the completed Change of Control Purchase Notice pursuant to Section 11.3 and the Securities the Holder elects to have purchased pursuant to Section 11.1 must be delivered to the Paying Agent in order to have such Securities purchased by the Company pursuant to Section 11.1, the name and address of the Paying Agent and that the Securities as to which a Change of Control Purchase Notice has been given may be converted, if they are otherwise convertible pursuant to Article 12, only if the completed and delivered Change of Control Purchase Notice has been withdrawn in accordance with the terms of the Indenture, the Holder's conversion rights pursuant to Article 12 and the Conversion Rate then in effect and any adjustments thereto; (4) the Change of Control Purchase Date and the Change of Control Purchase Price; (5) that, unless the Company defaults in making payment of such Change of Control Purchase Price, Interest and Additional Interest, if any, on the 60 Securities surrendered for purchase by the Company will cease to accrue on and after the Change of Control Purchase Date; (6) the CUSIP number of the Securities; and (7) whether the Change of Control Purchase Price shall be paid by the Company in cash, by the delivery of Applicable Stock or a combination thereof and, if the Company elects to pay with a combination of cash and Applicable Stock, such notice shall provide the proportion of cash and Applicable Stock. No failure by the Company to give the foregoing Change of Control Notice shall limit any Holder's right to exercise its rights pursuant to Section 11.1 or affect the validity of the proceedings for the purchase of its Securities hereunder. SECTION 11.3. DELIVERY OF CHANGE OF CONTROL PURCHASE NOTICE; FORM OF CHANGE OF CONTROL PURCHASE NOTICE; WITHDRAWAL OF CHANGE OF CONTROL PURCHASE NOTICE. (a) The Company shall deliver, or cause the Trustee or Paying Agent, to deliver, to all Holders (and beneficial holders of the Securities) a form of Change of Control Purchase Notice, which with respect to Holders purchase rights set forth in Section 11.1, shall be delivered to such Holders at least 30 days prior to the Change of Control Purchase Date and, as set forth in Section 11.2, shall be included in the Change of Control Notice; provided that the delivery of such form of Change of Control Purchase Notice to the Holders shall be made in the Company's name and at the Company's expense and the text of such form of Change of Control Purchase Notice shall be prepared by the Company pursuant to clause (b) of this Section. (b) The form of Change of Control Purchase Notice shall provide instructions regarding procedures with which holders must comply to exercise their rights pursuant to Section 11.1 and the completion of the Change of Control Purchase Notice and also shall state: (1) that it is the Change of Control Purchase Notice pursuant to Sections 11.2 and 11.3 of the Indenture and must be completed by the Holder and delivered to the Paying Agent (and any beneficial holder of securities), together with the delivery of the holder's Securities for which the holder will exercise its purchase rights pursuant to Section 11.1, for such holder to receive the Change of Control Purchase Price; (2) the name and address of the Paying Agent to, and the date by, which the completed Change of Control Purchase Notice and Securities must be delivered in order for the holder to receive the applicable purchase price; (3) the portion of the Principal of the Security which the Holder will deliver to be purchased, which portion must be in amounts of Principal of $1,000 or an integral multiple thereof; (4) any other procedures then applicable that the Holder must follow to exercise rights under Article 11 and a brief description of those rights; 61 (5) the Change of Control Purchase Date and the Change of Control Purchase Price; (6) the procedures with which such Holder must comply to exercise its right to have its Securities purchased pursuant to Section 11.1, including the date by which the completed Change of Control Purchase Notice pursuant to Section 11.3 and the Securities the Holder elects to have purchased pursuant to Section 11.1 must be delivered to Paying Agent in order to have such Securities purchased by the Company pursuant to Section 11.1, the name and address of the Paying Agent, the Holder's conversion rights pursuant to Article 12, the Conversion Price then in effect and any adjustments thereto; (7) the Holder's right to withdraw a completed and delivered Change of Control Purchase Notice, the procedures for withdrawing a Change of Control Purchase Notice, pursuant to clause (c) below and that Securities as to which a completed and delivered Change of Control Purchase Notice may be converted, if they are convertible only in accordance with Article 12, if the applicable completed and delivered Change of Control Purchase Notice has been withdrawn; (8) that, unless the Company defaults in making payment on Securities for which a Change of Control Purchase Notice has been submitted, Interest and Additional Interest, if any, on such Securities will cease to accrue on the Change of Control Purchase Date; and (9) the CUSIP number or numbers of the Securities. (c) Notwithstanding anything herein to the contrary, any Holder which has delivered a completed Change of Control Purchase Notice to the Paying Agent shall have the right to withdraw such Change of Control Purchase Notice by delivery of a written notice of withdrawal delivered to the office of the Paying Agent in accordance with the Change of Control Purchase Notice at any time prior to the close of business on the Business Day immediately preceding the Change of Control Purchase Date specifying: (1) the certificate number, if any, of the Security in respect of which such notice of withdrawal is being submitted; (2) the Principal of the Security with respect to which such notice of withdrawal is being submitted; and (3) the Principal, if any, of such Security which remains subject to the original Change of Control Purchase Notice and which has been or will be delivered for purchase by the Company. The Paying Agent shall promptly notify the Company of the receipt by it of any Change of Control Purchase Notice or written notice of withdrawal thereof. 62 SECTION 11.4. EXERCISE OF PURCHASE RIGHTS. To exercise a purchase right pursuant to Section 11.1, a Holder must deliver to the Trustee at its offices on or prior to the close of business on the Business Day prior to the Change of Control Purchase Date the following: (a) a completed Change of Control Purchase Notice, the form of which is contained in Exhibit C hereto; and (b) the Securities or cause such Securities to be delivered through the facilities of the Depositary, as applicable, with respect to which the purchase right is being exercised, with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer, in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. SECTION 11.5. DEPOSIT AND PAYMENT OF THE PURCHASE PRICE. (a) If a Holder has exercised its rights pursuant to Section 11.1 and has satisfied the conditions for the exercise of such rights in accordance with Section 11.4, then the Company shall, prior to 10:00 a.m. (New York City time) on the Business Day following the Change of Control Purchase Date deposit with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of either of them is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of money in immediately available funds, Applicable Stock or a combination thereof, as applicable, if deposited on such Business Day sufficient to pay the aggregate Change of Control Purchase Price of all the Securities or portions thereof which are to be purchased on such date following the Change of Control Purchase Date, and the Trustee or Paying Agent, as applicable shall pay the Holder the Change of Control Purchase Price, as applicable, multiplied by the Principal of Securities for which such rights were exercised on the Change of Control Purchase Date. (b) There shall be no purchase of any Securities pursuant to Section 11.1 if there has occurred (prior to, on or after, as applicable, the giving, by the Holders of such Securities, of the required Change of Control Purchase Notice) and is continuing an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities). The Paying Agent will promptly return to the respective Holders thereof any Securities (x) with respect to which a Change of Control Purchase Notice has been withdrawn in compliance with this Indenture, or (y) held by it during the continuance of an Event of Default (other than a default in the payment of the Change of Control Purchase Price with respect to such Securities) in which case, upon such return, the Change of Control Purchase Notice with respect thereto shall be deemed to have been withdrawn. (c) If any Security delivered for purchase pursuant to Section 11.1 shall not be so paid on the Change of Control Purchase Date, the Principal of such Security shall, until it is paid, bear Interest from the Change of Control Purchase Date to but not including the date of actual payment hereunder at the Interest Rate, and each such Security shall remain convertible into shares of Common Stock pursuant to Article 12 until such Security shall have been paid. 63 SECTION 11.6. EFFECT OF DELIVERY OF CHANGE OF CONTROL PURCHASE NOTICE AND PURCHASE. (a) Upon receipt by the Paying Agent of a Change of Control Purchase Notice, the Holder of the Security in respect of which such Change of Control Purchase Notice was delivered shall (unless such Change of Control Purchase Notice is withdrawn pursuant to Section 11.3(c)) thereafter be entitled to receive solely the Change of Control Purchase Price with respect to such Security, and, if applicable, any accrued and unpaid Interest pursuant to Section 2.1(e). Securities in respect of which a Change of Control Purchase Notice has been delivered by the Holder thereof may not be converted pursuant to Article 12 on or after the date of the delivery of such Change of Control Purchase Notice unless such Change of Control Purchase Notice which has been completed and delivered to the Paying Agent has first been validly withdrawn pursuant to Section 11.3(c). (b) All Securities delivered for purchase shall be canceled by the Trustee or Paying Agent, as applicable. SECTION 11.7. PHYSICAL SECURITIES PURCHASED IN PART. Any Physical Security which is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder in Principal equal to, and in exchange for, the portion of the Principal of the Security so surrendered which is not purchased. SECTION 11.8. COVENANT TO COMPLY WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES. When complying with the provisions of this Article 11 (provided that such offer or purchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act at the time of such offer or purchase), the Company, if required by applicable law, shall (a) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (b) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act and (c) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under this Article 11 to be exercised in the time and in the manner specified in this Article 11. SECTION 11.9. REPAYMENT TO THE COMPANY. The Trustee and the Paying Agent shall return to the Company any cash that remains unclaimed, together with interest or dividends, if any, thereon (subject to the provisions of Section 5.4), held by them for the payment of the Change of Control Purchase Price; provided, however, that to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 11.5 exceeds the aggregate Change of Control Purchase Price of the Securities or 64 portions thereof which the Company is obligated to purchase on the purchase date then, unless otherwise agreed in writing with the Company, promptly after the Business Day following such purchase date, the Trustee or Paying Agent, as applicable, shall return any such excess to the Company together with interest or dividends, if any, thereon, subject to the provisions of Section 5.4. ARTICLE 12 CONVERSION OF SECURITIES SECTION 12.1. CONVERSION RIGHT; EXPIRATION OF CONVERSION RIGHT; CONVERSION PRICE. (a) Subject to and upon compliance with the provisions of this Article, at the option of the Holder at any time and from time to time, any Security or any portion of the Principal thereof which is an integral multiple of $1,000 may be converted at the Principal thereof, or of such portion thereof, into duly authorized, fully paid and nonassessable shares of Common Stock, at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. (b) The conversion right set forth in clause (a) above shall expire at the close of business on the Stated Maturity. In case a Security or portion thereof is called for redemption pursuant to Article 10, such conversion right in respect of the Security or the portion so called, shall expire at the close of business on the second Business Day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. In the case of a Change of Control for which the Holder exercises its Purchase Right pursuant to Article 11 with respect to a Security or portion thereof, such Holder must first withdraw the Change of Control Purchase Notice in accordance with Section 11.3(c) hereto and such conversion right in respect of the Security or portion thereof shall expire at the close of business on the Business Day immediately preceding the Change of Control Purchase Date. (c) The price at which shares of Common Stock shall be delivered upon conversion (the "CONVERSION PRICE") shall be initially equal to $18.07 per share of Common Stock, subject to adjustment, in certain instances, as provided in Section 12.4. (d) No payment or adjustment will be made for dividends on, or other distributions with respect to, any Common Stock except as provided in this Article 12. (e) A Security in respect of which a holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such notice of exercise is withdrawn in accordance with Section 11.3(c). SECTION 12.2. EXERCISE OF CONVERSION RIGHT (a) To exercise the conversion right with respect to a Physical Security, a Holder must (1) deliver a completed conversion notice, the form of which is provided in Exhibit B, to 65 the Depositary stating that the Holder elects to convert such Physical Security or, if less than the entire Principal thereof is to be converted, the portion thereof to be converted, (2) deliver duly signed completed conversion notice and the Physical Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent, (3) pay all Interest to which the Holder is not entitled, if any, pursuant to Section 2.1(e) and (4) pay any transfer taxes or other applicable taxes or duties, if required. (b) To convert interests in a Global Security, issued pursuant to Rule 144A, a Holder must deliver to DTC the appropriate instruction form for conversion pursuant to DTC's conversion program. (c) To the extent required by Section 2.1(e), Securities surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date shall be accompanied by payment by such Holder in immediately available funds to the Company of an amount equal to the Interest to be received on such Interest Payment Date on the Principal of Securities being surrendered for conversion. (d) Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock at such time. (e) In the case of any Security which is converted in part only, or a Holder converts less than the Principal it owns at such time, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in Principal equal to the unconverted portion of the Principal of such Securities. (f) As promptly as practicable on or after the Conversion Date, the Company shall cause to be issued and delivered to such Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon conversion of such Securities, together with payment in lieu of any fraction of a share as provided in Section 12.3 hereof. The Company hereby initially appoints State Street Bank and Trust Company of California, N.A. as the Conversion Agent. (g) Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock at such time. (h) If shares of Common Stock to be issued upon conversion of a Restricted Security, or Securities to be issued upon conversion of a Restricted Security in part only, are to 66 be registered in a name other than that of the Holder of such Restricted Security, such Holder must deliver to the Conversion Agent a certificate in substantially the form set forth in Exhibit B annexed hereto, dated the date of surrender of such Restricted Security and signed by such Holder, as to compliance with the restrictions on transfer applicable to such Restricted Security. None of the Trustee, any Conversion Agent, Registrar or Transfer Agent shall be required to register in a name other than that of the Holder of shares of Common Stock or Securities issued upon conversion of any such Restricted Security not so accompanied by a properly completed certificate. SECTION 12.3. FRACTIONS OF SHARES. No fractional shares of Common Stock shall be issued upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock which shall be issued upon conversion thereof shall be computed on the basis of the Principal of the Securities (or specified portions thereof) so surrendered. Instead of any fractional shares of Common Stock which would otherwise be issued upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction (calculated to the nearest one-100th of a share) in an amount equal to the same fraction of the Trading Price of the shares of Common Stock as of the Trading Day preceding the Conversion Date. SECTION 12.4. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be subject to adjustment, calculated in good faith by the Company, from time to time as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the Conversion Record Date shall be reduced by multiplying such Conversion Price by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Conversion Record Date fixed for such determination; and (2) the denominator of which shall be the sum of such number of shares referred to in (1) above and the total number of shares constituting such dividend or other distribution. Such reduction shall become effective immediately after the opening of business on the day following the Conversion Record Date. If any dividend or distribution of the type described in this Section 12.4(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be 67 proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as applicable, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (c) In case the Company shall issue rights or warrants (other than any rights or warrants issued pursuant to a rights plan (commonly referred to as a "poison pill" plan) referred to in Section 12.4(d)) to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price on the Conversion Record Date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Conversion Record Date by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Conversion Record Date, plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such Current Market Price; and (2) the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on the Conversion Record Date, plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Conversion Record Date fixed for determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if the Conversion Record Date had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration if other than cash, to be determined by the Board of Directors. (d) (i) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of Capital Stock of the Company (other than any dividends or distributions to which Section 12.4(a) applies) or evidences of its indebtedness, cash or other assets, including securities, but excluding (1) any rights or warrants referred to in Section 12.4(c), (2) dividends or distributions of stock, securities or other property or assets 68 (including cash) in connection with a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 12.11 applies and (3) dividends and distributions paid exclusively in cash to which Section 12(e) applies (such Capital Stock, evidence of its indebtedness, cash, other assets or securities being distributed hereinafter in this Section 12.4(d) called the "DISTRIBUTED ASSETS"), then, in each such case, subject to clauses (ii) and (iii) of this Section 12.4(d), the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Conversion Record Date with respect to such distribution by a fraction: (1) the numerator of which shall be the Current Market Price on such date, less the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) on such date of the portion of the Distributed Assets so distributed applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Conversion Record Date); and (2) the denominator of which shall be such Current Market Price; provided, however, that if the Distributed Assets consist of shares of capital stock of a Subsidiary, the Company may, at its option and in lieu of the foregoing adjustment, elect to make adequate provision so that each Holder of Securities shall have the right to receive upon conversion the amount of such shares of capital stock of such Subsidiary that such Holder of Securities would have received if such Holder of Securities had converted such Securities on the Conversion Record Date. Such reduction in the Conversion Price shall become effective immediately prior to the opening of business on the day following the Conversion Record Date. However, in the event that the then Fair Market Value (as so determined) of the portion of the distributed assets so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Conversion Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of Distributed Assets such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Conversion Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (ii) If the Board of Directors determines the Fair Market Value of any Distributed Assets with respect to any distribution for purposes of this Section 12.4(d) by reference to the actual or when issued trading market for any Distributed Assets comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the "REFERENCE PERIOD") used in computing the Current Market Price to the extent possible, unless the Board of Directors in a Board Resolution determines in good faith that determining the Fair Market Value during the Reference Period would not be in the best interest of the Holders. 69 (iii) Under the provisions of the Rights Agreement, upon conversion of the Securities into Common Stock, to the extent the Rights Agreement is still in effect upon such conversion, the Holders of Securities will receive, in addition to the Common Stock, the rights described therein (whether or not the rights have separated from the Common Stock (as provided for therein) prior to the time of conversion), subject to the limitations set forth in the Rights Agreement. In the event such Holders receive such rights, there will be no adjustment to the Conversion Price pursuant to this Section 12.4. In the event such Holders do not receive such rights upon conversion of the Securities for any reason, then an adjustment shall be made to the Conversion Price to the extent provided for in the other provisions of this Section 12.4. (iv) Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events specified in such rights or warrants or related instruments or agreements governing the same (a "TRIGGER EVENT"): (1) are deemed to be transferred with such shares of Common Stock; (2) are not exercisable; and (3) are also issued in respect of future issuances of Common Stock; shall be deemed not to have been distributed for purposes of this Section 12.4(d) (and no adjustment to the Conversion Price under this Section 12.4(d) will be required) until the occurrence of the earliest Trigger Event; provided that (1) if such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different distributed assets, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and the Conversion Record Date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof); and (2) in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 12.4(d): (1) in the case of any such rights or warrants which shall all have been redeemed or purchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or purchase to give effect to such distribution or Trigger Event, as applicable, as though it were a cash distribution, equal to the per share redemption or purchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or purchase; and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued. 70 For purposes of this Section 12.4(d) and Sections 12.4(a), 12.4(b) and 12.4(c), any dividend or distribution to which this Section 12.4(d) is applicable that also includes shares of Common Stock, a subdivision or combination of Common Stock to which Section 12.4(b) applies, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section 12.4(c) applies (or any combination thereof), shall be deemed instead to be: (B) a dividend or distribution of the evidences of indebtedness, assets, shares of Capital Stock, rights or warrants, other than such shares of Common Stock, such subdivision or combination or such rights or warrants to which Sections 12.4(a), 12.4(b) and 12.4(c) apply, respectively (and any Conversion Price reduction required by this Section 12.4(d) with respect to such dividend or distribution shall then be made), immediately followed by (C) a dividend or distribution of such shares of Common Stock, such subdivision or combination or such rights or warrants (and any further Conversion Price reduction required by Sections 12.4(a), 12.4(b) and 12.4(c) with respect to such dividend or distribution shall then be made), except: (I) the Conversion Record Date of such dividend or distribution shall be substituted as (x) "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "Conversion Record Date fixed for such determinations" and "Conversion Record Date" within the meaning of Section 12.4(a), (y) "the day upon which such subdivision becomes effective" and "the day upon which such combination becomes effective" within the meaning of Section 12.4(b), and (z) as "the date fixed for the determination of stockholders entitled to receive such rights or warrants", "the Conversion Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants" and such "Conversion Record Date" within the meaning of Section 12.4(c); and (II) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 12.4(a) and any reduction or increase in the number of shares of Common Stock resulting from such subdivision or combination shall be disregarded in connection with such dividend or distribution. (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance to which Section 12.11 applies or as part of a distribution referred to in Section 12.4(d)), in an aggregate amount that, combined together with: (1) the aggregate amount of any other such distributions to all holders of Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 12.4(e) has been made; and 71 (2) the aggregate of any cash plus the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of such distribution, and in respect of which no adjustment pursuant to Section 12.4(f) has been made; exceeds 10% of the product of the Current Market Price on the Conversion Record Date with respect to such distribution multiplied by the number of shares of Common Stock outstanding on such date, then and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Conversion Record Date by a fraction: (1) the numerator of which shall be equal to the Current Market Price on the Conversion Record Date less an amount equal to the quotient of (x) the excess of such combined cash and Fair Market Value amount over such 10% divided by (y) the number of shares of Common Stock outstanding on the Conversion Record Date, and (2) the denominator of which shall be equal to the Current Market Price on such date. However, in the event that the then Fair Market Value (as so determined) of the portion of the securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Conversion Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of cash such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Conversion Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (f) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares) of an aggregate consideration having a Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution) that combined together with: (1) the aggregate of the cash plus the Fair Market Value (as determined by the Board of Directors, whose determination shall be conclusive and set forth in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 72 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 12.4(f) has been made; and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 12.4(e) has been made, exceeds 10% of the product of the Current Market Price as of the last time (the "EXPIRATION TIME") tenders could have been made pursuant to such tender offer (as it may be amended) multiplied by the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction: (1) the numerator of which shall be the number of shares of Common Stock outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time; and (2) the denominator shall be the sum of (x) the Fair Market Value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "PURCHASED SHARES") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time Such reduction (if any) shall become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 12.4(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 12.4(f). (g) For purposes of this Section 12.4, the following terms shall have the meanings indicated: (1) "CURRENT MARKET PRICE" of shall mean the average of the daily Trading Prices per share of Common Stock (or such other security as specified herein) for the ten consecutive Trading Days immediately prior to the date in question; provided, however, that if: 73 (i) the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, the Trading Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Trading Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event; (ii) the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Trading Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Trading Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event; and (iii) the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (i) or (ii) of this proviso, the Trading Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the Fair Market Value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 12.4(d) or (f), whose determination shall be conclusive and set forth in a Board Resolution) of the evidences of indebtedness, shares of Capital Stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 12.4(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Trading Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Trading Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Trading Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, when used: (I) with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Trading Price was obtained without the right to receive such issuance or distribution; 74 (II) with respect to any subdivision or combination of shares of Common Stock, means the first date on which the shares of Common Stock trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective; and (III) with respect to any tender or exchange offer, means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 12.4, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 12.4 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (2) "FAIR MARKET VALUE" shall mean, if there is a current market for the asset, debt or transaction in question, the amount that a willing buyer would pay a willing seller in an arm's length transaction or, in the absence of a current market for such asset, debt or transaction, the amount determined in good faith by the Board of Directors that represents its determination of the fair market value of the asset. (3) "CONVERSION RECORD DATE" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of stockholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). The Company may make such reductions in the Conversion Price, in addition to those required by Sections 12.4(a), (b), (c), (d), (e) or (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any even treated as such for income tax purposes or otherwise. (h) No adjustment need be made for (i) a transaction referred to in Sections 12.4 or 12.11 if Holders participate in the transaction without conversion on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of shares of Common Stock participate in the transaction; (ii) the issuance and distribution of rights to purchase shares of Common Stock pursuant to (A) a Company plan for reinvestment of dividends or interest, (B) a change in the par value or no par value of the shares of Common Stock or (C) to the extent the Securities become convertible pursuant to this Article 12 in whole or in part into cash, with respect to such cash after such cash is distributed to the Holders in satisfaction of such conversion right. 75 (i) To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days and the reduction is irrevocable during the period and the Board of Directors determines in good faith that such reduction would be in the best interests of the Holders, which determination shall be conclusive and set forth in a Board Resolution. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Trustee and the Conversion Agent and each Holder at the address of such Holder as it appears in the Register a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 12.4(j) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 12 shall be made by the Company in good faith and shall be made to the nearest cent or to the nearest one hundredth of a share, as applicable. No adjustment need be made for a change in the par value or no par value of the Common Stock. (k) No adjustment in Conversion Price shall be required if the Fair Market Value of any assets, debt securities or rights, warrants or options to purchase the securities of the Company, including but not limited to Common Stock, in each case applicable to each share of Common Stock are distributed to the Company's stockholders and such Fair Market Value either equals or exceeds the Current Market Price or such Current Market Price exceeds the such Fair Market Price Value by an amount not exceeding $1.00; provided, however, that any adjustments which by reason of this Section 12.4(k) are not required to be made shall be distributed upon conversion of any Security in an amount of assets, securities or rights, warrants or options comprising the distribution that a Holder would have received if such Holder had converted such Security immediately prior to the Conversion Record Date. (l) In any case in which this Section 12.4 provides that an adjustment shall become effective immediately after a Conversion Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any security converted after such Conversion Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 12.3. (m) For purposes of this Section 12.4, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. 76 SECTION 12.5. NOTICE OF ADJUSTMENTS OF CONVERSION PRICE. Whenever the Conversion Price is adjusted as herein provided (other than in the case of an adjustment pursuant to the second paragraph of Section 12.4(i) for which the notice required by such paragraph has been provided), the Company shall promptly file with the Trustee and any Conversion Agent other than the Trustee an Officers' Certificate setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based. Promptly after delivery of such Officers' Certificate, the Company shall prepare a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective, and shall mail such notice to each Holder at the address of such Holder pursuant to Section 14.2 within 20 days prior to the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. The Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Price unless and until a Responsible Officer of the Trustee shall have received such Officer's Certificate. SECTION 12.6. NOTICE PRIOR TO CERTAIN ACTIONS. In case at any time after the date hereof: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock that would result in an adjustment to the Conversion Price pursuant to this Article 12; (2) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of Capital Stock of any class (or of securities convertible into shares of Capital Stock of any class) or of any other rights; (3) there shall occur any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, a change in par value, a change from par value to no par value or a change from no par value to par value), or any merger, consolidation, statutory share exchange or combination to which the Company is a party and for which approval of any shareholders of the Company is required, or the sale, transfer or conveyance of all or substantially all of the assets of the Company; or (4) there shall occur the voluntary or involuntary dissolution, liquidation or winding up of the Company; the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of securities pursuant to Section 9.2, and shall cause to be provided to the Trustee and all Holders in accordance with Section 14.2, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating: (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders 77 of shares of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined; or (B) the date on which such reclassification, merger, consolidation, statutory share exchange, combination, sale, transfer, conveyance, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of shares of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, merger, consolidation, statutory share exchange, sale, transfer, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings or actions described in clauses (1) through (4) of this Section 12.6. SECTION 12.7. COMPANY TO RESERVE COMMON STOCK. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Securities, the full number of shares of fully paid and nonassessable Common Stock then issuable upon the conversion of all Outstanding Securities. SECTION 12.8. COMMON STOCK TO BE FULLY PAID AND NONASSESSABLE. The Company covenants that all Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and, except as provided in Section 12.9, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 12.9. TAXES ON CONVERSIONS. Except as provided in the next sentence, the Company will pay any and all taxes (other than taxes on income) and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant to Article 12. A Holder delivering a Security for conversion shall be liable for and will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. SECTION 12.10. CANCELLATION OF CONVERTED SECURITIES. All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee. SECTION 12.11. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any of following events occur: 78 (1) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), as a result of which holders of Common Stock shall be entitled to receive Capital Stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock; (2) any merger, consolidation, statutory share exchange or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock; or (3) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then (A) the Company or the successor or purchasing corporation, as applicable, shall execute with the Trustee a supplemental indenture (which shall comply with this Indenture and the TIA as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that such security shall be convertible into the kind and amount of shares of capital stock and other securities or property or assets (including cash) which such Holder would have been entitled to receive upon such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance had such Securities been converted into Common Stock immediately prior to such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance assuming such holder of Common Stock did not exercise its rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance is not the same for each shares of Common Stock in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purposes of this Section 12.11 the kind and amount of securities, cash or other property receivable upon such merger, consolidation, statutory share exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 12. If, in the case of any such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of Common Stock includes shares of stock or other securities and assets of a corporation other than the successor or purchasing corporation, as applicable, in such reclassification, change, merger, consolidation, statutory share exchange, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the Purchase rights set forth in Article 11. 79 The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the Register, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall apply to successive or series of related reclassifications, mergers, consolidations, statutory share exchanges, combinations, sales and conveyances. If this Section 12.11 applies to any event or occurrence, Section 12.4 shall not apply. SECTION 12.12. RESPONSIBILITY OF TRUSTEE FOR CONVERSION PROVISIONS. The Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or intent of any such adjustments when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee, subject to the provisions of Section 5.1, nor any Conversion Agent shall be accountable with respect to the validity or value (of the kind or amount) of any Common Stock or of any other securities or property, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 5.1, nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or share certificates or other securities or property upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not be responsible or liable for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE 13 SUBORDINATION SECTION 13.1. SUBORDINATION TO SENIOR DEBT. (a) The Company covenants and agrees, and each Holder of Securities issued hereunder by such Holder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article 13; and each Person holding any such Security whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment of the Principal, premium, if any, Redemption Price, Change of Control Purchase Price and Interest or Additional Interest, if any, in respect of all Securities issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full in cash or other payment satisfactory to 80 the holders of Senior Debt of all Senior Debt of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 13 shall prevent the occurrence of any Default or Event of Default hereunder. (b) No payment shall be made with respect to the payment of Principal, premium, if any, Redemption Price, Change of Control Purchase Price and Interest or Additional Interest, if any, on the Securities, except payments and distributions made by the Trustee as permitted by Section 13.7, if: (i) a default in any payment obligations in respect of Senior Debt occurs and is continuing, without regard to any applicable period of grace (whether at maturity or at a date fixed for payment or by declaration or otherwise); or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits the holders of such Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "PAYMENT BLOCKAGE NOTICE") from a holder of Designated Senior Debt, a Representative of Designated Senior Debt or the Company. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days (it being acknowledged that (x) any action of the Company or any of its Subsidiaries occurring subsequent to delivery of a Payment Blockage Notice that would give rise to any event of default pursuant to any provision of Senior Debt under which an event of default previously existed (or was continuing at the time of delivery of such Payment Blockage Notice) shall constitute a new event of default for this purpose and (y) any breach of a financial covenant giving rise to a nonpayment default for a period ending subsequent to the date of delivery of the respective Payment Blockage Notice shall constitute a new event of default for this purpose.) The Company may and shall resume payments on and distributions in respect of the Securities upon the earlier of: (1) in case of a default referred to in clause (i) above, the date upon which the default is cured or waived in accordance with the terms of the governing instrument or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, the date upon which the default is cured, waived in accordance with the terms of the governing instrument or ceases to exist or 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, 81 unless this Article 13 otherwise prohibits the payment or distribution at the time of such payment or distribution. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization or bankruptcy of the Company, whether voluntary or involuntary or insolvency, receivership or similar proceedings relating to the Company or its property, or an assignment for the benefit of creditors or any marshaling of the Company's assets or liabilities, all amounts due or to become due upon all Senior Debt shall first be paid in full in cash or other payment satisfactory to the holders of such Senior Debt, or provision is made for such payment in cash or other payment satisfactory to the holders of Senior Indebtedness, before any payment is made on account of the Principal, premium, if any, Redemption Price, Change of Control Purchase Price or Interest or Additional Interest, if any, in respect of the Securities (except payments made pursuant to Article 3 hereof from monies deposited with the Trustee pursuant thereto prior to the happening of such dissolution or winding-up or liquidation or reorganization or bankruptcy of the Company, whether voluntary or involuntary or insolvency, receivership or similar proceedings relating to the Company or its property, or an assignment of the benefit of creditors or any marshaling of the Company's assets or liabilities), and upon any such dissolution or winding-up or liquidation or reorganization or bankruptcy of Company, whether voluntary or involuntary or insolvency, receivership or similar proceedings relating to the Company or its property, or an assignment of the benefit of creditors or any marshaling of the Company's assets or liabilities, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled, except for the provisions of this Article 13, shall (except as aforesaid) be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders of the Securities or by the Trustee if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any such Senior Debt may have been issued, as their respective interests may appear to the extent necessary to pay all such Senior Indebtedness in full in cash or other payment satisfactory to the holders of such Senior Debt, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt, before any payment or distribution is made to the Holders or to the Trustee. In the event any Securities are declared due and payable before their Stated Maturity pursuant to Section 4.2, then and in such event the Company shall promptly notify holders of its Senior Debt of such acceleration. The Company may not pay the Securities until 120 days have passed after such acceleration occurs and may thereafter pay the Securities if this Article 13 permits the payment at that time. In the event that, notwithstanding the foregoing provisions, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including, without limitation, by way of setoff or otherwise), prohibited by the foregoing provisions in this Section 13.1, shall be received by the Trustee or the Holders of the Securities before all Senior Debt of the Company is paid in full in cash or other payment 82 satisfactory to the holders of such Senior Debt, or provision is made for such payment in cash or other payment satisfactory to the holders of such Senior Debt, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Indebtedness of the Company or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any such Senior Debt may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all such Senior Debt remaining unpaid to the extent necessary to pay all such Senior Debt in full in cash or other payment satisfactory to the holders of such Senior Debt, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt. For purposes of this Article 13, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 13 with respect to the Securities to the payment of all Senior Debt of the Company which may at the time be outstanding; provided that (i) such Senior Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Debt (other than leases that are not assumed by the Company or the new corporation, as the case may be) are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article 6 hereof shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 13.1 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article 6 hereof. SECTION 13.2. Subrogation. Subject to the payment in full of all Senior Debt to which the indebtedness evidenced by the Securities is in the circumstances subordinated as provided in Section 13.1 hereof, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to such Senior Debt until all amounts owing on the Securities shall be paid in full, and, as between the Company, its creditors other than holders of such Senior Debt, and the Holders of the Securities, no such payment or distribution made to the holders of Senior Debt by virtue of this Article 13 which otherwise would have been made to the holders of the Securities shall be deemed to be a payment by the Company on account of such Senior Debt, provided that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of Senior Debt, on the other hand. SECTION 13.3. Obligation of the Company is Absolute and Unconditional. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the 83 holders of Senior Debt, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the Principal, premium, if any, and Interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of Senior Debt, nor shall anything contained herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 13.4. Maturity of or Default on Senior Debt. Upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, all Principal of or premium, if any, or interest on, or other payment obligations in respect of all such matured Senior Debt shall first be paid in full, or such payment shall have been duly provided for, before any payment on account of Principal, or premium, if any, or Interest is made upon the Securities. SECTION 13.5. Payments on Securities Permitted. Except as expressly provided in this Article, nothing contained in this Article shall affect the obligation of the Company to make, or prevent the Company from making, payments of the Principal of, premium, if any, or Interest on the Securities in accordance with the provisions hereof and thereof, or shall prevent the Trustee or any Paying Agent from applying any moneys deposited with it hereunder to the payment of the Principal of or Interest on the Securities. SECTION 13.6. Effectuation of Subordination by Trustee. Each Holder of Securities, by such Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 13 and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. Upon any payment or distribution of assets of the Company referred to in this Article 13, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of the Company is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee or agent or other Person making any payment or distribution, delivered to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, and as to other facts pertinent to the right of such Persons under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Persons pending judicial determination as to the right of such Persons to receive such payment. 84 SECTION 13.7. Knowledge of Trustee. Notwithstanding the provision of this Article or any other provisions of this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior Debt, of any default in payment of Principal of, premium, if any, or interest on, or other payment obligation in respect of any Senior Debt, or of any facts which would prohibit the making of any payment of moneys to or by the Trustee, or the taking of any other action by the Trustee, unless a Responsible Officer of the Trustee having responsibility for the administration of the trust established by this Indenture shall have received written notice thereof from the Company, any Holder of Securities, any Paying or Conversion Agent of the Company or the holder or representative of any class of Senior Debt, and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such default or facts exist; provided, however, that unless on the third Business Day prior to the date upon which by the terms hereof any such moneys may become payable for any purpose the Trustee shall have received the notice provided for in this Section 13.7, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. SECTION 13.8. Trustee's Relation to Senior Debt. The Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior Debt at the time held by it, to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing contained in this Article shall apply to claims of or payments to the Trustee under or pursuant to Section 5.8 hereof. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and the Trustee shall not be liable to any holder of Senior Debt if it shall pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article or otherwise. SECTION 13.9. Rights of Holders of Senior Debt Not Impaired. No right of any present or future holder of any Senior Debt to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. 85 SECTION 13.10. Modification of Terms of Senior Debt. Any renewal or extension of the time of payment of any Senior Debt or the exercise by the holders of Senior Debt of any of their rights under any instrument creating or evidencing Senior Debt, including without limitation the waiver of default thereunder, may be made or done all without notice to or assent from the Holders of the Securities or the Trustee. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Debt is outstanding or of such Senior Debt, whether or not such release is in accordance with the provisions or any applicable document, shall in any way alter or affect any of the provisions of this Article or of the Securities relating to the subordination thereof. SECTION 13.11. Certain Conversions Not Deemed Payment. (a) For the purposes of this Article 13 only: (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article 12 hereof or with respect to the payment of the Change of Control Purchase Price in accordance with Article 11 hereof shall not be deemed to constitute a payment or distribution on account of the Principal, or premium, if any, or Interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 12.3 hereof or fractional shares pursuant to the payment of the Change of Control Purchase Price in accordance with Article 11 hereof), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the Principal of premium, if any, or Interest on such Security. (b) For the purposes of this Section 13.11, the term "junior securities" means: (1) shares of any Common Stock of the Company; or (2) other securities of the Company that are subordinated in right of payment to all Senior Debt that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent that, the Securities are so subordinated as provided in this Article. (c) Nothing contained in this Article 13 or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors (other than holders of Senior Debt) and the Holders of Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article 12 hereof. 86 ARTICLE 14 OTHER PROVISIONS OF GENERAL APPLICATION SECTION 14.1. TRUST INDENTURE ACT CONTROLS. This Indenture is subject to the provisions of the TIA which are required to be part of this Indenture, and shall, to the extent applicable, be governed by such provisions. SECTION 14.2. NOTICES. Any notice or communication to the Company or the Trustee is duly given if in writing (which may be by facsimile with the original to follow) and delivered in person or mailed by first-class mail to the address set forth below: (a) if to the Company: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 95054 Attn: Kent Roberts, General Counsel and Executive Vice President Fax: (972) 855-2796 Telephone: (408) 346-3718 With a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304 Attn.: John A. Fore Fax: (650) 845-5000 Telephone: (650) 320-4651 (b) if to the Trustee: State Street Bank and Trust Company of California, N.A. 633 West 5th Street, 12th Floor Los Angeles, California 90071 Attn.: Corporate Trust Administration (Networks Associates, Inc., 5.25% Convertible Subordinated Notes due 2006) The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Holder shall be mailed by first class mail to his address shown on the Register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in such notice or communication shall not affect its sufficiency with 87 respect to other Holders. If the company mails a notice or communication to Holders, it shall mail a copy to the Trustee at the same time. If a notice or communication is mailed or sent in the manner provided above within the time prescribed it is duly given as of the date it is mailed, whether or not the addressee receives it, except that notice to the Trustee shall only be effective upon receipt thereof by the Trustee. SECTION 14.3. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to Section 312(b) of the TIA with other Holders with respect to their rights under the Securities or this Indenture. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the TIA. SECTION 14.4. ACTS OF HOLDERS OF SECURITIES. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by: (1) one or more instruments of substantially similar tenor signed by such Holders in person or by agent or proxy duly appointed in writing; (2) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article 8; or (3) a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 5.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 8.6. (b) The fact and date of the execution by any Person of any such instrument or writing may be provided in any manner which the Trustee reasonably deems sufficient. (c) The Principal and serial numbers of Securities held by any Person, and the date of such Person holding the same, shall be proved by the Register. (d) Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holders of any Security shall bind every future Holder of the same 88 Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 14.5. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such officer knows, or in the exercise of reasonable care should know, that the Opinion of Counsel with respect to the matters upon which such certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished; provided however, that, at any time that an Opinion of Counsel is required to be delivered hereunder, the opining counsel may, with the consent of the Trustee, deliver to the Trustee the Opinion of Counsel in question addressed to a party other than the Trustee with text to the effect that the Trustee may rely on such opinion rather than by delivering a separate Opinion of Counsel to the Trustee directly. 89 SECTION 14.6. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion on behalf of the Company, has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 14.7. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 14.8. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 14.9. SEPARABILITY CLAUSE. In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 14.10. BENEFITS OF INDENTURE. Nothing contained in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. SECTION 14.11. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 90 SECTION 14.12. COUNTERPARTS. This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original but all such counterparts shall together constitute but one and the same instrument. SECTION 14.13. LEGAL HOLIDAYS. In any case where any Interest Payment Date, Redemption Date, Change of Control Purchase Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert such Security shall not be a Business Day at any Place of Payment or Place of Conversion, then (notwithstanding any other provision of this Indenture or of the Securities) payment of Principal or premium, if any, on or Interest and Additional Interest, if any, on or conversion of the Securities, need not be made at such Place of Payment or Place of Conversion on such day, but may be made on the next succeeding Business Day at such Place of Payment or Place of Conversion with the same force and effect as if made on the Interest Payment Date, Redemption Date, Change of Control Purchase Date or at the Stated Maturity or on such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no Interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Change of Control Purchase Date or Stated Maturity, as applicable. SECTION 14.14. RECOURSE AGAINST OTHERS. No recourse for the payment of the Principal or premium, if any, of or Interest and Additional Interest, if any, on any Securities, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director or manager, as such, past, present or future, of the Company of any successor entity to either the Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance thereof and as part of the consideration for the issue thereof, expressly waived and released. 91 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. NETWORKS ASSOCIATES, INC. By: /s/ Kent H. Roberts ------------------------------------------- Name: Kent H. Roberts Title: EVP and General Counsel STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE AND NOT IN ITS INDIVIDUAL CAPACITY. By: /s/ Paula Oswald ------------------------------------------- Name: Paula Oswald Title: Vice President 92 EXHIBIT A [FORM OF SECURITY] [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN ARTICLE TWO OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.](1) THE SECURITY EVIDENCED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT, OR IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO NETWORKS ASSOCIATES, INC. OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) TO AN INSTITUTIONAL INVESTOR THAT IT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT OF 1933 PURSUANT TO AN EXEMPTION FROM REGISTRATION - -------- (1) This legend should be included only if the Security is issued as a Global Security. A-1 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(C) OR 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. A-2 NETWORKS ASSOCIATES, INC. 5.25% CONVERTIBLE SUBORDINATED NOTE DUE 2006 CUSIP NO. NO. ________ $_________ NETWORKS ASSOCIATES, INC., a Delaware corporation (including any successor corporation under the Indenture hereinafter referred to, the "COMPANY"), for value received, hereby promises to pay to Cede & Co., or its registered assigns, the principal sum of______________________________________ U.S. Dollars ($_____________) on August 15, 2006. Interest Payment Dates: February 15 and August 15, commencing February 15, 2002. Regular Record Dates: February 1 and August 1. Reference is hereby made to the further provisions of this Security set forth below, which further provisions shall for all purposes have the same effect as if set forth at this place. A-3 IN WITNESS WHEREOF, the Company has caused this Security to be duly executed manually or by facsimile by its duly authorized officers. NETWORKS ASSOCIATES, INC. By: ----------------------------------------- Name: Title: By: ----------------------------------------- Name: Title: Dated: Trustee's Certificate of Authentication This is one of the 5.25% Convertible Subordinated Notes due 2006 described in the within-named Indenture. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------------------- Authorized Signatory Dated: A-4 NETWORKS ASSOCIATES, INC. 5.25% CONVERTIBLE SUBORDINATED NOTE DUE 2006 1. INDENTURE; SECURITIES This Security is one of a duly authorized series of the 5.25% Convertible Subordinated Notes due 2006 (the "SECURITIES") of Networks Associates, Inc., a Delaware corporation (including any successor corporation under the Indenture hereinafter referred to, the "COMPANY"), issued under an Indenture, dated as of August 17, 2001 (the "INDENTURE"), between the Company and State Street Bank and Trust Company of California, N.A., as trustee (the "TRUSTEE"). The terms of the Security include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended ("TIA"). This Security is subject to all such terms, and Holders are referred to the Indenture and the TIA for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. Capitalized terms used but not defined herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 2. PRINCIPAL AND INTEREST. The Company promises to pay Interest on the Principal of the Securities at the Interest Rate from the date of issuance until repayment in full at Stated Maturity, redemption or purchase. The Company will pay Interest on this Security semiannually in arrears on February 15 and August 15 of each year (each, an "INTEREST PAYMENT DATE"), commencing February 15, 2002. The Securities shall bear Interest from August 17, 2001 until the Principal thereof is paid or made available for payment, or until such date on which the Securities are converted, redeemed or purchased as provided herein. Interest shall be payable semiannually in arrears on each Interest Payment Date. Interest on the Securities shall be computed (i) for any full semi-annual period for which a particular Interest Rate is applicable, on the basis of a 360-day year of twelve 30-day months and (ii) for any period for which a particular Interest Rate is applicable for less than a full semiannual period for which Interest is calculated, on the basis of a 30-day month and, for such periods of less than a month, the actual number of days elapsed over a 30-day month, and payable in the manner specified in the Indenture. 3. METHOD OF PAYMENT. Interest on this Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such Interest. Principal of, premium, if any, and Interest on, Global Securities will be payable, for the benefit of the holders of this Security, to the Depositary in immediately available funds. A-5 Principal on Physical Securities will be payable at the office or agency of the Company maintained for such purpose, which shall initially be an office or agency of the Trustee located in New York, New York. Interest on Physical Securities will be payable by (i) U.S. Dollar check drawn on a bank in The City of New York mailed to the address of the Person entitled thereto as such address shall appear in the Register, or (ii) upon application to the Registrar not later than the relevant Regular Record Date by a Holder of an aggregate Principal in excess of $5,000,000, wire transfer in immediately available funds. 4. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company of California, N.A. will act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without notice to any Holder. 5. OPTIONAL REDEMPTION At any time on or after August 20, 2004, except for Securities that the Company is required to purchase pursuant to Section 11.1 of the Indenture or the Company is required to convert pursuant to Section 12.1 of the Indenture, the Company may, at its option, redeem this Security in whole at any time or in part from time to time, and prior to the Stated Maturity of the Security, upon notice as set forth in Section 10.4 of the Indenture, at the Redemption Price (expressed in percentages of the Principal) set forth below if, but only if, redeemed on a Redemption Date occurring during the 12-month period beginning on the dates indicated:
Redemption During the Twelve Months Commencing Price ----------------------------------- ---------- August 20, 2004......................... 101.3125% August 20, 2005......................... 100.0000%
If the Company exercises its option to redeem this Security pursuant, a Holder may nevertheless exercise its right to have this Security purchased pursuant to Section 11.1 of the Indenture, if applicable, and to convert such Securities pursuant to Article 12 of the Indenture, in each case, until the close of business two Business Days immediately preceding the Redemption Date. The Company shall pay any Interest and Additional Interest, if any, to the Holder of the Securities called for redemption pursuant to Section 10.1(a) of the Indenture, accrued but not paid to, but excluding, the Redemption Date pursuant to Section 2.1(e) of the Indenture; provided, however, that if the Redemption Date is an Interest Payment Date, the Company shall pay the Interest to the Holder of the Security at the close of business on the Regular Record Date with respect to such Interest Payment Date. If the Security is redeemed, then on and after the Redemption Date, Interest shall cease to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Redemption Price. Securities in original denominations larger than $1,000 may be redeemed in part. If any Security selected for partial redemption is converted or elected to be purchased in part before termination of the conversion right with respect to the portion of the Security so selected, the converted or purchased portion of such Security shall be deemed to be the portion selected for redemption (provided, however, that the Holder of such Security so converted or purchased A-6 and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion or purchase of such Security). Securities which have been converted or purchased during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Company is required to furnish the notice of redemption to the Holders as provided in the Indenture. 6. RIGHT UPON A CHANGE OF CONTROL. If a Change in Control occurs, this Security, at the Holder's option, shall have the right, subject to the conditions and in accordance with the provisions of the Indenture, to require the Company to purchase this Security (or any portion of the Principal hereof that is at least $1,000 or an integral multiple thereof, provided that the portion of the Principal of this Security to be Outstanding after such purchase is at least equal to $1,000 or an integral multiple thereof) at the Change of Control Purchase Price, plus any accrued and unpaid Interest to, but excluding, the Change of Control Purchase Date; provided, however, that (i) if the Change of Control Purchase Date is an Interest Payment Date, installments of Interest and Additional Interest, if any, on the Securities shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Date according to their terms and the provisions of Section 2.1 of the Indenture and (ii) no Holder shall have a Purchase Right upon a Change of Control unless prior to any payment of the Change of Control Purchase Price on the Change of Control Purchase Date the Company shall have made any applicable change of control offers required by the Company's Senior Debt and has purchased all Senior Debt validly tendered for payment in connection with such change of control offers; provided, further that, subject to certain conditions set forth in the Indenture, the Company may elect to satisfy its obligation with respect to the Holders' Purchase Right (in cash or Applicable Stock or a combination thereof) by delivering to the applicable Holders the number of shares of Applicable Stock equal to (i) the Change of Control Purchase Price divided (to the extent not paid in cash) by (ii) 95% of the average of the Trading Prices per share of Applicable Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Purchase Date. The Company is required to furnish a Change of Control Notice to the Holders as provided in the Indenture. To exercise a Purchase Right, a Holder must deliver to the Trustee a completed Change of Control Purchase Notice as provided in the Indenture. 7. CONVERSION RIGHT. Subject to and upon compliance with the provisions of the Indenture, the Holder of Securities is entitled, at such Holder's option, at any time and from tine to time, to convert this Security (or any portion of the Principal hereof which is $1,000 or an integral multiple thereof), at the Principal thereof or of such portion, into duly authorized, fully paid and nonassessable shares of Common Stock of the Company at the Conversion Price in effect at the time of conversion. A-7 The conversion right shall expire at the close of business on the Stated Maturity. If this Security (or a portion thereof) is called for redemption, such conversion right in respect of the Security (or such portion thereof) so called, shall expire at the close of business on the second Business Day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. In the case of a Change of Control for which the Holder exercises its Purchase Right with respect to the Security (or a portion thereof), such Holder may exercise its conversion right by withdrawing the Change of Control Purchase Notice in accordance with Section 11.3(c) of the Indenture, and such conversion right in respect of the Security (or portion thereof) shall expire at the close of business on the Business Day immediately preceding the Change of Control Purchase Date. The Conversion Price shall be initially equal to $18.07 per share of Common Stock, which may be adjusted under certain circumstances as provided in the Indenture. To exercise the conversion right with respect to a Physical Security, a Holder must (1) deliver a completed conversion notice, the form of which is provided in Exhibit B, to the Depositary stating that the Holder elects to convert such Physical Security or, if less than the entire Principal thereof is to be converted, the portion thereof to be converted, (2) deliver duly signed completed conversion notice and the Physical Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent, (3) pay all Interest to which the Holder is not entitled, if any, pursuant to Section 2.1(e) and (4) pay any transfer taxes or other applicable taxes or duties, if required. To convert interests in a Global Security, a Holder must deliver to DTC the appropriate instruction form for conversion pursuant to DTC's conversion program. To the extent required by Section 2.1(e) of the Indenture, if this Security is surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date, such Security shall be accompanied by payment by such Holder in immediately available funds to the Company of an amount equal to the Interest to be received on such Interest Payment Date on Principal of Securities being surrendered for conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock at such time. A Security in respect of which a Holder has delivered a Change of Control Purchase Notice exercising the option of such Holder to require the Company to purchase such Security may be converted only if such notice of exercise is withdrawn in accordance with Section 11.3 of the Indenture. No fractional shares of Common Stock will be issued upon conversion of any Securities. Instead of any fractional share of Common Stock which would otherwise be issued upon conversion of such Securities, the Company shall pay a cash adjustment as provided in the Indenture. A-8 Reference is made to the Indenture for other rights and obligations of the Holders of this Security with respect to their right to convert this Security or any portion hereof. 8. SUBORDINATION. The Indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all amounts then due on all existing and future Senior Debt of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. 9. NO SINKING FUND. The Securities are not subject to a sinking fund. 10. ABSOLUTE OBLIGATION. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company under the Indenture and this Security which is absolute and unconditional, to pay the Principal of, or premium, if any, or Interest on this Security at the place and time and in the coin or currency herein prescribed. 11. DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are issuable in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Securities in accordance with the Indenture. Pursuant to the Indenture, when this Security (or any portion thereof in integral multiples of $1,000 in Principal) is presented to the Registrar with a request to register the transfer or to exchange it for an equal amount of Principal other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if the requirements hereunder for such transactions are met (including that such portions thereof are duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the Holder). Subject to Section 2.4 of the Indenture, to permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Sections 2.14, 7.5 or 10.7 of the Indenture). A-9 Pursuant to the Indenture, neither the Company nor the Registrar shall be required to exchange or register a transfer of this Security (or any portion thereof): (1) for a period of 15 days prior to the day of any selection of any portion of this Security for redemption under Article 10 hereof; (2) so selected for redemption or, if a portion of this Security is selected for redemption, such portion thereof selected for redemption; (3) surrendered for conversion or, if a portion of this Security is surrendered for conversion, such portion thereof surrendered for conversion; or (4) surrendered for purchase (and not validly and timely withdrawn) pursuant to Article 11 of the Indenture. In the event of redemption, conversion or purchase of the Securities in part only, a new Security or Securities for the unredeemed, unconverted or unpurchased portion thereof will be issued in the name of the Holder hereof. 12. PERSONS DEEMED OWNERS. The registered Holder of this Security shall be treated as its owner for all purposes. 13. DISCHARGE PRIOR TO REDEMPTION OR STATED MATURITY. Subject to certain conditions contained in the Indenture, the Company may satisfy and discharge its obligations under the Securities and the Indenture if (1) (a) all of the Outstanding Securities shall become due and payable at their scheduled Stated Maturity within one year or (b) all of the Outstanding Securities are scheduled for redemption within one year, and (2) the Company shall have deposited with the Trustee cash sufficient to pay all amounts due and owing on all outstanding Securities on the date of their scheduled maturity or the scheduled date of redemption, as the case may be. 14. AMENDMENT; SUPPLEMENT; WAIVER. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority of the aggregate Principal of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of the Indenture). The Indenture also contains provisions permitting the Holders of specified percentages in Principal of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security. A-10 No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the Principal of and Interest on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security (or pay cash in lieu of conversion) as provided in the Indenture. 15. DEFAULTS AND REMEDIES. The Indenture provides that an Event of Default with respect to the Securities occurs when any of the following occurs: (a) the Company defaults in the payment of the Principal or premium, if any, on this Security when the same becomes due and payable at its Stated Maturity, upon redemption, purchase, upon declaration, when due for purchase, by the Company or otherwise; (b) the Company defaults in the payment of an installment of Interest or Additional Interest, if any, on this Security when it becomes due and payable and such default continues for a period of 30 days, whether or not such payment is prohibited by the terms of the Indenture; (c) the Company fails to perform or observe any other term, covenant or agreement contained in the Securities or this Indenture and the default continues for a period of 60 days after written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate Principal of the Outstanding Securities; (d) the Company or any Significant Subsidiary (i) fails to make any payment at maturity, including any grace period, in respect of any obligation for borrowed money evidenced by an Instrument in an amount in excess of $25 million and such failure continues or (ii) defaults with respect to any Instrument, which default results in the acceleration of Indebtedness represented by such Instrument in an amount in excess of $25 million without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled, in the case of the foregoing (i) and (ii), for a period of 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate Principal of the Outstanding Securities; provided that if any such failure, default or acceleration referred to in this Section 15(d) shall cease or be cured, waived, rescinded or annulled, then such Event of Default shall be deemed to be likewise cured and any acceleration with respect thereto rescinded; A-11 (e) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary, under any applicable U.S. federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (f) the commencement by the Company or any Significant Subsidiary, of a voluntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary, to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable U.S. federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable U.S. federal or state law, or the consent by the Company or any Significant Subsidiary to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by the Company or any Significant Subsidiary, of an assignment for the benefit of creditors, or the admission by the Company or any Significant Subsidiary in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Significant Subsidiary expressly in furtherance of any such action. A Default under clause (c) or (d) above is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% of the Principal of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default (and such Default is not waived) within the time specified in clause (c) or (d) above after actual receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". If an Event of Default shall occur and be continuing, the Principal, premium, if any, and accrued and unpaid interest of all the Securities may be declared, or shall immediately become, due and payable in the manner and with the effect, and the Holder of this Security shall have the remedies and rights related thereto, as provided in the Indenture. 16. AUTHENTICATION. This Security shall not be valid until the Trustee executes the certificate of authentication in the space provided therefore on the Security. A-12 17. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). 18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused one or more CUSIP numbers, as appropriate, to be printed on this Security and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on this Security or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. GOVERNING LAW. The Indenture and this Security shall be governed by, and construed in accordance with, the laws of the State of New York. 20. SUCCESSOR CORPORATION. In the event a successor corporation assumes all the obligations of the Company under this Security, pursuant to the terms hereof and of the Indenture, the Company will be released from all such obligations. A-13 ASSIGNMENT FORM To assign this Security, fill in the form below and have your signature guaranteed: (I) or (we) assign and transfer this Security to: - -------------------------------------------------------------------------------- (Insert assignee's social security or tax I.D. number) - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ____________ to transfer this Security on the books of the Company. The agent may substitute another to act for him. Your Name: -------------------------------------------------- (Print your name exactly as it appears on the face of this Security) In connection with any transfer of this Security occurring prior to the date which is the end of the period referred to in Rule 144(k) under the Securities Act (other than a transfer pursuant to an effective registration statement under the Securities Act) , the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or [ ] (b) this Security is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless the conditions to any such transfer of registration set forth herein and in Sections 2.7, 2.8 and 2.17 of the Indenture shall have been satisfied. Dated: -------------------------------------------------- Your Signature: -------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee*: -------------------------------------------------- - ------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-14 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion, and that it and any such account is a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: -------------------------- NOTICE: To be executed by an executive officer. A-15 CONVERSION NOTICE TO: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 90071 The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is an amount of Principal of $1,000 or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted Principal hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. To the extent provided in the Indenture, any amount required to be paid to the undersigned on account of Interest, accompanies this Security. Your Name: ------------------------------------------------------ (Print your name exactly as it appears on the face of this Security) Dated: ---------------------------------------------------------- Your Signature: ------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Social Security or other Taxpayer Identification Number: -------- Amount of Principal to be converted (if less than all): $ -------------------------- Signature Guarantee*: ------------------------------------------- Fill in for registration of shares (if to be issued) and Securities (if to be delivered) other than to and in the name of the registered holder: - -------------------------------------------------------------------------------- (Name) - -------------------------------------------------------------------------------- (Street Address) - ------------------ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-16 - -------------------------------------------------------------------------------- (City, State and Zip Code) A-17 CHANGE OF CONTROL PURCHASE NOTICE TO: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 90071 The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Networks Associates, Inc. (the "COMPANY") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire Principal of this Security, or the portion thereof (which is an amount of Principal of $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security, together with Interest accrued and unpaid to, but excluding, such date, to the registered holder hereof. Your Name: ------------------------------------------------------ (Print your name exactly as it appears on the face of this Security) Dated: ---------------------------------------------------------- Your Signature: ------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Social Security or other Taxpayer Identification Number: --------- Amount of Principal amount to be converted (if less than all): $ ----------------------- Signature Guarantee*: ------------------------------------------- - ------------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-18 Exhibit 4.3 SCHEDULE OF EXCHANGES FOR PHYSICAL SECURITIES(2) The following exchanges of a part of this Global Security for Physical Securities have been made:
Principal of this Amount of decrease Amount of Global Security Signature of in Principal of increase in following such authorized this Global Principal of this decrease (or officer of Date of Exchange Security Global Security increase) Trustee - ----------------- ------------------ ----------------- ----------------- ------------
- ---------------- (2) This schedule should be included only if the Security is issued in global form. A-19 EXHIBIT B FORM OF CONVERSION NOTICE TO: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 90071 The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is an amount of Principal of $1,000 or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted Principal hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. To the extent provided in the Indenture, any amount required to be paid to the undersigned on account of interest, if any, accompanies this Security. Your Name: -------------------------------------------------------------- (Print your name exactly as it appears on the face of this Security) Dated: ----------------------------------------------------------------- Your Signature: -------------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee*: -------------------------------------------------- Social Security or other Taxpayer Identification Number: --------------- Amount of Principal to be converted (if less than all): $ ------------------------ Fill in for registration of shares (if to be issued) and Securities (if to be delivered) other than to and in the name of the registered holder - -------------------------------------------------------------------------------- (Name) - -------------------------------------------------------------------------------- (Street Address) - -------------------------------------------------------------------------------- (City, State and Zip Code) * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). B-1 EXHIBIT C CHANGE OF CONTROL PURCHASE NOTICE TO: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 90071 The undersigned registered owner of this Security hereby irrevocably acknowledges receipt of a notice from Networks Associates, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire Principal of this Security, or the portion thereof (which is an amount of Principal of $1,000 or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security, together with interest, if any, accrued and unpaid to, but excluding, such date, to the registered holder hereof. Your Name: ------------------------------------------------------ (Print your name exactly as it appears on the face of this Security) Dated:---------------------------------------------------------- Your Signature: ------------------------------------------------- (Sign exactly as your name appears on the face of this Security) Signature Guarantee*: ------------------------------------------- Social Security or other Taxpayer Identification Number: -------- Amount of Principal to be converted (if less than all): $ -------------------- - ---------------- * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). C-1 EXHIBIT D Rule 144A Certificate To: State Street Bank and Trust Company of California, N.A. Re: Networks Associates, Inc. (the "Company") 5.25% Convertible Subordinated Notes due 2006 (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of $____________ aggregate Principal of Securities, we confirm that such sale has been effected pursuant to and in accordance with Rule 144A ("Rule 144A") under the Securities Act of 1933, as amended (the "Securities Act"). We are aware that the transfer of Securities to us is being made in reliance on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. If the Company is not subject to Section 13 or 15(d) of the Exchange Act, prior to the date of this Certificate we have been given the opportunity to obtain from the Company the information referred to in Rule 144A(d)(4), and have either declined such opportunity or have received such information. You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [NAME OF PURCHASER] By: -------------------------------------- Name: Title: Address: Date of this Certificate: , -------- -- ---- D-1 EX-4.4 4 f76705orex4-4.txt EXHIBIT 4.4 Exhibit 4.4 RESALE REGISTRATION RIGHTS AGREEMENT BETWEEN NETWORKS ASSOCIATES, INC. AND LEHMAN BROTHERS INC. DATED AS OF AUGUST 17, 2001 2 RESALE REGISTRATION RIGHTS AGREEMENT, dated as of August 17, 2001, between Networks Associates, Inc., a Delaware corporation (together with any successor entity, herein referred to as the "COMPANY"), and Lehman Brothers Inc., as initial purchaser (the "INITIAL PURCHASER") under the Purchase Agreement (as defined below). Pursuant to the Purchase Agreement, dated as of August 13, 2001, between the Company and the Initial Purchaser (the "PURCHASE AGREEMENT"), the Initial Purchaser has agreed to purchase from the Company $300,000,000 ($345,000,000 if the Initial Purchaser exercises its option in full) in aggregate principal amount of 5.25% Convertible Subordinated Notes due 2006 (the "SECURITIES"). The Securities initially may be convertible into fully paid, nonassessable shares of common stock, par value $0.01 per share, of the Company on the terms, and subject to the conditions, set forth in the Indenture (as defined herein). To induce the Initial Purchaser to purchase the Securities, the Company has agreed to provide the registration rights set forth in this Agreement pursuant to Section 1 of the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: "ADDITIONAL INTEREST": As defined in Section 3(a) hereof. "ADDITIONAL INTEREST PAYMENT DATE": Each February 15 and August 15. "AFFILIATE": The definition of "Affiliate" in the Indenture. "AGREEMENT": This Resale Registration Rights Agreement, as amended, modified or otherwise supplemented from time to time. "BLUE SKY APPLICATION": As defined in Section 6(a) hereof. "BUSINESS DAY": The definition of "Business Day" in the Indenture. "COMMISSION": Securities and Exchange Commission. "COMMON STOCK": The definition of "Common Stock" in the Indenture. "COMPANY": As defined in the preamble hereto. "EFFECTIVENESS PERIOD": As defined in Section 2(a)(iii) hereof. "EFFECTIVENESS TARGET DATE": As defined in Section 2(a)(ii) hereof. "EXCHANGE ACT": Securities Exchange Act of 1934, as amended. 3 "HOLDER": A Person who owns, beneficially or otherwise, Transfer Restricted Securities. "HOLDER QUESTIONNAIRE": As defined in Section 2(b) hereof. "INDEMNIFIED HOLDER": As defined in Section 6(a) hereof. "INDENTURE": The Indenture, dated as of August 17, 2001 between the Company and State Street Bank and Trust Company of California, N.A., as trustee (the "TRUSTEE"), pursuant to which the Securities are to be issued, as such Indenture is amended, modified or supplemented from time to time in accordance with the terms thereof. "INITIAL PURCHASER": As defined in the preamble hereto. "MAJORITY OF HOLDERS": Holders holding over 50% of the aggregate principal amount of Transfer Restricted Securities outstanding; provided, however that in determining whether Transfer Restricted Securities are outstanding, Transfer Restricted Securities held for the account of the Company or of any of its Affiliates shall be disregarded; provided, further that for purpose of this definition, a holder of shares of Common Stock that constitute Transfer Restricted Securities when issued upon conversion of the Securities shall be deemed to hold an aggregate principal amount of Securities (in addition to the principal amount of Securities held by such holder) equal to the quotient of (x) the number of such shares of Common Stock received upon conversion of the Securities and then held by such holder and (y) the conversion rate(s) in effect at the time such Holder converted Securities into such shares of Common Stock as determined in accordance with the Indenture. "NASD": National Association of Securities Dealers, Inc. "PERSON": An individual, partnership, corporation, company, unincorporated organization, trust, joint venture or a government or agency or political subdivision thereof. "PURCHASE AGREEMENT": As defined in the preamble hereto. "PROSPECTUS": The prospectus included in a Shelf Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. "QUESTIONNAIRE DEADLINE": As defined in Section 2(b) hereof. "RECORD HOLDER": With respect to any Additional Interest Payment Date, each Person who is a Holder on the Register on the February 1 or August 1 immediately preceding the relevant Additional Interest Payment Date. In the case of a Holder of shares of Common Stock issued upon conversion of the Securities, "Record Holder" shall mean each Person who is a Holder of shares of Common Stock which constitute Transfer 4 Restricted Securities on the February 1 or August 1 immediately preceding the relevant Additional Interest Payment Date. "REGISTER": The definition of "Register" in the Indenture. "REGISTRAR": The definition of "Registrar" in the Indenture. "REGISTRATION DEFAULT": As defined in Section 3(a) hereof. "SALE NOTICE": As defined in Section 4(e) hereof. "SECURITIES": As defined in the preamble hereto. "SECURITIES ACT": Securities Act of 1933, as amended. "SHELF FILING DEADLINE": As defined in Section 2(a)(i) hereof. "SHELF REGISTRATION STATEMENT": As defined in Section 2(a)(i) hereof. "SUSPENSION NOTICE". As defined in Section 4(c) hereof. "SUSPENSION PERIOD". As defined in Section 4(b)(i) hereof. "TIA": Trust Indenture Act of 1939, as amended, the rules and regulations of the Commission thereunder, in each case, as in effect on the date the Indenture is qualified under the TIA. "TRANSFER RESTRICTED SECURITIES": Each Security and each share of Common Stock issued upon conversion of Securities for which a Holder has submitted their Holder Questionnaire by the Questionnaire Deadline until the earlier of: (i) the date on which such Security or such share of Common Stock issued upon conversion thereof has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; (ii) the date on which such Security or such share of Common Stock issued upon conversion thereof is transferred in compliance with Rule 144 under the Securities Act or may be sold or transferred by a person who is not an affiliate of the Company pursuant to Rule 144 under the Securities Act (or any other similar provision then in force) without any volume or manner of sale restrictions thereunder; or (iii) the date on which such Security or such share of Common Stock issued upon conversion ceases to be outstanding (whether as a result of redemption, repurchase and cancellation, conversion or otherwise). 5 UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in which Transfer Restricted Securities are sold to an underwriter for reoffering to the public pursuant to the Shelf Registration Statement. Unless the context otherwise requires, the singular includes the plural, and words in the plural include the singular. 2. Shelf Registration (a) The Company shall: (i) not later than 90 days after the date hereof (the "SHELF FILING DEADLINE"), cause to be filed a registration statement pursuant to Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities held by Holders that have provided the information required pursuant to the terms of Section 2(b) hereof; (ii) use its reasonable efforts to cause the Shelf Registration Statement to be declared effective by the Commission not later than 180 days after the date hereof (the "EFFECTIVENESS TARGET DATE"); and (iii) use its reasonable efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 4(b) hereof (and subject to the right of the Company to suspend the use of the Shelf Registration Statement by delivery of a Suspension Notice in accordance with Section 4(b)(i) hereof) to the extent necessary to ensure that (A) it is available for resales by the Holders of Transfer Restricted Securities entitled, subject to Section 2(b), to the benefit of this Agreement and (B) conforms with the requirements of this Agreement and the Securities Act and the rules and regulations of the Commission promulgated thereunder as announced from time to time, for a period (the "EFFECTIVENESS PERIOD") until the earliest of: (1) two years following the last date of original issuance of any of the Securities; or (2) the date when the Holders of Transfer Restricted Securities are able to sell all such Transfer Restricted Securities immediately without restriction pursuant to the volume limitation provisions of Rule 144 under the Securities Act; and (3) the date when all of the Transfer Restricted Securities of those Holders that complete and deliver in a timely manner the Holder Questionnaire described below are registered under the Shelf Registration Statement and disposed of in accordance with the Shelf Registration Statement. 6 (b) No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in the Shelf Registration Statement pursuant to this Agreement unless such Holder furnishes to the Company in writing, prior to or on the 20th Business Day after the date of the Holder Questionnaire (or, in the case of a Holder that is a transferee of Transfer Restricted Securities, prior to or on the earlier of (i) the 20th business day after the completion of such transfer to the transferee and (ii) 9:00 a.m., San Francisco time, on the second Business Day before the effectiveness of the Shelf Registration Statement) (the "QUESTIONNAIRE DEADLINE"), such information as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein and in any application to be filed with or under state securities laws (the form of which request is attached as Appendix A to the offering memorandum dated August 13, 2001 regarding the sale of the Securities to the Initial Purchaser and is referred to herein as the "HOLDER QUESTIONNAIRE"). In connection with all requests for information from Holders of Transfer Restricted Securities with respect to inclusion of Transfer Restricted Securities in the Shelf Registration Statement, the Company shall notify such Holders of the requirements set forth in the preceding sentence. The Company agrees and undertakes that (i) it shall distribute a Holder Questionnaire no later than 20 Business Days prior to the effectiveness of the Shelf Registration Statement to each Holder at the address set forth on the Register of Securities maintained by the Registrar of the Securities or the records of the transfer agent of the Common Stock at such time, and (ii) upon the request of any Holder prior to 9:00 a.m., San Francisco time, on the second Business Day before the effectiveness of the Shelf Registration Statement, the Company shall distribute a Holder Questionnaire to such Holder at the address set forth in such request. Holders that do not complete the Holder Questionnaire and timely deliver it to the Company shall not be named as selling securityholders in the Prospectus or preliminary Prospectus included in the Shelf Registration Statement and therefore shall not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement. Each Holder as to which the Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make information previously furnished to the Company by such Holder not materially misleading. NO HOLDER OF TRANSFER RESTRICTED SECURITIES SHALL BE ENTITLED TO ADDITIONAL INTEREST PURSUANT TO SECTION 3 HEREOF UNLESS SUCH HOLDER SHALL HAVE PROVIDED ALL SUCH REASONABLY REQUESTED INFORMATION PRIOR TO OR ON THE QUESTIONNAIRE DEADLINE. 3. Additional Interest. (a) If: (i) the Shelf Registration Statement is not filed with the Commission prior to or on the Shelf Filing Deadline; (ii) the Shelf Registration Statement has not been declared effective by the Commission prior to or on the Effectiveness Target Date; (iii) except as provided in Section 4(b)(i) hereof, the Shelf Registration Statement is filed and declared effective but, during the Effectiveness Period, shall thereafter cease to be effective or fail to be usable for its intended purpose 7 without being succeeded within five Business Days by a post-effective amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act that cures such failure and, in the case of a post-effective amendment, is itself immediately declared effective; or (iv) (A) prior to or on the 45th or 60th day, as the case may be, of any Suspension Period, such suspension has not been terminated or (B) Suspension Periods exceed an aggregate of 90 days in any 360 day period, (each such event referred to in foregoing clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company hereby agrees to pay liquidated damages in the form of additional interest ("ADDITIONAL INTEREST") with respect to the Transfer Restricted Securities from and including the day following the Registration Default to but excluding the earlier of (1) the day on which the Registration Default has been cured and (2) the date the Shelf Registration Statement is no longer required to be kept effective, accruing at a rate: (A) in respect of the Securities, to each holder of Securities, (x) with respect to the first 90-day period during which a Registration Default shall have occurred and be continuing, equal to 0.25% per annum of the principal amount of the Securities, and (y) with respect to the period commencing on the 91st day following the day the Registration Default shall have occurred and be continuing, equal to 0.50% per annum of the principal amount of the Securities; provided that in no event shall Additional Interest accrue at a rate per year exceeding 0.50% of the principal amount of the Securities; and (B) in respect of any shares of Common Stock, to each holder of shares of Common Stock issued upon conversion of Securities, (x) with respect to the first 90-day period in which a Registration Default shall have occurred and be continuing, equal to 0.25% per annum of the principal amount of the converted Securities, and (y) with respect to the period commencing the 91st day following the day the Registration Default shall have occurred and be continuing, equal to 0.50% per annum of the principal amount of the converted Securities; provided that in no event shall Additional Interest accrue at a rate per year exceeding 0.50% of the principal amount of the converted Securities. (b) All accrued Additional Interest shall be paid in arrears to Record Holders by the Company on each Additional Interest Payment Date in the same manner as the payment of interest on the Securities. Upon the cure of all Registration Defaults relating to any particular Security or share of Common Stock, the accrual of Additional Interest with respect to such Security or share of Common Stock will cease. The Company agrees to deliver all notices, certificates and other documents contemplated by the Indenture in connection with the payment of Additional Interest. Notwithstanding any other provision of this Agreement, no Additional Interest shall accrue as to any Transfer Restricted Security from and after the earlier of the date such security is no longer a Transfer Restricted Security and the expiration of the Effectiveness 8 Period. All obligations of the Company set forth in this Section 3 that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Transfer Restricted Security shall have been satisfied in full. The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if a Registration Default were to occur. The parties hereto further agree that the Additional Interest provided for in this Section 3 constitutes a reasonable estimate of the damages that may be incurred by Holders of Transfer Restricted Securities by reason of a Registration Default. Therefore, the parties hereto agree that the sole damages payable for a violation of the terms of this Agreement with respect to which Additional Interest is expressly provided for (including any non-compliance with a covenant that results, directly or indirectly, in a Registration Default) shall be such Additional Interest. 4. Registration Procedures. (a) In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 4(b) hereof and shall use its reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities, and pursuant thereto, shall prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Securities Act. (b) In connection with the Shelf Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities, the Company shall: (i) Subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii)(D) and the Company's right to invoke a Suspension Period in the manner described in this Section 4(b)(i), use its reasonable efforts to keep the Shelf Registration Statement continuously effective during the Effectiveness Period; upon the occurrence of any event that would cause the Shelf Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not be effective and usable for resale of Transfer Restricted Securities during the Effectiveness Period, unless a Suspension Period is then in effect, the Company shall file promptly an appropriate amendment to the Shelf Registration Statement, a supplement to the Prospectus or a report filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its reasonable efforts to cause such amendment to be declared effective and the Shelf Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter. Notwithstanding the foregoing, the Company may suspend the effectiveness of the Shelf Registration Statement by written notice to the Holders for a period not to exceed an aggregate of 45 days in any 90- 9 day period or 90 days in any 360-day period (each such period, a "SUSPENSION PERIOD") if: (x) an event occurs and is continuing as a result of which the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein would, in the Company's judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and (y) the Company reasonably determines that the disclosure of such event at such time would have a material adverse effect on the Company and its subsidiaries taken as a whole; provided that, in the event the disclosure relates to a previously undisclosed proposed or pending material business transaction, the disclosure of which the Company determines in good faith would be reasonably likely to impede the Company's ability to consummate such transaction, the Company may extend the 45-day Suspension Period from 45 days to 60 days. The Company shall not be required to specify in the written notice to the Holders the nature of the event giving rise to the Suspension Period. (ii) Prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective during the Effectiveness Period; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (it being understood that the Company shall not be required to file a prospectus supplement pursuant to 424(b) with respect to any Holder that failed to submit their Holder Questionnaire by the Questionnaire Deadline) under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in the Shelf Registration Statement or supplement to the Prospectus. (iii) Advise in writing the underwriter(s), if any, and the selling Holders promptly (in the case of Holders, at the address set forth on the Register of Securities maintained by the Registrar of the Securities or the records of the transfer agent of the Common Stock at such time) of each of the following: (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, 10 (B) any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, or (D) the existence of any fact or the happening of any event, during the Effectiveness Period (but not as to the substance of any such fact or event), that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading (provided, however, that no notice by the Company shall be required pursuant to this clause (D) in the event that the Company either promptly files a prospectus supplement to update the Prospectus or a Form 8-K or other appropriate Exchange Act report that is incorporated by reference into the Shelf Registration Statement, which, in either case, contains the requisite information with respect to such material event that results in such Shelf Registration Statement no longer containing any such untrue or misleading statements). If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its reasonable efforts to promptly obtain the withdrawal or lifting of such order and will provide to each Holder (in the case of Holders, at the address set forth on the Register of Securities maintained by the Registrar of the Securities or the records of the transfer agent of the Common Stock at such time) who is named in the Shelf Registration Statement prompt notice of the withdrawal of any such order. (iv) If requested by any selling Holders or the underwriter(s), if any, incorporate in the Shelf Registration Statement or Prospectus, pursuant to an amendment prior to effectiveness if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation information relating to the "Plan of Distribution" of the Transfer Restricted Securities as specified by such Holder in such Holder Questionnaire to be delivered prior to the Questionnaire Deadline. 11 (v) Furnish to each selling Holder (in the case of Holders, at the address set forth in the Register of Securities or the records of the transfer agent of the Common Stock at such time) and each of the underwriter(s), if any, upon their request, without charge, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto (and any documents incorporated by reference therein or exhibits thereto (or exhibits incorporated in such exhibits by reference) as such Person may request). (vi) Deliver to each selling Holder (in the case of Holders, at the address set forth in the Register of Securities or the records of the transfer agent of the Common Stock at such time) and underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; subject to any notice by the Company in accordance with this Section 4(b) of the existence of any fact or event of the kind described in Section 4(b)(iii) (D), the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto. (vii) In connection with an Underwritten Offering, the Company shall: (A) upon request, furnish to each underwriter, if any, in such substance and scope as they may reasonably request and as are customarily made by issuers to underwriters in primary underwritten offerings for selling security holders, upon the date of closing of any sale of Transfer Restricted Securities in an Underwritten Registration: (1) a certificate, dated the date of such closing, signed by the Chief Financial Officer of the Company confirming, as of the date thereof, the matters customarily covered in an officer's certificate to underwriters in connection with underwritten offerings of securities; (2) opinions, each dated the date of such closing, of counsel to the Company covering such of the matters as are customarily covered in legal opinions to underwriters in connection with underwritten offerings of securities; and (3) customary comfort letters, dated the date of such closing, from the Company's independent accountants (and from any other accountants whose report is contained or incorporated by reference in the Shelf Registration Statement) in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings of securities; and 12 (B) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the selling Holders pursuant to this clause (x). (viii) Before any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the underwriter(s), if any, and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions in the United States as the selling Holders or underwriter(s), if any, may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required (A) to register or qualify as a foreign corporation or a dealer of securities where it is not now so qualified or to take any action that would subject it to the service of process in any jurisdiction where it is not now so subject or (B) to subject themselves to taxation in any such jurisdiction if they are not now so subject. (ix) Cooperate with the selling Holders and underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends (unless required by applicable securities laws); and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two Business Days before any sale of Transfer Restricted Securities. (xii) Use its reasonable efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other U.S. governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities. (xiii) Subject to Section 4(b)(i) hereof, if any fact or event contemplated by Section 4(b)(iii)(D) hereof shall exist or have occurred, use its reasonable efforts to prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are made, not misleading; provided that the Company shall not be required to comply with the foregoing obligations during any Suspension Period of any period during which Additional Interest is accruing. 13 (xiv) Provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Trustee under the Indenture with certificates for the Securities that are in a form eligible for deposit with The Depository Trust Company. (xv) Cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter that is required to be retained in accordance with the rules and regulations of the NASD. (xvi) Otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act. (xvii) Cause the Indenture to be qualified under the TIA not later than the effective date of the Shelf Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the holders of Securities to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its reasonable efforts to cause the Trustee thereunder to execute all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner. (xviii) Cause all Common Stock covered by the Shelf Registration Statement to be listed or quoted, as the case may be, on each securities exchange or automated quotation system on which Common Stock is then listed or quoted. (c) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company of the existence of any fact of the kind described in Section 4(b)(iii)(D) hereof, such Holder will, and will use its reasonable efforts to cause any underwriter(s) in an Underwritten Offering to, forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until: (i) such Holder has received copies of the supplemented or amended Prospectus contemplated by Section 4(b)(xiii) hereof; or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. Each Holder agrees to keep the receipt of a Suspension Notice and its contents confidential. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice of suspension. 14 (d) Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall furnish to the Company in writing, within 20 Business Days after the date of the Holder Questionnaire, such information regarding such Holder and the proposed distribution by such Holder of its Transfer Restricted Securities as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Holders that do not complete the Holder Questionnaire and deliver it to the Company shall not be named as selling securityholders in the Prospectus or preliminary Prospectus included in the Shelf Registration Statement and therefore shall not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement; provided, however, that notwithstanding the foregoing, transferees of all or a portion of a Holder's Transfer Restricted Securities who furnish the Company a completed Holder Questionnaire on or prior to the earlier of (i) the 20th business day after the completion of such transfer to the transferee and (ii) 9:00 a.m., San Francisco time, on the second Business Day before the effectiveness of the Shelf Registration Statement shall be named as selling securityholders in the Prospectus or preliminary Prospectus included in the Shelf Registration Statement. Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall promptly furnish to the Company in writing such other information as the Company may from time to time reasonably request in writing. (e) Upon the effectiveness of the Shelf Registration Statement, each Holder shall notify the Company at least five Business Days prior to any intended distribution of Transfer Restricted Securities pursuant to the Shelf Registration Statement (a "SALE NOTICE"), which notice shall be effective for five Business Days. Each Holder of Transfer Restricted Securities, by accepting the same, agrees to hold any communication by the Company in response to a Sale Notice in confidence. Upon receipt of a Sale Notice, the Company shall inform each Holder in writing of the existence of a Suspension Period or otherwise, of the kind of event described in Section 4(b)(iii)(D). 5. Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company regardless of whether a Shelf Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made with the NASD); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing of Prospectuses and certificates for the Common Stock to be issued upon conversion of the Securities) and the Company's expenses for messenger and delivery services and telephone; (iv) all fees and disbursements of counsel to the Company; 15 (v) all application and filing fees in connection with listing (or authorizing for quotation) the Common Stock on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company. The Company shall bear its internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal, accounting or other duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. Notwithstanding the foregoing, the Holders of the Transfer Restricted Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Transfer Restricted Securities and the fees and disbursements of any counsel or other advisors or experts retained by such Holders (severally and jointly), other than the counsel and experts that represent the Company specifically referred to above. 6. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Holder, such Holder's officers, directors and employees and each person, if any, who controls such Holder within the meaning of the Securities Act (each, an "INDEMNIFIED HOLDER"), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to resales of the Transfer Restricted Securities), to which such Indemnified Holder may become subject, insofar as any such loss, claim, damage, liability or action arises out of, or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Shelf Registration Statement or Prospectus or any amendment or supplement thereto or (B) any blue sky application or other document or any amendment or supplement thereto prepared or executed by the Company (or based upon written information furnished by or on behalf of the Company expressly for use in such blue sky application or other document or amendment on supplement) filed in any jurisdiction specifically for the purpose of qualifying any or all of the Transfer Restricted Securities under the securities law of any state or other jurisdiction (such application or document being hereinafter called a "BLUE SKY APPLICATION"); or (ii) the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Indemnified Holder promptly upon demand for any legal or other expenses reasonably incurred by such Indemnified Holder in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, 16 any untrue statement or alleged untrue statement or omission or alleged omission made in the Shelf Registration Statement or Prospectus or amendment or supplement thereto or Blue Sky Application in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein; provided, further, that the Company shall not be liable to any Indemnified Holder under the indemnity agreement in this subsection (a) with respect to any preliminary Prospectus to the extent that any such loss, claim, damage or liability of such Indemnified Holder results from the fact that such Indemnified Holder sold Transfer Restricted Securities to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus in any case where such delivery is required by the Securities Act if the Company had previously furnished copies thereof in sufficient quantities to such Indemnified Holder and the loss, claim, damage or liability of such Indemnified Holder results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was (i) identified to such Indemnified Holder at or prior to the earlier of the filing with the Commission or the furnishing to such Indemnified Holder of the corrected Prospectus and (ii) corrected in the final Prospectus. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to any Indemnified Holder. (b) Each Holder, severally and not jointly, shall indemnify and hold harmless the Company, its officers, directors and employees and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such officer, employee or controlling person may become subject, insofar as any such loss, claim, damage or liability or action arises out of, or is based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the Shelf Registration Statement or Prospectus or any amendment or supplement thereto or any Blue Sky Application; or (ii) the omission or the alleged omission to state therein any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder (or its related Indemnified Holder) specifically for use therein, and shall reimburse the Company and any such officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by the Company or any such officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Holder may otherwise have to the Company and any such officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the 17 indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent it has been materially prejudiced by such failure and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Holders shall have the right to employ a single counsel to represent jointly a the Holders and their officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Holders against the Company under this Section 6 if the Holders seeking indemnification shall have been advised by legal counsel that there may be one or more legal defenses available to such Holders and their respective officers, employees and controlling persons that are different from or additional to those available to the Company, and in that event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall: (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld) settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss of liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 6 shall for any reason be unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b) in respect of any loss, claim, damage or liability (or action in respect thereof) referred to therein, each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (or action in respect thereof): (i) in such proportion as is appropriate to reflect the relative benefits received by the Company from the offering and sale of the Transfer Restricted 18 Securities on the one hand and a Holder with respect to the sale by such Holder of the Transfer Restricted Securities on the other, or (ii) if the allocation provided by clause (6)(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 6(d)(i) but also the relative fault of the Company on the one hand and the Holders on the other in connection with the statements or omissions or alleged statements or alleged omissions that resulted in such loss, claim, damage or liability (or action in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under the Purchase Agreement (before deducting expenses) received by the Company, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Transfer Restricted Securities on the other. The relative fault of the parties shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Holders on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Holder agree that it would not be just and equitable if the amount of contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 6 shall be deemed to include, for purposes of this Section 6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 6, no Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities purchased by it were resold exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this Section 6(d) are several and not joint. 7. Rule 144A. In the event the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. 19 8. Underwritten Registrations. The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering if approved by the Company in its sole discretion; provided, however that no such Holder may participate in any Underwritten Registration hereunder unless such Holder: (i) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements; and (ii) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by a Majority of Holders whose Transfer Restricted Securities are included in such offering; provided, that such investment bankers and managers must be reasonably satisfactory to the Company. If requested by the underwriter(s), if any, the Company agrees to make appropriate officers of the Company available to the underwriters for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and present to potential investors customary "road show" or marketing materials in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities. 9. Miscellaneous. (a) Actions Affecting Transfer Restricted Securities. The Company shall not, directly or indirectly, take any action with respect to the Transfer Restricted Securities as a class that would adversely affect the ability of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. In addition, the Company shall not grant to any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in the Shelf Registration Statement provided for in this Agreement other than the Transfer Restricted Securities. The Company has not previously entered into any agreement (which has not expired or been terminated) granting any registration rights with respect to its securities to any Person which rights conflict with the provisions hereof. (c) Amendments and Waivers. This Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given, unless the Company has obtained the written consent of a Majority of Holders. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, 20 return receipt requested), telex, facsimile transmission, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture or the transfer agent of the Common Stock, as the case may be; and (ii) if to the Company: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 95054 Attention:Kent Roberts, Executive Vice President and General Counsel Fax: (408) 346-5928 Tel: (408) 346-3718; with a copy to: Networks Associates Inc. 13465 Midway Road Dallas, Texas 75244 Attention: Kent Roberts Executive Vice President And General Counsel Fax: (972) 855-2796 Tel: (972) 855-2547; with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304 Attention: Kurt Berney Tel: (650) 493-9300 Fax: (650) 493-6811 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if transmitted by facsimile; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted 21 Securities; provided, however, that (i) this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder and (ii) nothing contained herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Securities Held by the Company or Their Affiliates. Whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or its "affiliates" (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NETWORKS ASSOCIATES, INC. By /s/ Kent H. Roberts --------------------------------------- Name Kent H. Roberts Title: EVP and General Counsel LEHMAN BROTHERS INC. By /s/ Helen McLanire --------------------------------------- Authorized Representative EX-5.1 5 f76705orex5-1.txt EXHIBIT 5.1 EXHIBIT 5.1 November 9, 2001 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 to be filed by you with the Securities and Exchange Commission on or about the date hereof (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of a total of up to 19,092,418 shares of your Common Stock (the "Shares"). All of the Shares are issued and outstanding and may be offered for sale for the benefit of the selling stockholders named in the Registration Statement. The Shares are to be sold from time to time in the over-the counter-market at prevailing prices or as otherwise described in the Registration Statement. As your legal counsel, we have examined the proceedings taken by you in connection with the sale of the Shares. It is our opinion that the Shares are legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever it appears in the Registration Statement, including the Prospectus constituting a part thereof, and any amendments thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ Wilson Sonsini Goodrich & Rosati, Professional Corporation ---------------------------------------- EX-12.1 6 f76705orex12-1.txt EXHIBIT 12.1 EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1996 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and minority interest .... $ 65,419 $ 82,813 $ 138,167 $(130,998) $ (97,751) $ (96,433) --------- --------- --------- --------- --------- --------- Fixed charges: Interest expense and amortization of debt issuance costs ............... $-- $-- $ 14,908 $ 17,769 $ 18,606 $ 9,641 Interest portions of leases .... 2,900 4,133 3,600 5,033 6,133 3,454 --------- --------- --------- --------- --------- --------- Total fixed charges (B) $ 2,900 $ 4,133 $ 18,508 $ 22,802 $ 24,739 $ 13,095 ========= ========= ========= ========= ========= ========= Income (loss) before income taxes and minorities interest plus fixed charges (A) .................... $ 68,319 $ 86,946 $ 156,675 $(108,196) $ (73,012) $ (83,338) --------- --------- --------- --------- --------- --------- Ratio of earnings to fixed charges (A/B) .................. 23.6x 21.0x 8.5x --x(1) --x(1) --x(1)
(1) During the six months ended June 30, 2001 and the fiscal years ended December 31, 2000 and 1999, there was a deficiency of earnings to cover fixed charges of approximately $96.4 million, $97.8 million and $131 million, respectively. EX-23.1 7 f76705orex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our reports dated January 24, 2001 relating to the consolidated financial statements and financial statement schedule, which appear in Networks Associates Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California November 8, 2001 EX-25.1 8 f76705orex25-1.txt EXHIBIT 25.1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 --------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) [ ] STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) United States 06-1143380 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national Identification No.) bank) 633 West 5th Street, 12th Floor, Los Angeles, California 90071 (Address of principal executive offices) (Zip Code) Lynda A. Vogel, Senior Vice President and Managing Director 633 West 5th Street, 12th Floor, Los Angeles, California 90071 (213) 362-7399 (Name, address and telephone number of agent for service) NETWORKS ASSOCIATES, INC. (Exact name of obligor as specified in its charter) DE 77-0316593 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3965 Freedom Circle, Santa Clara, CA 95054 (Address of principal executive offices) (Zip Code) 5.25% Convertible Subordinated Notes due 2006 (TYPE OF SECURITIES) GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Comptroller of the Currency, Western District Office, 50 Fremont Street, Suite 3900, San Francisco, California, 94105-2292 (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Trustee is authorized to exercise corporate trust powers. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Bank and Trust Company. (See notes on page 2.) ITEM 3. THROUGH ITEM 15. NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as an Exhibit with corresponding exhibit number to the Form T-1 of Western Digital Corporation, filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939, as amended (the "Act"), on May 12, 1998 (Registration No. 333-52463), and is incorporated herein by reference. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A Certificate of Corporate Existence (with fiduciary powers) from the Comptroller of the Currency, Administrator of National Banks is on file with the Securities and Exchange Commission as an Exhibit with corresponding exhibit number to the Form T-1 of Western Digital Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12, 1998 (Registration No. 333-52463), and is incorporated herein by reference. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. Authorization of the Trustee to exercise fiduciary powers (included in Exhibits 1 and 2; no separate instrument). 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as an Exhibit with corresponding exhibit number to the Form T-1 of Western Digital Corporation, filed pursuant to Section 305(b)(2) of the Act, on May 12, 1998 (Registration No. 333-52463), and is incorporated herein by reference. 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(b) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company of California, National Association, a national banking association, organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Los Angeles, and State of California, on the November 5, 2001. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION By: /S/ Paula Oswald ------------------------------------- NAME PAULA OSWALD TITLE VICE PRESIDENT -2- EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by NETWORKS ASSOCIATES, INC. of its CONVERTIBLE SUBORDINATED NOTES, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION By: /S/ Paula Oswald ------------------------------------- NAME PAULA OSWALD TITLE VICE PRESIDENT DATED: NOVEMBER 5, 2001 -3- EXHIBIT 7 Consolidated Report of Condition and Income for A Bank With Domestic Offices Only and Total Assets of Less Than $100 Million of State Street Bank and Trust Company of California, a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at the close of business September 30, 2001, published in accordance with a call made by the Federal Deposit Insurance Corporation pursuant to the required law: 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks).
Thousands ASSETS of Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ...................... 8,918 Interest-bearing balances ............................................... 0 Securities ...................................................................... 0 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ..................................... 0 Loans and lease financing receivables: Loans and leases, net of unearned income ....................... 0 Allowance for loan and lease losses ............................ 0 Allocated transfer risk reserve ................................ 0 Loans and leases, net of unearned income and allowances ................. 0 Assets held in trading accounts ................................................. 0 Premises and fixed assets ....................................................... 9 Other real estate owned ......................................................... 0 Investments in unconsolidated subsidiaries ...................................... 0 Customers' liability to this bank on acceptances outstanding .................... 0 Intangible assets ............................................................... 0 Other assets .................................................................... 1,145 ------ Total assets .................................................................... 10,072 ====== LIABILITIES Deposits: In domestic offices ..................................................... 0 Noninterest-bearing ..................................... 0 Interest-bearing ........................................ 0 In foreign offices and Edge subsidiary .................................. 0 Noninterest-bearing ..................................... 0 Interest-bearing ........................................ 0 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ..................................... 0 Demand notes issued to the U.S. Treasury and Trading Liabilities ................ 0 Other borrowed money ............................................................ 0 Subordinated notes and debentures ............................................... 0 Bank's liability on acceptances executed and outstanding ........................ 0 Other liabilities ............................................................... 4,733 Total liabilities ............................................................... 4,733 ------ EQUITY CAPITAL Perpetual preferred stock and related surplus ................................... 0 Common stock .................................................................... 500 Surplus ......................................................................... 750 Undivided profits and capital reserves/Net unrealized holding gains (losses) ................................................................ 4,089 Cumulative foreign currency translation adjustments ............................. 0 Total equity capital ............................................................ 5,339 ------ Total liabilities and equity capital ............................................ 10,072 ======
-4- I, John J. Saniuk, Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition and Income for this report date have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. /S/ John J. Saniuk We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /S/ Alan D. Greene /S/ Bryan R. Calder /S/ Lynda A. Vogel -5- -----END PRIVACY-ENHANCED MESSAGE-----