Networks Associates Form 10-Q for Period 9/30/01

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

138,455,083 shares of the registrant’s common stock, $0.01 par value, were outstanding as of September 30, 2001.

The accompanying notes are an integral part of these condensed consolidated financial statements.


(1)	Includes stock-based compensation charge of $144 and $3,319 for the three months ended September 30, 2001 and 2000, respectively, and $342 and $4,167 for the nine months ended September 30, 2001 and 2000, respectively.

(2)	Includes stock-based compensation charge of $228 and $5,831 for the three months ended September 30, 2001 and 2000, respectively, and $541 and $7,176 for the nine months ended September 30, 2001 and 2000, respectively.

(3)	Includes stock-based compensation charge of $448 and $2,957 for the three months ended September 30, 2001 and 2000, respectively, and $2,800 and $3,689 for the nine months ended September 30, 2001 and 2000, respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.

These condensed consolidated financial statements have been prepared by Networks Associates, Inc. (the “Company”) without audit in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited, condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three month and nine month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year or for any future periods. The accompanying unaudited, condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 2, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements as of and for the year ended December 31, 2000, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

Certain reclassifications have been made to the 2000 consolidated condensed financial statements and related notes to conform to the 2001 presentation.

In 1998, the Company established a subsidiary, McAfee.com, as a separate business entity. The Company evaluated its product segments in 2001 and concluded that it has two reportable segments consisting of computer security and management software, and managed security and availability application services to business users on the Internet (“Infrastructure”) and consumer PC security and management software on the Internet (“McAfee.com”). Management measures profitability for its business based on these two segments.

The Infrastructure segment consists of anti-virus, network management, security and help desk software. These products are marketed and sold through a direct sales force to distributors, retailers, and end users worldwide. In addition, the Infrastructure segment includes managed security and availability applications services on the Internet.

The McAfee.com segment is a one-stop destination for consumer and small to medium-sized business PC security and management needs on the Internet. The McAfee.com web site provides a suite of online products and services personalized for the user based on the user’s PC configuration, attached peripherals and resident software.

Summarized pre-tax financial information concerning the Company’s reportable segments is provided as follows (in thousands):

In the three months ended September 30, 2001, the Company redeemed zero coupon convertible subordinated 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. In accordance with the redemption, the Company recognized an extraordinary gain of $1.1 million, net of $718,000 in taxes. As of September 30, 2001, the Company’s aggregate cash, cash equivalents and marketable securities were approximately $956.8 million, including $89.0 million held by McAfee.com. Assuming that as of February 13, 2003 all currently outstanding zero coupon convertible subordinated debentures are redeemed, the aggregate redemption price would equal approximately $368.6 million.

On August 17, 2001, the Company issued 5.25% convertible subordinated notes due 2006 with an aggregate principal amount of $345.0 million. The issuance generated net proceeds of approximately $335.1 million (after deducting fees and expenses). The notes mature on August 15, 2006, unless earlier redeemed by the Company at its option or converted at the holder’s option. Interest is payable in cash semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2002. At the option of the holder, notes may be converted into the Company’s common stock at any time, unless previously redeemed, at a conversion price of $18.07 per share. The Company may redeem all or a portion of the notes for cash at any time on or after August 20, 2004 at a redemption price of 101.3125% of the principal amount between August 20, 2004 and August 14, 2005 and 100.0% of the principal amount after August 14, 2005. The notes are unsecured and are subordinated to all existing and future senior indebtedness and are pari passu with respect to the zero coupon convertible subordinated debentures due 2018.

On April 22, 1999, the Company offered to substantially all of its employees, excluding executive officers, the right to cancel certain outstanding stock options and receive new options with exercise prices at the then current fair market value of the stock. Options to purchase a total of 10.3 million shares were cancelled and the same number of new options were granted at an exercise price of $11.063, which was based on the closing price of the Company’s common stock on April 22, 1999. The new options vest at the same rate that they would have vested under previous option plans. As a result, options to purchase approximately 3.1 million shares at $11.063 were vested and outstanding at September 30, 2001.

In accordance with Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees,” the Company incurred an initial stock based compensation charge in connection with this repricing. This charge was calculated based on the difference between the exercise price of the new options and their market value on the date of acceptance by employees. Approximately $495,000 and $1.2 million was expensed in the three months and nine months ended September 30, 2001, respectively, and $2.2 million and $5.1 million was expensed in the three months and nine months ended September 30, 2000, respectively.

In March 2000, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25” (“Interpretation”). Among other issues, this Interpretation clarified (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. This guidance was effective as of July 1, 2000.

As a result of the introduction of this Interpretation, stock options repriced by the Company on April 22, 1999 are subject to variable plan accounting treatment from July 1, 2000. Accordingly, the Company has and will continue to remeasure compensation cost for the repriced options until these options are exercised, cancelled, or forfeited without replacement. The first valuation period began with the effective date of the Interpretation, which was July 1, 2000. The valuation has and will be based on any excess of the closing stock price at the end of the reporting period or date of exercise, forfeiture or cancellation without replacement, if earlier, over the fair value of the Company’s common stock on July 1, 2000, which was $20.375. The resulting compensation charge to earnings will be recorded over the remaining vesting period, using the accelerated method of amortization discussed in FASB Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.” When options are fully vested, the charge will be recorded to earnings immediately. Depending upon movements in the market value of the Company’s common stock, this accounting treatment may result in significant additional compensation charges in future periods.

In addition, variable plan accounting as described above, applied to options issued to employees of McAfee.com and myCIO.com as a replacement for Company options which were subject to the repricing described above. As a result, the Company will record variable charges based on the movements in the fair value of McAfee.com and myCIO.com common stock from July 1, 2000.

During the three months and nine months ended September 30, 2001, the Company did not incur charges to earnings related to options subject to variable plan accounting as the Company’s stock price was below $20.375. As of September 30, 2001 the Company and McAfee.com had options amounting to 3.6 million and 59,650, respectively, which were outstanding and subject to variable plan accounting. Depending on movements in the market value of the Company’s common stock, the accounting treatment may result in significant additional compensation charges in future periods.

On January 3, 2001, the Company’s board of directors appointed George Samenuk as the Company’s chief executive officer and president. Effective January 1 and 2, 2001, William Larson, former chief executive

officer, Prabhat Goyal, former chief financial officer, and Peter Watkins, former president and chief operating officer, became special advisors to the Company. Options held by Mr. Larson, Mr. Goyal, and Mr. Watkins continue to vest while they each serve one-year terms as special advisors to the Company. As a result, the Company recorded a one-time stock compensation charge in the three months ended March 31, 2001 amounting to approximately $603,000.

On January 3, 2001, the Company entered into an employment agreement with George Samenuk to become the Company’s chief executive officer (“CEO”). In accordance with the terms of the agreement, the Company issued 400,000 shares of restricted stock to Mr. Samenuk. The price of the underlying shares is $0.01 per share. The shares will vest and the Company’s right to repurchase such shares will lapse as follows: 12.5% on the first four quarterly anniversaries of Mr. Samenuk’s employment with the Company with the remaining 50% on the second year anniversary of Mr. Samenuk’s employment with the Company. The fair value of the restricted stock was determined to be approximately $1.7 million and was estimated based on the difference between the exercise price of the restricted stock and the fair market value of the Company’s common stock on Mr. Samenuk’s employment commencement date. In the three months and nine months ended September 30, 2001, the Company recognized $209,000 and $627,000, respectively, related to stock compensation associated with Mr. Samenuk’s restricted stock.

On April 3, 2001 the Company entered into an employment agreement with Stephen C. Richards to become executive vice president and chief financial officer (“CFO”). In accordance with the terms of the agreement, the Company issued 50,000 shares of stock to Mr. Richards for $0.01 per share. In the three months ended June 30, 2001, the Company recognized $350,000 related to stock compensation associated with the stock issued to Mr. Richards.

In May 1999, the board of directors authorized the Company to repurchase up to $100 million of its common stock in the open market over a two-year period. In July 2000, the board of directors authorized the Company to repurchase additional common stock of up to $50 million in the open market over a two-year period. Through September 30, 2001, the Company repurchased 7.0 million shares of its common stock, including the repurchase of 2.0 million shares on February 2, 2001 relating to the settlement of the outstanding put options. Cash outlay, net of proceeds from put options described below, to September 30, 2001 was approximately $147.5 million. The timing and size of any future stock repurchases are subject to market conditions, stock prices, the Company’s cash position and other cash requirements.

On August 3, 1999, February 16, 2000 and May 31, 2000, the Company sold “European style” put options for 3.0 million shares of the Company’s common stock as part of its stock repurchase plan. The strike prices for these put options were $20.00, $30.00 and $24.07, respectively. The Company received total proceeds of approximately $19.1 million from the sale. In August 2000, put options sold on August 2, 1999 for 1.0 million shares were exercised in the Company’s stock. The strike price for these put options was $20.00. In February 2001, the Company settled the remaining put options, which resulted in the purchase of 2.0 million shares of the Company’s common stock for approximately $53.8 million.

On January 24, 2001, the Company’s board of directors authorized the reservation of an additional 3.0 million options for the 2000 Nonstatutory Stock Option Plan.

The Company’s board of directors authorized the reservation of an additional 5.0 million options for the 1997 Stock Incentive Plan. These additional options were approved at the Company’s 2001 annual meeting held May 24, 2001.

In January 2001, upon completion of the search for the Company’s CEO, the Company issued warrants to a retained executive search firm for services performed. The warrants, if exercised, can be exchanged for 166,667 shares of the Company’s common stock. The weighted-average exercise price of the underlying shares is $2.97 per share. The warrants are immediately exercisable and expire in January 2004. The combined fair value of the warrants was determined to be approximately $530,000 and was estimated using the Black-Scholes model with the following assumptions: risk free interest rate of 4.82%; expected life of 3 years; dividend yield of 0%; and expected volatility of 91%. The fair market value of the warrants was included as stock compensation during the three months ended March 31, 2001 and included in general and administrative expenses in the accompanying financial statements.

In April 2001, upon completion of the search for the Company’s CFO, the Company issued warrants to a retained executive search firm for services performed. The warrants, if exercised, can be exchanged for 66,667 shares of the Company’s common stock. The weighted-average exercise price of the underlying shares is $4.50 per share. The warrants are immediately exercisable and expire in April 2004. The combined fair value of the warrants was determined to be approximately $280,000 and was estimated using the Black-Scholes model with the following assumptions: risk free interest rate of 4.27%; expected life of 3 years; dividend yield of 0%; and expected volatility of 91%. The fair market value of the warrants was included as stock compensation during the three months ended June 30, 2001 and included in general and administrative expenses in the accompanying financial statements.

In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments — Deferral of the Effective date of SFAS Statement No. 133”. SFAS No. 137 deferred the effective date of SFAS No. 133 until June 15, 2000. The Company has adopted SFAS No. 133 as required for its first quarterly filing of fiscal year 2001. SFAS No. 133 shall be effective for all subsequent quarters and annual filings. The adoption of SFAS No. 133 did not have a material effect on the financial position or results of operations of the Company.

In May 2000, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 00-14, “Accounting for Certain Sales Incentives.” EITF Issue No. 00-14 addresses the recognition, measurement, and income statement classification for sales incentives that a vendor voluntarily offers to customers (without charge), which the customer can use in, or exercise as a result of, a single exchange transaction. Sales incentives that fall within the scope of EITF Issue No. 00-14 include offers that a customer can use to receive a reduction in the price of a product or service at the point of sale. The EITF agreed to change the transition date for Issue 00-14, dictating that a company should apply this consensus no later than the company’s annual or interim financial statements for the periods beginning after December 15, 2001. In June 2001, the EITF issued EITF Issue No. 00-25, “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products,” effective for periods beginning after December 15, 2001. EITF Issue No. 00-25 addresses whether consideration from a vendor to a reseller is (a) an adjustment of the selling prices of the vendor’s products and, therefore, should be deducted from revenue when recognized in the vendor’s income statement or (b) a cost incurred by the vendor for assets or services received from the reseller and, therefore, should be included as a cost or expense when recognized in the vendor’s income statement. Upon application of the consensuses, financial statements for prior periods presented for comparative purposes should be

reclassified to comply with the income statement display requirements under these Issues. The Company is currently assessing the impact of the adoption of these issues on its financial statements.

In July 2001, the FASB issued SFAS No. 141, “Business Combinations.” SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company believes that the adoption of SFAS No. 141 will not have a significant impact on its financial statements.

In July 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. The Company is currently assessing but has not yet determined the impact of the adoption of SFAS No. 142 on its financial position and results of operations.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and develops a single accounting method under which long-lived assets that are to be disposed of by sale are measured at the lower of book value or fair value less cost to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and its provisions are to be applied prospectively. The Company is currently assessing the impact of SFAS No. 144 on its financial position and results of operations.

The reconciliation of the numerator and denominator of basic and diluted net income (loss) per share is provided as follows (in thousands, except per share amounts):


(1)	Convertible debt interest and related as-if converted shares were excluded from the calculation since the effect was anti-dilutive. The total number of shares excluded from the calculation related to as-if converted shares was 25.5 million for the three months and nine months ended September 30, 2001 and 7.6 million for the three months and nine months ended September 30, 2000.

(2)	At September 30, 2001 and 2000, 33.0 million and 16.8 million common stock options, respectively, were excluded from the determination of diluted net income per share as the effect of such options is anti-dilutive.

(3)	At September 30, 2001, 233,334 warrants were excluded from the determination of diluted net income per share as the effect of such warrants is anti-dilutive.

The Company assesses the recoverability of the fair value of its strategic investments on a regular basis. Factors that the Company considers which could trigger an other than temporary decline in the value of such investments include, but are not limited to, the likelihood that the related company would have insufficient cash flows to operate for the next twelve months, significant changes in the operating performance or business model, and changes in market conditions. The Company recorded charges related to other than temporary declines in the value of certain strategic investments of $1.0 million and $19.1 million in the three and nine months ended September 30, 2001, respectively.

From time to time, the Company has been subject to litigation including the pending litigation described below. The Company’s current estimated range of liability related to some of the pending litigation below is based on claims for which management can estimate the amount and range of loss. The Company has recorded a liability related to these claims in accordance with generally accepted accounting principles (“GAAP”).

Because of the uncertainties related to the amount and range of loss on the remaining pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, the Company will assess its potential liability and revise its estimates as appropriate. Pending or future litigation could be costly, could cause the diversion of management’s attention and could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flow.

Between December 29, 2000 and February 7, 2001, the Company and certain of its current and former officers and directors were named in securities class action lawsuits filed in the United States District Court for the Northern District of California. On September 24, 2001, a consolidated class action complaint was filed which asserts claims against the Company, William Larson, Prabhat Goyal and Peter Watkins on behalf of a putative class of persons who purchased the Company’s stock between July 19 and December 26, 2000. The complaint assert causes of action (and seeks unspecified damages) for alleged violations of Exchange Act Section 10(b)/ SEC Rule 10b-5 and Exchange Act Section 20(a). In particular, the complaint alleges that defendants engaged in improper practices designed to increase the Company’s revenues and earnings and that, as a result of those practices, the Company’s class period financial statements were false and misleading and failed to comply with GAAP. Defendants’ filed a motion to dismiss plaintiff’s consolidated complaint on October 29, 2001.

On February 5, 2001, the Company was nominally sued in a derivative lawsuit filed in the Superior Court in Santa Clara County. The lawsuit, encaptioned Mean Ann Krim v. William L. Larson, et al., Case No. CV795734, asserts claims against William Larson, Peter Watkins, Prabhat Goyal, Leslie Denend, Virginia Gemmell, Edwin Harper, Enzo Torresi, and others for breach of fiduciary duty, unjust enrichment and professional negligence against the accountants. In particular, the complaints allege that the defendants engaged in a course of conduct by which they improperly accounted for revenue from software license sales, and that, as a result of their actions, certain of the Company’s financial statements were false and misleading and not in compliance with GAAP. The complaint seeks an unspecified amount of damages. Nominal defendant the Company filed a demurrer to the complaint on May 21, 2001. A hearing on the demurrer was held on June 29, 2001. On July 24, 2001, the Court sustained the demurrer with leave to amend. By Order dated August 21, 2001, the Court granted plaintiff limited discovery for purposes of amending the complaint to meet the demand futility test imposed by Delaware law. The Court’s Order set a deadline of October 26, 2001 for the filing of the amended complaint. On October 22, 2001, the Court granted plaintiff an extension of time in which to file an amended complaint; the deadline for filing an amended complaint is now December 26, 2001.

Gage v. Network Associates. derivative action similar to those settled in the quarter ended June 30, 2001 and captioned Gage v. Network Associates, Inc., et al., Civil Action No. B C21152, has been filed in the Superior Court of California, County of Los Angeles. Plaintiffs allege violations of Section 25400 et seq. of the California Corporations Code, Section 17200 of the California Business and Professions Code, and breach of fiduciary duty. The parties stipulated to transfer the action of Santa Clara County Superior Court where it is now pending under Civil Action No. CV-785715. The complaint was dismissed without prejudice. Gage filed a First Amended Complaint asserting claims in his individual capacity, which was dismissed without prejudice. Gage then filed a Second Amended Complaint. The individual defendants’ and the Company’s demurrer to the Second Amended Complaint was overruled in part, sustained in part with prejudice, and sustained in part without prejudice. Gage then filed a Third Amended Complaint. The individual defendants’ and the Company’s motion to Strike certain allegations of the Third Amended Complaint was granted. Gage has filed a Fourth Amended Complaint which defendants have answered. On June 7, 2001, all proceedings in the Gage action were stayed pending Gage’s Appeal of the Final Judgment in the federal class action to the Ninth Circuit Court of Appeals. On September 6, 2001, the Company settled the Gage action. On September 8, 2001, the Court issued a final judgement dismissing the action with prejudice.

Hilgraeve v. Network Associates. On September 15, 1997, the Company was named as a defendant in a patent infringement action filed by Hilgraeve Corporation (“Hilgraeve”) in the United States District Court, Eastern District of Michigan. Hilgraeve alleges that the Company’s VirusScan product infringes a Hilgraeve patent which was issued on June 7, 1994. Hilgraeve’s action seeks injunctive relief and unspecified money damages. The District Court granted the Company’s motion for summary judgment of non-infringement on May 20, 1999 and entered judgment in favor of the Company on July 7, 1999. On August 2, 2000 the United States Court of Appeal for the Federal Circuit vacated in part, affirmed in part, and remanded the case to the District Court for further proceedings. In an order dated on or about June 19, 2001, the Court denied NAI’s further summary judgment motion.

Hilgraeve, Inc. and Hilgraeve Associates v. Network Associates. On October 10, 2000, Hilgraeve filed another complaint against the Company, also in the United States District Court, Eastern District of Michigan. Hilgraeve alleges that the Company’s Webshield Proxy product infringes the same Hilgraeve patent in the first suit. Hilgraeve’s action seeks injunctive relief and unspecified money damages.

These matters were settled at a September 19, 2001 settlement conference. Under the terms of the settlement, the Company purchased a non-exclusive perpetual worldwide license for software products and services under all patents owned by Hilgraeve. The formal agreements and dismissal of the lawsuits have been finalized and the cases were dismissed on October 25, 2001.

Crawford v. Digital River, Inc. et al., Case No. 1:01CV01770 RWR; United States District Court, District of Columbia. On August 21, 2001, Christopher Crawford filed a complaint for patent infringement of US Patent 6,014,651. The complaint alleges that seven different defendants, including the Company, infringe US Patent 6,014,651. The complaint alleges that the Company infringes the patent through several web sites, including the websites at www.nai.com and www.mcafee.com. The Company answered the complaint on September 12, 2001 in which the alleged patent infringement was denied. The other defendants have answered the complaint. An initial scheduling conference is scheduled for November 27, 2001, and prior to that date, counsel for plaintiff and defendants will meet and confer according to the court’s rules.

Foremost Systems v. Network Associates, No. CV 777301 (Santa Clara County). A former agent of the Company in India, Foremost Systems Pvt. Ltd., filed this action on October 14, 1998, in California State court and filed a Second Amended Complaint on February 18, 2000. The Company removed the action to the United States District Court, Northern District of California, San Jose Division. The Second Amended Complaint alleges that the Company wrongly terminated Foremost Systems in breach of their agency agreement and, in addition, contains counts for breach of oral contract, promissory estoppel, intentional and negligent misrepresentation, breach of fiduciary duty, tortious interference with contractual relations, unfair competition, and racketeering in violation of 18 U.S.C 1962 et seq. The parties held a preliminary mediation session in this matter on April 5, 2000 and attended a full session for March 12, 2001. A Case Management Conference in this matter is set to take place on November 5, 2001, and the parties are engaging in limited discovery.

ESniff. On June 5, 2001, eSniff, Inc. (“eSniff”) filed a complaint in U.S. District Court for the District of Colorado, Case No. 01-D-1024, seeking a declaratory judgment that its use of the ESNIFF trade name and trademark does not infringe the Company’s SNIFFER mark. ESniff also requested that the court cancel the federal trademark registration for SNIFFER.

On June 13, 2001, the Company and NATI filed a complaint in U.S. District Court in the Northern District of California, Case No. 01-20537 PVT, against eSniff for trademark infringement, trademark dilution, and unfair competition under federal and California state law related to the use of the ESNIFF name and mark.

On November 9, 2001, the parties appeared before the U.S. District Court for the Northern District of California and agreed to settle both lawsuits. The parties intend shortly to file appropriate dismissal papers with both the Colorado and California courts.

Homenexus Inc. f/k/a HomeRun Network, Inc. v. DirectWeb, Inc., et al, No. 99-CV-2316 (CRW) (E.D. Pa.). In this action, filed in federal court in the Eastern District of Pennsylvania on May 5, 1999, plaintiff Homenexus alleges that DirectWeb successfully conspired with all defendants, including the Company and William Larson, to wrongly misappropriate plaintiff’s purported proprietary business plan and to deliberately infringe plaintiff’s purported trade dress in its alleged web-site. The complaint further alleges that all defendants conspired to commit, and did commit, the torts of conversion and unfair competition. Plaintiff filed an amended complaint on June 21, 2000, adding a new defendant, Riaz Karamali.

On October 9, 2001, the Board of Directors of the Company approved a plan to integrate the activities of the Company’s PGP product group into its 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 and the CyberCop technology will be integrated into the Sniffer product line. The Company will look for buyers for its PGP desktop encryption and Gauntlet firewall product. In connection with this process, the Company expects to record a restructuring charge of approximately $9.0 to $11.0 million during the fourth quarter of 2001. The restructuring charge consists of the costs related to severance packages for affected employees and the cost of eliminating duplicative facilities and services.

In October 2001, the Company redeemed outstanding zero coupon convertible subordinated debentures due 2018 with an aggregate face amount of $247.0 million for approximately $111.8 million. As a result, the Company will record an extraordinary gain of approximately $660,000, net of approximately $440,000 in taxes.

In October 2001, McAfee.com entered into an acquisition agreement under which it paid approximately $1.0 million in cash and issued 285,174 shares of its Class A common stock in exchange for all the assets of the acquired company.

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. The results shown herein are not necessarily indicative of the results to be expected for the full year or any future periods.

This Report on Form 10-Q contains forward-looking statements, including but not limited to those specifically identified as such, that involve risks and uncertainties. The statements contained in this Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including without limitation statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this Report on Form 10-Q are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements(*) as a result of a number of factors, including, but not limited to, those set forth in “Risk Factors” and elsewhere in this Report on Form 10-Q.

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 products form the base from which the balance of our product groups have 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. Organization around our product groups is designed to allow us to, among other things, react faster to customers’ changing needs and better specialize our sales forces. For the three months and nine months ended September 30, 2001, our infrastructure segment accounted for approximately $192.9 million and $531.9 million in net revenue and a net operating loss of $10.2 million and $94.6 million, respectively.

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 look for buyers for the PGP desktop encryption and Gauntlet firewall product. 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.*

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. For the three months and nine months ended September 30, 2001, McAfee.com, which constitutes our second business segment, accounted for approximately $16.2 million and $43.4 million in net revenue and operating income of $1.3 million and operating loss of $2.0 million, respectively.

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 (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’ 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’ products also proactively monitor and diagnose network and application-level problems on complex, multi-segment networks from centralized locations as well as troubleshooting high-speed telecommunications and Internet service provider 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.

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. E-Business Server provides an encryption and data authentication solution designed to protect the integrity and security of the customers’ data. Gauntlet Firewall delivers integrated anti-virus protection, a built-in standards-based VPN server, and spam and content filtering. CyberCop Scanning tools deliver risk assessment solutions that continually scan networks for weak spots, enabling network administrators to prevent security breaches before they occur. PGP’s E-ppliance, a web-based configuration tool, is designed to deploy the latest firewall technologies and continually administers anti-virus protection. PGP Security’s services are offered by its vulnerability research team known as COVERT. COVERT’s 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.

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’ products include the Magic Total Service Desk Suite, a 100% browser based service desk and problem management solution. In addition, Magic Solutions’ stand-alone products include Magic HelpDesk, Self Service Desk, Remote Desktop and Event Management. Magic Solutions’ customers are primarily corporations.

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.

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.

We market a significant portion of our products to end-users through intermediaries, including distributors. In December 2000, in light of the business decision by some of our distributors, including our largest distributor, to reduce inventory levels, and due to the unpredictability of demand in the distribution channel, we began a transition from a sell-in to a sell-through business model.

We entered into amended distribution arrangements under which we permit our distributors to purchase software licenses at the time they fill customer orders and to pay for hardware and retail products only when these products are sold to the end users. In addition, we permit our distributors to make hardware and retail product returns at any time prior to the time they sell the products to their customers. This right of return is unconditional. After sale by the distributor to its customer, the distributor has no right to return products to us unless we approve the return from the final customer to the distributor. Under our new business model, we recognize revenue on products when products are sold through by the distributor to the end users.

The following table sets forth, for the periods indicated, the percentage of net revenues represented by certain items in our statements of operations.

Net Revenue. Net revenue decreased 12.4% to $209.0 million from $238.7 million for the three months ended September 30, 2001 and 2000, respectively. Net revenue decreased 16.2% to $575.3 million from $686.9 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease in net revenue for the three and nine months ended September 30, 2001 is primarily due to the relative increase in the amount of services contracted, such as MSP and ASP, versus products, the former being recognized ratably over the period of the service contracts as compared to product sales which are generally recognized at the time of delivery. In October 2001, our board of directors approved a plan to integrate the activities of our PGP product group into its McAfee and Sniffer product groups and other product lines will be sold. As a result, we expect lower PGP related revenues due to these activities.*

Product revenue includes revenue from product licenses and hardware. Product revenue decreased 25.9% to $138.7 million from $187.2 million for the three months ended September 30, 2001 and 2000, respectively. Product revenue decreased 28.3% to $381.6 million from $532.1 million for the nine months ended

Services and support revenues include revenues from software support and maintenance contracts, and education and consulting services, which are deferred and recognized over the related service period. Service revenues increased 36.6% to $70.4 million from $51.5 million for the three months ended September 30, 2001 and 2000, respectively. Service revenues increased 25.1% to $193.7 million from $154.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in services and support revenues resulted from growth in all categories of service revenues, principally due to the growth of our installed customer base and the resulting renewal of support and maintenance contracts. In addition, we experienced growth in our MSP and ASP service offerings, including those offered by McAfee.com.

Our future profitability and rate of growth, if any, will be directly affected by increased price competition, a maturing anti-virus market and an increasingly higher revenue base from which to grow. Our growth rate and net revenue depend significantly on renewals of existing orders as well as expanding our customer base. If our renewal of existing orders or our pace of new customer orders slows, our net revenues and operating results would be adversely affected.

International revenues were approximately $70.3 million and $79.5 million in the three months ended September 30, 2001 and 2000, respectively, and approximately $195.7 million and $256.6 million for the nine months ended September 30, 2001 and 2000, respectively. On a percentage of net revenue basis, international revenue accounted for approximately 34% and 33%, of net revenue for the three months ended September 30, 2001 and 2000, respectively and approximately 34% and 37% for the nine months ended September 30, 2001 and 2000, respectively. The decrease in international net revenue as a percentage of net revenue for the nine months ended September 30, 2001 compared to the same period in 2000 was due to the reorganization of our European sales force around our product groups, under performance in sales operations and changes in sales management. We have recently renewed our emphasis on the international markets as evidenced by European sales force reorganization and continued key management additions, including new heads of our European and Latin American operations. In future periods, we expect international revenues to grow in nominal dollars and as a percentage of net revenue.*

To minimize 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 include the impact of longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, seasonality due to the slowdown in European business activity during the third quarter, tariffs and other trade barriers, uncertainties relative to regional economic circumstance, political instability in emerging markets and difficulties staffing and managing foreign operations. These factors may have a material adverse effect on our future international revenue. Further, in countries with a high incidence of software piracy, we may experience a higher rate of piracy of our products.

Cost of Net Revenue. Cost of net revenue increased 6.1% to $41.4 million from $39.0 million for the three months ended September 30, 2001 and 2000, respectively. Cost of net revenue increased 4.1% to $113.8 million from $109.3 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in cost of net revenues was primarily due to a higher percentage of our revenues attributable to lower margin products and services, such as hardware, consulting, and maintenance services in comparison to the same periods in prior year.

Our cost of product revenue consists primarily of the cost of media, manuals and packaging for products distributed through traditional channels, royalties, and with respect to hardware based Sniffer and E-ppliance products, computer platforms and other hardware components. Cost of product revenue decreased 4.1% to $28.3 million from $29.5 million for the three months ended September 30, 2001 and 2000, respectively. Cost of product revenue decreased 6.5% to $77.2 million from $82.5 million for the nine months ended September 30, 2001 and 2000, respectively. As a percentage of net product revenue, cost of product revenue was 20.4% and 15.8% for the three months ended September 30, 2001 and 2000, respectively. As a percentage of net product revenue, cost of product revenue was 20.2% and 15.5% for the nine months ended

September 30, 2001 and 2000, respectively. Cost of product revenue increased as a percentage of product revenue for the three and nine months ended September 30, 2001 compared to the same periods in 2000 due to lower margin products, such as hardware, making up a higher percentage of our product revenues.

Cost of services and support revenue consists principally of salaries and benefits related to employees providing customer support and consulting services. The cost of services and support revenue increased 38.0% to $13.1 million from $9.5 million for the three months ended September 30, 2001 and 2000, respectively. The cost of services and support revenue increased 36.7% to $36.6 million from $26.8 million for the nine months ended September 30, 2001 and 2000, respectively. Costs of services and support revenue increased due to the increase in services and support revenue. Cost of services and support revenue as a percentage of net services and support revenue was 18.6% and 18.4% for the three months ended September 30, 2001 and 2000, respectively. Cost of services and support revenue as a percentage of net services and support revenue was 18.9% and 17.3% for the nine months ended September 30, 2001 and 2000, respectively.

Research and Development. Research and development expenses consist primarily of salary and benefits for our development and technical support staff. Excluding the effects of stock-based compensation of approximately $144,000 and $3.3 million for the three months ended September 30, 2001 and 2000, respectively, research and development expenses decreased 20.8% to $33.7 million from $42.6 million for the three months ended September 30, 2001 and 2000, respectively. Excluding the effects of stock-based compensation of approximately $342,000 and $4.2 million for the nine months ended September 30, 2001 and 2000, respectively, research and development expenses decreased 14.2% to $108.4 million from $126.3 million for the nine months ended September 30, 2001 and 2000, respectively. Research and development expenses decreased due to focused product development, discontinuance of certain development efforts, more efficient operations in our research and development groups, the relocation of personnel to lower cost offices and the conversion of temporary personnel into full time employees. As a percentage of net revenue, research and development expenses were 16.2% and 19.2% for the three months ended September 30, 2001 and 2000, respectively. As a percentage of net revenue, research and development expenses were 18.9% and 19.0% for the nine months ended September 30, 2001 and 2000, respectively. We anticipate that research and development expenses will continue to increase in absolute dollars, but will continue to fluctuate as a percentage of net revenue. In addition, due to the decision to integrate the activities of our PGP product group into our McAfee and Sniffer product groups, we expect cost savings for the year 2002.*

We believe that our ability to maintain our competitiveness will depend in large part upon our ability to enhance existing products, develop and acquire new products and develop and integrate acquired products. The market for computer software is characterized by low barriers to entry and rapid technological change, and is highly competitive with respect to timely product introductions. The timing and amount of research and development expenses may vary significantly based upon the number of new products and significant upgrades under development and products acquired during a given period.*

Marketing and Sales. Marketing and sales expenses consist primarily of salary, commissions and benefits for marketing, sales and customer support personnel and costs associated with advertising and promotions. Excluding the effects of stock-based compensation of approximately $228,000 and $5.8 million for the three months ended September 30, 2001 and 2000, respectively, marketing and sales expenses increased 5.6% to $104.7 million from $99.1 million for the three months ended September 30, 2001 and 2000, respectively. Excluding the effects of stock-based compensation of approximately $541,000 and $7.2 million for the nine months ended September 30, 2001 and 2000, respectively, marketing and sales expenses increased 9.3% to $321.4 million from $294.2 million for the nine months ended September 30, 2001 and 2000, respectively. These increases were primarily due to continued investment in the marketing of our products and services as well as the hiring and training of our enterprise level sales force. As a percentage of net revenue, marketing and sales expense was 50.2% and 44.0% for the three months ended September 30, 2001 and 2000, respectively. As a percentage of net revenue, marketing and sales expense was 56.0% and 43.9% for the nine months ended September 30, 2001 and 2000, respectively. We anticipate that marketing and sales expenses will continue to increase in absolute dollars, but will continue to fluctuate as a percentage of net revenue. In addition, due to the decision to integrate the activities of our PGP product group into our McAfee and Sniffer product groups, we expect cost savings for the year 2002.*

General and Administrative. General and administrative expenses consist principally of salary and benefit costs for administrative personnel and general operating costs. Excluding the effect of stock-based compensation of $448,000 and $3.0 million for the three months ended September 30, 2001 and 2000, respectively, general and administrative expenses increased 15.9% to $21.8 million from $18.8 million for the three months ended September 30, 2001 and 2000, respectively. Excluding the effect of stock-based compensation of $2.8 million and $3.7 million for the nine months ended September 30, 2001 and 2000, respectively, general and administrative expenses increased 25.8% to $76.6 million from $60.9 million for the nine months ended September 30, 2001 and 2000, respectively. The increase is primarily attributable to recruiting and hiring additional personnel, including senior management, legal fees and continued expansion of the information technology infrastructure to support business information systems. As a percentage of net revenues, general and administrative expenses were 10.6% and 9.1% for the three months ended September 30, 2001 and 2000, respectively. As a percentage of net revenues, general and administrative expenses were 13.8% and 9.4% for the nine months ended September 30, 2001 and 2000, respectively. We anticipate that general and administrative expenses will continue to increase in absolute dollars, but will continue to fluctuate as a percentage of net revenue.*

Amortization of Intangibles. We incurred $15.5 million and $16.4 million of amortization related to intangibles in the three months ended September 30, 2001 and 2000, respectively. We incurred $48.0 million and $45.8 million of amortization related to intangibles in the nine months ended September 30, 2001 and 2000, respectively. Intangibles consist of purchased goodwill and certain acquired technology. The increase in amortization was primarily a result of additions to goodwill related to McAfee.com’s acquisitions during 2000. We periodically assess the fair value of our intangible assets. In addition, if we later determine that purchased technology and goodwill are impaired, we will be required to take a related non-recurring charge to earnings. Such charges could have a material adverse effect on our results of operations and financial position.

Interest and Other Income and Expense. Interest and other income and expense decreased to $1.7 million from $5.7 million for the three months ended September 30, 2001 and 2000, respectively. Interest and other income and expense decreased to $11.2 million from $16.3 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease in interest and other income and expense, net, is due to lower interest rates on our investments and higher interest expense resulting form the issuance of our convertible notes.

Gain on Sale of Investments. In 2000, we recognized a total gain of $40.4 million on the sale of our venture and strategic investments, including a gain on the sale of shares of our Japanese subsidiary Network Associates Company Limited, amounting to $11.9 million.

Write-down of Strategic and Other Investments. During the first, second and third quarters of 2001, we assessed the recoverability of the fair value of our strategic investments. Factors that we consider which could trigger an other than temporary decline in the value of such investments include, but are not limited to, the likelihood that the related company would have insufficient cash flows to operate for the next twelve months, significant changes in the operating performance or operating model, and/or changes in market conditions. We recorded charges related to other than temporary declines in the value of certain strategic investments of $1.0 million and $19.1 million in the three and nine months ended September 30, 2001, respectively. At September 30, 2001, the estimated fair value of our strategic investments was $1.2 million.

Provision for Income Taxes/ Income Tax Benefit. Our income tax provision was approximately $4.0 million for the three months ended September 30, 2001, which is primarily attributable to income taxes payable in foreign jurisdictions. Our income tax benefit was approximately $7.1 million for the nine months ended September 30, 2001. The tax benefit was attributable to aggregate net operating losses, net of income taxes payable in foreign jurisdictions. The provision for income taxes was $13.4 million and $50.9 million for three and nine months ended September 30, 2000, respectively, which was primarily attributable to federal income tax gains from the sale of investments and to income taxes payable in foreign jurisdictions.

Extraordinary Gain. In the quarter ended September 30, 2001, we redeemed zero coupon convertible subordinated debentures due 2018 for approximately $62.0 million. The aggregate face amount of the

We expensed $820,000 and $12.1 million for the three months ended September 30, 2001 and 2000, respectively. We expensed $3.7 million and $15.0 million for the nine months ended September 30, 2001 and 2000, respectively. Stock-based compensation charges relate to the repricing of employee stock options and the issuance of McAfee.com stock options to our executives and employees, as well as non-recurring stock compensation charges related to primarily executive compensation. We do not expect to incur charges related to these McAfee.com option grants in the future. However, we do expect significant stock-based compensation charges related to repriced employee stock options.*

On April 22, 1999, we offered to substantially all of our employees, excluding executive officers, the right to cancel certain outstanding stock options and receive new options with exercise prices at the then current fair market value of the stock. Options to purchase a total of 10.3 million shares were canceled and the same number of new options were granted at an exercise price of $11.063, which was based on the closing price of our common stock on April 22, 1999. The new options vest at the same rate that they would have vested under previous option plans. As a result, options to purchase approximately 3.1 million shares at $11.063 were vested and outstanding at September 30, 2001.

In accordance with Accounting Principles Board (“APB”) Opinion No. 25 “Accounting for Stock Issued to Employees,” we incurred an initial stock based compensation charge in connection with this repricing. This charge was calculated based on the difference between the exercise price of the new options and their market value on the date of acceptance by employees. Approximately $495,000 and $1.2 million was expensed in the three and nine months ended September 30, 2001, respectively, and $2.2 million and $5.1 million was expensed in the three and nine months ended September 30, 2000.

In March 2000, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25” (“Interpretation”). Among other issues, this Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. As of July 1, 2000 this guidance was effective.

As a result of the introduction of this Interpretation, stock options repriced on April 22, 1999 are subject to variable plan accounting treatment from July 1, 2000. Accordingly, we have and will continue to remeasure compensation cost for the repriced options until these options are exercised, cancelled, or forfeited without replacement. The first valuation period began with the effective date of the Interpretation which was July 1, 2000. The valuation has and will be based on any excess of the closing stock price at the end of the reporting period or date of exercise, forfeiture or cancellation without replacement, if earlier, over the fair value of our common stock on July 1, 2000, which was $20.375. The resulting compensation charge to earnings will be recorded over the remaining vesting period, using the accelerated method of amortization discussed in FASB Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.” When options are fully vested, the charge will be recorded to earnings immediately. Depending upon movements in the market value of our common stock, this accounting treatment may result in significant additional compensation charges in future periods.

In addition, variable plan accounting as described above, applied to options issued to employees of McAfee.com and myCIO.com as a replacement for Network Associates options which were subject to the repricing described above. As a result, we will record variable charges based on the movements in the fair value of McAfee.com and myCIO.com common stock from July 1, 2000. Because myCIO.com employees were reintegrated into our Infrastructure segment, we will record charges for McAfee.com and the Infrastructure segment.

During the three and nine months ended September 30, 2001, we did not incur charges to earnings related to options subject to variable plan accounting as our stock price was below $20.375. As of September 30, 2001 Network Associates and McAfee.com had options, outstanding and subject to variable plan accounting, amounting to 3.6 million and 59,650, respectively, which were outstanding and subject to variable plan accounting. Depending on movements in the market value of our common stock, the accounting treatment may result in significant additional compensation charges in future periods.

On January 3, 2001, our Board of Directors appointed George Samenuk as our chief executive officer and president. Effective January 1 and 2, 2001, William Larson, former chief executive officer, Prabhat Goyal, former chief financial officer, and Peter Watkins, former president and chief operating officer, became special advisors to Network Associates. Options held by Mr. Larson, Mr. Goyal, and Mr. Watkins continue to vest while they each serve one-year terms as special advisors. As a result, we recorded a one-time stock compensation charge in the three months ended March 31, 2001 amounting to approximately $603,000.

On January 3, 2001, we entered into an employment agreement with George Samenuk to become our chief executive officer (“CEO”). In accordance with the terms of the agreement, we issued 400,000 shares of restricted stock to Mr. Samenuk. The price of the underlying shares is $0.01 per share. The shares will vest and our right to repurchase such shares will lapse as follows: 12.5% on the first four quarterly anniversaries of Mr. Samenuk’s employment with the remaining 50% on the second year anniversary of Mr. Samenuk’s employment. The fair value of the restricted stock was determined to be approximately $1.7 million and was estimated based on the difference between the exercise price of the restricted stock and the fair market value of our common stock Mr. Samenuk’s employment commencement date. In the three and nine months ended September 30, 2001, we recognized $209,000 and $627,000 related to stock compensation associated with Mr. Samenuk’s restricted stock, respectively.

On April 3, 2001 we entered into an employment agreement with Stephen C. Richards to become our executive vice president and chief financial officer (“CFO”). Pursuant to this agreement, we issued 50,000 shares of stock to Mr. Richards at $0.01 per share. In the three months ended June 30, 2001, we recognized $350,000 related to stock compensation associated with the stock issued to Mr. Richards.

In January 2001, upon completion of the search for our CEO, we issued warrants to a retained executive search firm. The warrants, if exercised, can be exchanged for 166,667 shares of our common stock. The weighted-average exercise price of the underlying shares is $2.97 per share. The warrants are immediately exercisable and expire in January 2004. The combined fair value of the warrants was determined to be approximately $530,000 and was estimated using the Black-Scholes model with the following assumptions: risk free interest rate of 4.82%; expected life of 3 years; dividend yield of 0%; and expected volatility of 91%. The fair market value of the warrants was included as stock compensation during the three months ended March 31, 2001 and included in general and administrative expenses in the accompanying financial statements.

In April 2001, upon completion of the search for our CFO, we issued warrants to a retained executive search firm for services performed. The warrants, if exercised, can be exchanged for 66,667 shares of our common stock. The weighted-average exercise price of the underlying shares is $4.50 per share. The warrants are immediately exercisable and expire in April 2004. The combined fair value of the warrants was determined to be approximately $280,000 and was estimated using the Black-Scholes model with the following assumptions: risk free interest rate of 4.27%; expected life of 3 years; dividend yield of 0%; and expected volatility of 91%. The fair market value of the warrants was included as stock compensation during the three months ended June 30, 2001 and included in general and administrative expenses in the accompanying financial statements.

In May 1999, the Board of Directors authorized the repurchase of up to $100 million of our common stock in the open market over a two-year period. In July 2000, the Board of Directors authorized the repurchase of additional common stock of up to $50 million in the open market over a two-year period. Through September 30, 2001, we repurchased 7.0 million shares of our common stock, including the

repurchase of 2.0 million shares on February 2, 2001 relating to the settlement of the outstanding put options. Cash outlay, net of proceeds from put options described below, to September 30, 2001 is approximately $147.5 million. The timing and size of any future stock repurchases are subject to market conditions, stock prices, our cash position and other cash requirements.

On August 3, 1999, February 16, 2000 and May 31, 2000, we sold “European style” put options for 3.0 million shares of our common stock as part of our stock repurchase plan. The strike prices for these put options were $20.00, $30.00 and $24.07, respectively. We received total proceeds of approximately $19.1 million from the sale. In August 2000, put options sold on August 2, 1999 for 1.0 million shares were exercised in our stock. The strike price for these put options was $20.00. In February 2001, we settled the remaining put options, which resulted in the purchase of 2.0 million shares of our common stock for approximately $53.8 million.

At September 30, 2001, we had $640.2 million in cash and cash equivalents and $316.6 million in marketable securities, for a combined total of $956.8 million.

Net cash provided by operating activities was $53.5 million and $67.2 million for the nine months ended September 30, 2001 and 2000, respectively. Net cash provided by operating activities for the nine months ended September 30, 2001 consisted primarily of generation of net income on a cash basis after excluding the effect of non-cash items related to depreciation, amortization and bad debt expense, interest on our zero coupon convertible subordinated debentures, the write-down of our strategic investments and increased deferred revenue. Cash provided by these activities was offset by an increase in our net deferred taxes. Net cash provided by operating activities for the nine months ended September 30, 2000 consisted primarily of net income adjusted for non-cash elements related to depreciation, amortization and bad debt expense, interest on our zero coupon convertible subordinated debentures, stock compensation expense and increased deferred revenue. Cash provided by these activities was offset by the adjustment for the gain on the sale of our investments in Goto.com and Network Associates Company Limited, and an increase in accounts receivable, prepaid expenses, taxes and other assets.

Our accounts receivable balance as a percentage of sales may increase due to our increased emphasis on server/enterprise based sales and expanding international sales, both of which typically have longer payment terms. Additionally, our receivable collection has become more dependent on the longer payment cycle for VARs (Value Added Resellers) and system integrators. As a result of financial difficulties experienced by one of the Company’s distributors in Europe, management assessed that collection of the distributor’s receivable was not reasonably assured and shipments to end user customers in the quarter ended September 30, 2001 were reserved and not recorded as revenue. As a result, the entire distributor’s receivable balance as of September 30, 2001 is reserved. To address this increase in accounts receivable and to improve cash flow, we may from time to time take actions to encourage earlier payment of receivables or sell receivables. To the extent that our accounts receivable balance increases, we will be subject to greater general credit risks with respect thereto.

Net cash provided by investing activities was $69.6 million and $26.2 million for the nine months ended September 30, 2001 and 2000, respectively, primarily reflecting proceeds from the sale of marketable securities, net of the purchase of marketable securities, the purchase of Network Associates Company Limited shares and additional fixed asset purchases. In the three months ended September 30, 2000, we obtained proceeds of $36.8 million and $11.9 million from our sale of Goto.com shares and the sale of less than 5% of the shares of our Japanese subsidiary, Network Associates Company Limited, respectively off-set by fixed assets purchased.

Net cash provided by financing activities was $237.6 million and net cash used in financing activities was $40.0 million for the nine months ended September 30, 2001 and 2000, respectively. Cash provided by financing activities in the nine months ended September 30, 2001 was primarily attributable to the issuance of the 5.25% convertible subordinated notes in August 2001 for approximately $335.1 million offset by the settlement of the remaining put options which resulted in purchasing 2.0 million shares of our stock for

approximately $53.8 million and the redemption of a portion of the zero coupon convertible subordinated debentures issued in February 1998 for approximately $62.0 million. Cash used in financing activities in the nine months ended September 30, 2000 was primarily attributable to repurchases of our common stock as authorized by our Board of Directors.

As discussed below, in February 2003 we may be required to use a significant portion of our cash balances to redeem outstanding zero coupon convertible subordinated debentures.* In October 2001, we redeemed outstanding zero coupon convertible subordinated debentures with an aggregate face amount of $247.0 million for approximately $111.8 million. If and when appropriate opportunities present themselves, we may use a portion of our cash balances to buy back outstanding debentures prior to their maturity.*

We believe that our available cash and anticipated cash flow from operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months.*

The following discussion about our risk management activities includes “forward-looking statements” that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.

As a global concern, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results. Historically, our primary exposures related to nondollar-denominated sales and operating expenses in Japan, Canada, Australia, Europe, Latin America, and Asia. We have recently expanded our business activities in Europe. As a result, we expect to see an increase in exposures related to nondollar-denominated sales in several European currencies. At the present time, we hedge only those currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies and do not generally hedge anticipated foreign currency cash flows. Our hedging activity is intended to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities. The success of this activity depends upon estimates of transaction activity denominated in various currencies, primarily the Euro, Japanese yen, Canadian dollar, Australian dollar, and certain European currencies. To the extent that these estimates are overstated or understated during periods of currency volatility, we could experience unanticipated currency gains or losses.

We maintain investment portfolio holdings of various issuers, types and maturities. These securities are classified as available-for-sale, and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income (loss). These securities are not leveraged and are held for purposes other than trading.

We also maintain minority investments in private and publicly traded companies. These investments are reviewed for other than temporary declines in value on a quarterly basis. Reasons for other than temporary declines in value include but are not limited to, whether the related company would have insufficient cash flow to operate for the next twelve months, significant changes in the operating performance or operating model and changes in market conditions. As of September 30, 2001, these investments were recorded at an estimated fair value of $1.2 million, with a cost basis of $2.8 million and net unrealized losses of $1.6 million.

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 redemption. On the same dates and at the same redemption prices, we may at our option redeem the outstanding debentures for cash. In the quarter ended September 30, 2001, we redeemed zero coupon convertible subordinated debentures, which had an aggregate face amount at maturity of $140.0 million, at a net price of $442.5 per $1,000 of principal amount at maturity. In accordance with the redemption, we recognized an extraordinary gain of $1.1 million, net of $718,000 in taxes. 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. Assuming that as of February 13, 2003 all debentures are redeemed the aggregate redemption price would equal to approximately $368.6 million. In October 2001, we redeemed outstanding zero coupon convertible subordinated debentures with an aggregate face amount of $247.0 million for approximately $111.8 million. If and when appropriate opportunities present themselves, we may use a portion of our cash balances to buy back additional amounts of our zero coupon convertible subordinated debentures.*

On August 17, 2001, we issued 5.25% convertible subordinated notes due 2006 with an aggregate principal amount of $345.0 million. The issuance generated net proceeds to us of approximately $335.1 million (after deducting fees and expenses). The notes mature on August 15, 2006, unless earlier redeemed by us at our option or converted at the holder’s option. Interest is payable semi-annually in cash in arrears on February 15 and August 15 of each year, commencing February 15, 2002. At the option of the holder, notes may be converted into our common stock at any time, unless previously redeemed, at a conversion price of $18.07 per share. We may redeem all or a portion of the notes for cash at any time on or after August 20, 2004 at a redemption price of 101.3125% of the principal amount between August 20, 2004 and August 14, 2005 and 100.0% of the principal amount after August 14, 2005. The notes are unsecured and are subordinated to all of our existing and future senior indebtedness and are pari passu with respect to the zero coupon subordinated debentures due 2018.

Investing in our common stock involves a high degree of risk. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we deem immaterial may also impair our business operations. Any of the following risks could materially adversely affect our business, operating results and financial condition and could result in a complete loss of your investment.

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;

	•	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 the end users. 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 not realized or revenues are not otherwise recognized in that quarter, our operating results and cash flow 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 sell 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 Intermediaries, Who May Not Vigorously Market Our Products or May Have Difficulty in Timely Paying for Purchased Products

These distributors sell other 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.

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 operations 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 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.

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 their respective product line and the individual point products contained

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.

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.

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. See Note 9, Notes to the Condensed Consolidated Financial Statements. This litigation, and any other litigation if instituted, could result in substantial costs and a diversion of management’s attention and resources.

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 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. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our option repricing and the manner in which any charges in connection with the repriced options is determined. We may also incur additional stock based compensation charges related to executive compensation arrangements.

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.

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.

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 web site 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 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.

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:


	•	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 valued 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 changes related to the amortization of purchased 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, 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 Redemption of Our Outstanding Zero Coupon Debentures

On February 13, 1998, we issued zero coupon convertible subordinated debentures due 2018, 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 redeem 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 the 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 redemption, at our option, we may pay the aggregate redemption 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 redemption. On the same dates and at the same redemption prices, we may at our option redeem the outstanding debentures for cash. In the quarter ended September 30, 2001, we redeemed zero coupon convertible subordinated 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 debentures are redeemed the aggregate redemption price would equal to approximately $368.6 million.

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.

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 upgradeable 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.

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 (pursuant to its charter) and small to medium-sized businesses (through a reseller arrangement). 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:


	•	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 Expected 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 their 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 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


	•	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, including the litigation described in Note 9 of the Notes to the Condensed Consolidated Financial Statements;

	•	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 to 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 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 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

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;

	•	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 services 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

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.

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.

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.

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.

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.

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, including patent infringement cases. See Note 9, Notes to the Condensed Consolidated Financial Statements. 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 Operations 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:


	•	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 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 is 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 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 governmental 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 business and future financial performance could suffer. Any of the foregoing events could adversely affect our results of operations or financial conditions.

Business Interruption May Impede Our Operations and Adversely Affect Our Business

We face a number of potential business interruption risks that are beyond our control. During 2001, the State of California has 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 effected. 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.

Delaware Law, Our Certificate of Incorporation and Bylaws, Our Adoption of a Rights Plan and Our Stockholders Agreement with McAfee.com May Inhibit Potential Acquisition Bids; This May Adversely Affect the Market Price for Our Common Stock and Prevent Changes in Our Management.

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.

In October 1999, we entered into a stockholders agreement with McAfee.com. Under this agreement we agreed that if (1) without the prior approval of our continuing directors, as defined below, any person acquires or agrees to acquire 15% or more of our outstanding common stock or (2) our continuing directors cease to constitute a majority of our serving directors, then for so long but only for so long as that condition exists:


	•	our shares of McAfee.com Class B common stock will be entitled to only one vote per share instead of three votes per share; and

	•	we will be obligated to vote our McAfee.com shares to cause, and to take such actions reasonably within our control to cause, and shall seek to cause the McAfee.com directors appointed by us to cause, the McAfee.com board of directors to consist of at least a majority of independent directors.

Our continuing directors consist of our current directors and any subsequent directors approved or not objected to by a majority of our then-continuing directors.

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 maximize stockholder value, and the provisions of the McAfee.com stockholders agreement are, among other things, intended to preserve McAfee.com’s independence, 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.

Information with respect to this item is incorporated by reference to Note 9 of the Notes to the Condensed Consolidated Financial Statements included herein on page 12 of this Report on Form 10-Q.

The Company has revised its Insider Trading Policy to allow directors, officers and other employees covered under the policy to establish, under limited circumstances contemplated by Rule 10b5-1 under the Securities Exchange Act of 1934, written programs that permit automatic trading of the Company’s stock or trading of the Company’s stock by an independent person (such as an investment bank) who is not aware of material inside information at the time of the trade. As of November 12, 2001, George Samenuk, the Company’s President, Chief Executive Officer and Chairman, Kent H. Roberts, the Company’s Executive Vice President and General Counsel, and Bakul Mehta, the President of the Company’s Sniffer Technologies product group adopted Rule 10b5-1 trading plans. The Company believes that additional directors, officers and employees may establish such programs. In the quarter ended September 30, 2001, no trades were made pursuant to Rule 10b5-1 trading plans.


	(a) Exhibits. The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Report.

	(b) Form 8-K. The Company filed a report on Form 8-K on August 8 and August 14, 2001.

Pursuant to the requirements of the Securities Exchange Act of 1934, and the results and regulations promulgated thereunder, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized.


	NETWORKS ASSOCIATES, INC.

	/s/ STEPHEN C. RICHARDS

	Name: Stephen C. Richards


	Title:	Executive Vice President and


	Chief Financial Officer


(1)	Incorporated by reference from the Registrant’s Registration Statement on Form S-4 filed with the Commission on October 31, 1997.

(2)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the Commission on September 24, 1996.

(3)	Incorporated by reference from the Registrants Current Report on Form 8-K filed with the Commission on March 14, 1997.

(4)	Incorporated by reference from the Registrant’s Registration Statement on Form S-3, filed with the Commission on February 11, 1998.

(5)	Incorporated by reference from the Registrant’s Report on Form 8-K filed with the Commission on December 11, 1997.

(6)	Incorporated by reference from the Registrant’s Registration Statement on Form S-4 filed with the Commission on March 25, 1998.

(7)	Incorporated by reference from the Registrant’s Report on Form 8-K filed with the Commission on April 2, 1998.


(8)	Incorporated by reference from the Registrant’s Registration Statement on Form S-3 filed with the Commission on May 26, 1998.

(9)	Incorporated by reference from the Registrant’s Report on Form 10-Q for the quarter ended September 30, 1996, filed with the Commission on November 4, 1996.


(10)	Incorporated by reference from the Registrant’s Registration Statement on Form S-3 filed with the Commission on May 6, 1998.

(11)	Incorporated by reference from the Registrant’s Registration Statement on Form S-8 filed with the Commission on July 21, 2000.

(12)	Incorporated by reference from the Registrant’s Report on Form 10-Q for the quarter ended March 31, 1997 filed with the Commission on May 15, 1997.

(13)	Incorporated by reference from the Registrant’s Registration Statement filed on Form S-8 filed with the Commission on December 2, 1997.

(14)	Incorporated by reference from the Registrant’s Report on Form 10-Q for the quarter ended June 30, 1996, filed with the Commission on August 13, 1996.

(15)	Incorporated by reference from the Registrant’s Report on Form 10-Q for the quarter ended March 31, 1998, filed with the Commission on May 15, 1998.

(16)	Incorporated by reference from the Registrant’s Report on Form 8-K filed with the Commission on June 16, 1998.

(17)	Incorporated by reference from CyberMedia Inc.’s Schedule 13D filed by the Registrant with the Commission on August 7, 1998. CyberMedia Inc.’s filings with the Commission were made under File Number 0-21289.

(18)	Incorporated by reference from the Registrant’s Report on Form 8-A filed with the Commission on October 22, 1998.

(19)	Incorporated by reference from the Registrant’s report on Form 10-Q for the quarter ended March 31, 1999, filed with the Commission on May 13, 1999.

(20)	Incorporated by reference from the Form S-1 filed by McAfee.com Corporation with the Commission on September 23, 1999, under File Number 333-87609.

(21)	Incorporated by reference from the registrant’s report on form 10-K for the year ended December 31, 2000, filed with the Commission on April 2, 2001.

(22)	Incorporated by reference from the Registrant’s report on Form 10-Q for the quarter ended March 31, 2001, filed with the Commission on May 15, 2001.

(23)	Incorporated by reference from the Registrant’s report on Form 10Q for the quarter ended June 30, 2001 filed with the Commission on August 6, 2001.

(24)	Incorporated by reference from the Registrant’s Registration Statement on Form S-3 filed with the Commission on November 9, 2001.


	*	Management contracts or compensatory plans or arrangements covering executive officers or directors of Networks Associates, Inc.

51 EX-10.28 3 f76817ex10-28.txt EXHIBIT 10.28 EXHIBIT 10.28 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this 20th day of March, 1998, by between BIRK S. MCCANDLESS, LLC, a California limited liability company ("Landlord") and NETWORKS ASSOCIATES, INC., a Delaware corporation ("Tenant"). RECITALS A. Tenant is the tenant under that certain Lease (the "Lease") dated November 22, 1996 executed by and between Landlord and Informix Corporation, a Delaware corporation ("Informix") and assigned by Informix to Tenant pursuant to that certain Lease Assignment (the "Lease Assignment") dated November 17, 1997 and that certain Consent to Assignment Agreement dated December 18, 1997 (the "Consent to Assignment") covering certain property described in the Lease as the "Premises". B. Landlord has exercised its option pursuant to Section 58 of the Lease to recapture that certain space located on the first floor (Plaza Level) consisting of approximately five thousand seven hundred two (5,702) square feet as shown on Exhibit A attached hereto (the "Restaurant Space"), thereby reducing the size of the Premises. C. In addition to the Premises, Tenant desires to lease from Landlord and Landlord is willing to lease to Tenant that certain space located on the Lower Level (the "Lower Level Space") consisting of approximately six thousand four hundred twenty (6,420) square feet of space as shown on Exhibit B attached hereto. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, the parties hereby amend the Lease as follows: 1. PREMISES. Pursuant to Landlord's exercise of its option under Section 58 of the Lease, the total square footage of the Premises as specified in the Recitals in the Lease and in Section 32 of the Lease is reduced from approximately two hundred seven thousand six hundred fifty (207,650) square feet to approximately 1 two hundred one thousand nine hundred forty-eight (201,948) square feet, by deleting the Restaurant Space. 2. BASIC RENT. The monthly basic rent for the Premises for Lease Months 1-12 as provided in Sections 4(a) and 5(a) of the Lease is hereby modified as follows: "The monthly basic rent for the Premises for Lease Months 1-12 shall be Three Hundred Fifty-Three Thousand Four Hundred Nine Dollars ($353,409) per month." The basic rent for Lease Months 13-180 shall continue to be adjusted as provided in Section 5(a) of the Lease. The amount paid under Section 4(d) of the Lease shall be applied first against the monthly basic rent for lease month one in its entirety and the balance shall be applied against monthly basic rent for lease month two. 3. COMMON AREA CHARGES. Tenant's percentage share of the total common area charges as set forth in the first sentence of Section 16 of the Lease shall be reduced from one hundred percent (100%) to ninety-seven and twenty-five one-hundredths percent (97.25%). Tenant's estimated payment of its percentage share of common area charges as set forth in the first sentence of Section 4(b) shall be reduced from Eighty-Three Thousand Sixty Dollars ($83,060) to Eighty Thousand Seven Hundred Seventy-Five and 85/100 Dollars ($80,775.85) per month and shall be reconciled and adjusted thereafter as specified in Section 16 of the Lease. 4. LOWER LEVEL SPACE. In addition to the Premises, Landlord hereby leases to Tenant and Tenant leases from Landlord the Lower Level Space subject to the following terms and conditions: a. TERM. The rights and obligations with respect to the Lower Level Space under this Section 4 shall commence on the earlier of (i) June 15, 1998 or (ii) occupancy of the Lower Level Space by Tenant's operating personnel (the "Lower Level Commencement Date") and end on the expiration date or earlier termination of the Lease for the Premises. b. LOWER LEVEL RENT. Commencing on the Lower Level Commencement Date, Tenant shall pay to Landlord as monthly rent for the Lower Level Space the sum of Eleven Thousand Two Hundred Thirty-Five Dollars ($11,235) per month in the manner specified in Section 4(a) of the Lease for payment of basic rent for the Premises and such amount shall be adjusted on the adjustment dates specified for adjusting basic rent for the Premises under Section 5(a) of the Lease my making the same adjustment to the monthly rent 2 for the Lower Level as is made to the monthly basic rent for the Premises (on a per square foot basis) and subject to the same caps, minimums and limitations set forth in Section 5(a) of the Lease. (For example, if the monthly basic rent for the Premises is to be increased by four percent (4%) on the first day of the thirteenth (13th) lease month of the Lease, the monthly rent for the Lower Level Space shall also be increased by four percent (4%) on the same date). c. EARLY ACCESS. Tenant shall be permitted access to the Lower Level Space but only for purposes of installing Tenant's furniture, fixtures, equipment, telephone system, low voltage data wiring and personal property necessary for the conduct of Tenant's business, provided that such access by Tenant does not and will not interfere with or cause delay in construction of the Shell Improvements, the Tenant Improvements (as defined in the Lease) or the Lower Level Improvements (as defined in Section 4.e below). Tenant's access shall be subject to all the terms and conditions of the Lease, including the insurance obligations specified in Section 11 of the Lease and Section 7.H of the Lease Assignment. Tenant shall provide Landlord with proof that Tenant has satisfied said insurance requirements. Such access to the Lower Level Space shall not accelerate the Lower Level Commencement Date specified in Section 4(a) above and Tenant shall not be obligated to pay monthly rent until the Lower Level Commencement Date occurs. d. COMMON AREA CHARGES. The Lower Level Space is not included in the square footage of the Project for purposes of determining common area percentages and such percentages shall continue to be determined based on the square footage leased on floors 1 through 11 of the Building (excluding the Lower Level) as provided in Section 16 of the Lease. Thus, Tenant shall have no obligation to pay any part of the common area charges of the Project based on the Lower Level Space, but shall continue to be obligated for its percentage share of common area charges based on the Premises as provided in Section 3 of this Amendment. e. LOWER LEVEL IMPROVEMENTS. Tenant improvements to be constructed in the Lower Level (the "Lower Level Improvements") shall be constructed in accordance with the terms and provisions of the Tenant Improvements Work Letter Agreement attached as Exhibit D to the Lease (the "Tenant Improvements Work Letter") excluding the Tenant Improvement Standards Section 2 of Exhibit D). the minimum level of Tenant Improvements to be installed by Tenant in the Lower Level Space shall be as follows: (1) Floor plan to substantially conform to the attached floor plan; (2) Ceilings to be building standard dropped ceiling and tiles. Storage, UPS and shipping 3 and receiving rooms may have no drop ceiling with strip lights if desired by Tenant; (3) Flooring to be VCT in corridors and other rooms except storage, UPS and shipping and receiving rooms, which may be sealed concrete; (4) Walls to have smooth finish; (5) Standard HVAC to be installed throughout the Lower Level Space as recommended by HVAC contractor; (6) Lighting to be building standard 2x4 fixtures with strip fluorescent lights in the areas with no drop ceiling; (7) The UPS room will be subject to Landlord's option to require Tenant to restore the area to standard dropped ceiling, VCT, and painted walls to match the adjoining rooms in the Lower Level Space. All special electrical and HVAC for the UPS room shall be removed prior to expiration or earlier termination of the lease. The Lower Level Improvements shall be deemed part of the Tenant Improvements described therein and treated as a Tenant requested change order to the construction contract for the Tenant Improvements and shall be subject to the provisions of the Tenant Improvements Work Letter. Any delays in construction of the Shell Improvements or the Tenant Improvements arising out of or related to construction of the Lower Level Improvements shall be deemed Tenant Caused Delays under Exhibits C and D to the Lease. The foregoing does not modify the Consent to Assignment insofar as the Commencement Date of the Lease is concerned. f. LANDLORD OPTION TO CANCEL LEASE OF LOWER LEVEL SPACE. Prior to the offering to sublease or assign the Lower Level Space to any third party, Tenant shall notify Landlord in writing ("Tenant's Notice of Intention to Sublease/Assign") of its intentions to sublease or assign the Lower Level Space and Landlord shall have thirty (30) days after receipt of such notice to cancel Tenant's lease of the Lower Level Space and recapture the Lower Level Space by giving written notice ("Landlord's LLS Cancellation Notice") thereof to Tenant, which notice shall specify the date of such cancellation, which date shall be not less than thirty (30) days and not more than ninety (90) days after the date of Landlord's LLS Cancellation Notice. If Landlord does not exercise its option to cancel as specified above, then for a period of one (1) year after the date of Tenant's Notice of Intent to 4 Sublease/Assign, Tenant shall have the right to sublease or assign the Lower Level Space to a third party subject to the terms and provisions of Section 19 of the Lease. If (i) Tenant fails to sublease or assign the Lower Level Space within such one (1) year period, or (ii) the Lower Level Space is subleased or assigned to a third party but later becomes available to Tenant again, the option to cancel shall apply and Tenant shall be required to notify Landlord again of Tenant's intention to sublease or assign the Lower Level Space in accordance with the provisions of this Section 4. g. INFORMIX NOT OBLIGATED REGARDING LOWER LEVEL SPACE. Informix shall not be obligated to Landlord with respect to any obligation of Tenant arising under Section 4 of this Amendment. Tenant's obligations to Informix under Section 6.D of the Lease Assignment shall apply to Tenant's lease of the Lower Level Space and Informix is made a third party beneficiary of this Amendment for purposes of enforcing Informix's rights thereunder. In the event that Informix recaptures the Premises pursuant to the provisions of Section 8 of the Lease Assignment, the lease of the Lower Level Space shall be deemed terminated due to a default by Tenant. Tenant shall be liable to Landlord for all damages arising due to the termination of the lease of the Lower Level Space and Landlord shall have all of the rights and remedies specified in Section 20 of the Lease. Informix shall have no liability or obligation to Landlord with respect to the Lower Level Space, but shall continue to be jointly and severally obligated to Landlord for all obligations arising under the Lease with respect to the Premises. h. OTHER LEASE TERMS APPLY. Except as specifically provided otherwise above, all other terms, covenants and conditions of the Lease shall apply to the lease of the Lower Level Space. However, notwithstanding anything in this Amendment to the contrary, in the event of any default by Tenant under any term, covenant or condition of the Lease or this Amendment related solely to the Lower Level Space, the Lower Level Space shall be deemed to be separate from the Premises and Landlord's rights and remedies under the Lease shall be exercisable only with respect to the Lower Level Space and Informix shall not be obligated for any damages related thereto. The foregoing shall not modify or limit Landlord's rights and remedies under the Lease in the event of a default relating to the Premises. Under no circumstances shall any default by Tenant solely with regard to the Lower Level Space constitute or give rise to any default under the Lease as regards the Premises, and the Lease shall remain in full force and effect as to the Premises notwithstanding any such default in connection with the Lower Level Space. Further, Landlord shall have no right to use any portion of the Security Deposit payable under the terms of the Lease for purposes of compensating it with respect to any 5 damages incurred by it because of Tenant's default with respect to the Lower Level Space and the First Amendment to Lease. 5. CORPORATE AUTHORITY. Each individual executing this Amendment on behalf of Tenant represents and warrants that he/she is duly authorized to execute and deliver this Amendment on behalf of Tenant in accordance with a duly adopted resolution of the Board of Directors of Tenant and that this Amendment is binding upon Tenant in accordance with its terms. Tenant shall deliver to Landlord, within twenty (20) days of the execution of this Amendment, a copy of the resolution of its Board of Directors authorizing the execution of this Amendment and naming the officers that are authorized to execute this Amendment on its behalf, which copy shall be certified by the corporation's Secretary as correct and in full force and effect. Each individual executing the Consent to Amendment on behalf of Informix represents and warrants that he/she is duly authorized to execute and deliver the Consent on behalf of Informix in accordance with a duly adopted resolution of the Board of Directors of Informix and that the Consent is binding upon Informix in accordance with its terms. Informix shall deliver to Landlord, within ten (10) days of the execution of the Consent, a copy of the resolution of its board of Directors authorizing the execution of the Consent and naming the officers that are authorized to execute the Consent on its behalf, which copy shall be certified by the corporation's Secretary as correct and in full force and effect. 6. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified herein, all terms, covenants and conditions of the Lease shall remain in full force and effect. [SIGNATURES ON NEXT PAGE] 6 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. Landlord: Tenant: BIRK S. McCANDLESS, LLC, NETWORKS ASSOCIATES, INC., a California limited a Delaware corporation liability company By: /s/ BIRK S. MCCANDLESS By: /s/ PRABHAT K. GOYAL ------------------------- ---------------------------- Name: Birk S. McCandless Name: Prabhat K. Goyal ----------------------- -------------------------- Title: Manager Title: Chief Financial Officer ---------------------- ------------------------- Date: Date: 2/25/98 ----------------------- -------------------------- 7 CONSENT TO AMENDMENT INFORMIX CORPORATION, a Delaware corporation ("Informix") hereby consents to the foregoing First Amendment to Lease and agrees that it shall continue to be and remain jointly and severally liable for the payment of rent and for the performance of all other obligations of "Tenant" under the Lease Transaction Documents as modified by the First Amendment, except as otherwise provided in the First Amendment. INFORMIX CORPORATION, a Delaware corporation By: /s/ GARY LLOYD ----------------------------------------------- Name: Gary Lloyd ----------------------------------------------- Title: Vice President, Legal and General Counsel -------------------------------------------- Date: --------------------------------------------- LENDER'S CONSENT TO AMENDMENT GUARANTY FEDERAL BANK, F.S.B., a federal savings bank, hereby consents to the foregoing First Amendment to Lease. GUARANTY FEDERAL BANK, F.S.B., a federal savings bank By: /s/ JAMES J. JOHNSON ----------------------------------------------- James J. Johnson Vice President Date: 3-19-98 --------------------------------------------- 8 EXHIBIT A [LAYOUT OF PLAZA LEVEL, 5,702 SQUARE FEET] EXHIBIT B [LAYOUT OF LOWER LEVEL, 6,430 SQUARE FEET] EXHIBIT B [AREA LAYOUT] EX-10.29 4 f76817ex10-29.txt EXHIBIT 10.29 Exhibit 10.29 CONFIRMATION, AMENDMENT AND NOTICE OF SECURITY AGREEMENT This Confirmation, Amendment and Notice of Security Agreement ("Agreement") is given this 20th day of March, 1998 by and among INFORMIX CORPORATION, a Delaware corporation ("Debtor"), BIRK S. McCANDLESS, LLC a California limited liability company ("Secured Party") and NETWORKS ASSOCIATES, INC., a Delaware corporation ("Networks"). R E C I T A L S A. Secured Party and Debtor entered into that certain Lease dated November 22, 1996 (the "Lease"). Debtor assigned its interest in the lease as tenant to Networks pursuant to that certain Lease Assignment dated November 17, 1997 ("Lease Assignment"), but remains liable to Secured Party under the Lease. Secured Party consented to the foregoing assignment as provided in that certain Consent to Assignment Agreement dated December 18, 1997 (the "Consent"). Pursuant to Section 12 of the Consent, Debtor granted to Secured Party a security interest in any and all claims and/or rights of recovery Debtor may have against Networks arising out of any liability or indebtedness of Networks held by or owed to Debtor relating to the Lease Transaction Documents (as defined in the Lease Assignment), the Assignment or the Consent and any proceeds arising therefrom. B. Secured Party, Debtor and Networks desire to confirm that the provisions in paragraph 12 of the Consent constitute a security agreement and to amend the Security Agreement as follows: NOW, THEREFORE, the parties hereto agree as follows: 1. CONFIRMATION OF SECURITY AGREEMENT. The parties hereto hereby confirm, acknowledge and agree that (i) Debtor has granted to Secured Party a security interest in any and all claims and/or rights of recovery Debtor may have against Networks arising out of any liability or indebtedness of Networks held by or owed to Debtor relating to the Lease Transaction Documents (as defined in the Lease Assignment), the Assignment or the Consent and any proceeds arising therefrom (the "Collateral") as specifically provided in Section 12 of the Consent, (ii) the Consent constitutes a security agreement (the "Security Agreement"), and (iii) the Security Agreement is hereby amended as provided in this Agreement. Debtor shall notify Security Party of any claims and/or rights of recovery constituting Collateral if and when same arise and provide Secured Party with reasonable documentation substantiating the nature and extent thereof. 2. NOTICE OF SECURITY INTEREST. This Agreement constitutes notice to Networks of Secured Party's security interest in the Collateral, including any proceeds arising therefrom and the parties hereto agree that any proceeds of any kind, cash or otherwise, which become payable to Debtor by Networks in connection with or arising from the Collateral, whether by court judgment, arbitration, settlement, or agreement between Debtor and Networks shall be deposited directly into a security account (the "Section 12 Security Account") as specified in Section 12.D. of the Consent, to be held and disbursed in accordance with Section 12.D. of the Consent. No proceeds arising out of or related to the Collateral shall be paid directly to Debtor without Secured Party's written consent. 3. SECTION 12.D DISBURSEMENTS TO DEBTOR. Disbursements to be made to Debtor under Section 12.D of the Consent shall be made from the Section 12 Security Account to Debtor only with Secured Party's written consent. Debtor shall submit to Security Party documentation reasonably satisfactory to Secured Party substantiating Debtor's incurring of costs subject to reimbursement under Section 12.D of the Consent. 4. FURTHER DOCUMENTS. The term "substantially the same agreement" as used in the second sentence of Section 12.D. of the Consent shall include without limitation the Security Agreement, Notice of Security Interest in Deposit Account and UCC-1 Financing Statements in substantially the forms attached to the Lease as Exhibit D-3, modified to reflect the terms and conditions of the Consent and this Agreement, which shall be completed and implemented when it is determined by Secured Party that such account is necessary. 5. EVENT OF DEFAULT. A default in payment or performance of any obligation to Secured Party that remains uncured after any applicable cure period under the Lease Transaction Documents, the Assignment, the Consent or this Agreement in accordance with the terms thereof shall constitute an Event of Default for purposes of this Agreement. 6. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs and is continuing under this Agreement, Secured Party shall have the following rights and remedies with respect to the Section 12 Security Account and the Collateral (without limiting any of Landlord's rights and remedies under the Lease Transaction Documents, the Consent and this Agreement): 2 (a) Secured Party shall have the right to participate jointly with Debtor in the initiation and prosecution of all claims and/or rights of recovery constituting Collateral, including the selection and direction of counsel, and Debtor shall reimburse Secured Party its reasonable costs actually incurred in connection therewith. (b) Secured Party shall have the right to draw such sums from the Section 12 Security Account as may be necessary to pay monthly basic rent, common area charges, and repair and maintenance costs then due and payable but unpaid by the "Tenant" under the Lease and to compensate Secured Party for all damages caused by such default (including attorneys fees and costs) to the extent then due and payable under the Lease Transaction Documents. (c) Secured Party shall have the right to pursue all remedies of a secured party under the California Uniform Commercial Code with respect to the Section 12 Security Account, subject to the limitations on withdrawals therefrom as specified in Section 6(b) above. All of Secured Party's rights and remedies, whether evidenced by this Agreement, the Consent, or any related documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Secured Party to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Debtor under this Agreement, after Debtor's failure to perform, shall not affect Secured Party's right to declare a default and to exercise its remedies. 7. NOTICES. Except for legal process which may also be served as provided by law or as provided herein, all notices, demands, requests, consents and other communications ("Notices") which may be given or are required to be given by either party under this Agreement to the other shall be in writing and shall be deemed given to and received by the party intended to receive such Notice (i) when hand delivered, (ii) on the date on which the United States Post Office certifies delivery or refusal to accept delivery of such Notice shall have been deposited, postage prepaid, to the United States mail, certified return receipt requested, properly addressed to the address specified herein, or (iii) on the date of delivery sent to the address specified herein by reputable overnight courier e.g., Federal Express or other comparable service), as evidenced by such courier's records. All such Notices to Assignor shall be served or addressed to Assignor at care of Informix Software, Inc., 4100 Bohannon Drive, Menlo Park, California 94025, Attention: Mr. Clive Merredew. All such Notices to Assignee shall be sent to Networks Associates, Inc. at its offices at 2805 Bowers Avenue, Santa Clara, California 95051, Attention: Mr. Evan Collins, Controller. All such Notices to 3 Landlord shall be sent to Birk S. McCandless, LLC, at 3945 Freedom Circle, Suite 640, Santa Clara, California 95054, Attention: Mr. Birk S. McCandless, Manager. All such Notices to Lender shall be sent to Guaranty Federal Bank, F.S.B., 8333 Douglas Avenue, Dallas, Texas 75225, Attention: Mr. Jim Johnson. Any party may change its address by notifying the others of such change. 8. ATTORNEYS FEES. If there is any legal action or proceeding between the parties arising from or based upon this Agreement, the unsuccessful party or parties to such action or proceedings shall pay to the prevailing party all costs and expenses, including reasonable attorneys' fees and disbursements incurred by the prevailing party in such action or proceeding and in any appeal in connection therewith, and such costs, expenses, attorneys' fees and disbursements shall be included in and as part of such judgment. 9. AUTHORITY. Each party hereto represents and warrants to the other parties that (i) the person or persons executing this Agreement on behalf of such party is duly authorized to execute this Agreement on behalf of such party, and (ii) such party has the right, power and authority to execute and deliver this document to the other parties and to perform its obligations as set forth herein. Each corporation shall deliver to the other parties herein a copy of the resolution of its Board of Directors authorizing the execution of this Agreement and naming the officers that are authorized to execute this Agreement on its behalf, which copy shall be certified by the corporation's Secretary as correct and in full force and effect. 10. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one original. This Agreement shall not be effective until all parties' signatures have been so obtained. The parties agree that this Agreement, documents ancillary to this Agreement, and related documents to be entered into in connection with this Agreement will be considered signed when the signature of a party is delivered by facsimile transmission. Such facsimile signature shall be treated in all respects as having the same effect as an original signature. [SIGNATURES ON NEXT PAGE] 4 IN WITNESS WHEREOF, Debtor, Secured Party and Networks have executed this Agreement on the dates set forth with their respective signatures. Debtor: Networks: INFORMIX CORPORATION, NETWORKS ASSOCIATES, INC., a Delaware corporation a Delaware corporation By: /s/ GARY LLOYD By: /s/ PRABHAT K. GOYAL ------------------------------- ------------------------------ Name: Gary Lloyd Name: Prabhat K. Goyal ----------------------------- ---------------------------- Titles: Vice President, Legal Title: CFO and General Counsel --------------------------- --------------------------- Date: 3/14/98 Date: March 13, 1998 ---------------------------- ----------------------------- Secured Party: BIRK S. McCANDLESS, LLC, a California limited liability company By: /s/ BIRK S. McCANDLESS ------------------------------- Name: Birk S. McCandless ----------------------------- Title: Manager ---------------------------- Date: ----------------------------- 5 EX-10.30 5 f76817ex10-30.txt EXHIBIT 10.30 Exhibit 10.30 SECOND AMENDMENT TO LEASE THIS SECOND AMENDMENT TO LEASE (this "Amendment") is made and effective as of September 1, 1998, by and between BIRK S. McCANDLESS, LLC, a California limited liability company ("Landlord") and NETWORKS ASSOCIATES, INC., a Delaware corporation ("Tenant"). R E C I T A L S A. Tenant is the tenant under that certain Lease (the "Lease") dated November 22, 1996 executed by and between Landlord and Informix Corporation, a Delaware corporation ("Informix") and assigned by Informix to Tenant pursuant to that certain Lease Assignment (the "Lease Assignment") dated November 17, 1997 and that certain Consent to Assignment Agreement dated December 18, 1997, as amended by that certain First Amendment to Lease dated March 20, 1998 (collectively, the "Lease"). B. Tenant and Landlord desire to modify the provisions of the Lease regarding their respective repair and maintenance obligations under Section 9 of the Lease. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and agreements contained herein, the parties hereby amend the Lease as follows: 1. REPAIRS AND MAINTENANCE. Section 9 of the Lease is hereby amended and modified by adding the following provision. Notwithstanding any provision to the contrary in Section 9 of the Lease from and after September 1, 1998, Landlord shall perform the obligations of Tenant under Section 9 of the Lease with respect to the inspection, maintenance and repair of the following: a. fire life safety system (excluding the sprinkler system in Tenant's computer room on the second floor as shown in Exhibit A attached hereto for which Tenant shall be remain fully responsible); b. standpipe/sprinkler system (inspections quarterly); c. reservoir water system d. jockey pump e. generator/fire pump; f. domestic water pump system; g. elevators and elevator systems; 1 h. sewer injection system; i. annual high rise inspection by City; j. 5 year certification for fire systems; The costs of the inspections, maintenance and repairs in connection with the above matters, including without limitation the cost of all contracts, supplies, materials, equipment and tools used in such inspections, repairs and maintenance and salaries and employee benefits (including union benefits) of personnel engaged in providing, supervising and administering the above services shall be common area charges and Tenant shall pay its percentage share of such costs to Landlord as provided in Section 16 of the Lease. Landlord and Tenant agree to cooperate in determining the scope of work and selecting the subcontractors for such work. Tenant shall have the right to assume the obligation for inspection, maintenance and repair of the above items any time after twelve (12) months from the date of execution of this Amendment upon ninety (90) days prior written notice to Landlord. Except as specifically modified herein, Tenant shall continue to be responsible for all repair and maintenance obligations of Tenant as specified in Section 9 of the Lease. 2. RESTATEMENT OF OTHER LEASE TERMS. Except as specifically modified herein, all terms, covenants and conditions of the Lease shall remain in full force and effect and are hereby reaffirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. Landlord: Tenant: BIRK S. McCANDLESS, LLC, NETWORKS ASSOCIATES, INC. a California limited a Delaware corporation liability company By: /s/ BIRK S. McCANDLESS By: /s/ PRABHAT K. GOYAL ------------------------ ------------------------ Name: Birk S. McCandless Name: Prabhat K. Goyal ---------------------- ---------------------- Title: Manager Title: CFO --------------------- --------------------- Date: 2/1/99 Date: 11/25/98 ----------------------- ----------------------- [Consent of Informix Corporation and Guaranty Federal Bank to this Second Amendment on Next Page] 2 CONSENT TO SECOND AMENDMENT INFORMIX CORPORATION, a Delaware corporation ("Informix") hereby consents to the foregoing Second Amendment to Lease and agrees that it shall continue to be and remain jointly and severally liable for the payment of rent and for the performance of all other obligations of "Tenant" under the Lease Transaction Documents as modified by the Second Amendment. INFORMIX CORPORATION, a Delaware corporation By: /s/ GARY LLOYD --------------------------- Name: Gary Lloyd ------------------------- Title: Vice President, General Counsel and Secretary ------------------------ Date: 12/28/98 ------------------------- LENDER'S CONSENT TO AMENDMENT GUARANTY FEDERAL BANK, F.S.B., a federal savings bank, hereby consents to the foregoing Second Amendment to Lease. GUARANTY FEDERAL BANK, F.S.B., a federal savings bank By: /s/ JAMES J. JOHNSTON --------------------------- James J. Johnston Vice President Date: 1-8-99 ------------------------- 3 EX-10.31 6 f76817ex10-31.txt EXHIBIT 10.31 Exhibit 10.31 Recording requested by and when recorded mail to: Piper, Marbury, Rudnick & Wolfe 1251 Avenue of the Americas NY, NY 10020-1104 Attn: Koren Blair APN # 104-40-030 SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT made this 21st day of June, 2000, among COLUMN FINANCIAL, INC., a Delaware corporation (hereinafter referred to as "Lender"), INFORMIX CORPORATION, a Delaware corporation (hereinafter referred to as "Informix"), NETWORKS ASSOCIATION, INC., a Delaware corporation, formerly known as McAfee Associates, Inc. ("Assignee") and BIRK S. McCANDLESS, LLC, a California limited liability company (hereinafter referred to as "Landlord"). STATEMENT OF BACKGROUND A. Landlord and Tenant entered into that certain lease dated November 22, 1996. Informix assigned its interest as tenant under the Lease to McAfee Associates, Inc., a Delaware corporation, (now known as Networks Associates, Inc., doing business as Network Associates, Inc. for interstate business and doing business as Delaware Network Associates, Inc. for California intrastate business) pursuant to that certain Lease Assignment between Informix and Assignee dated November 17, 1997, that certain Consent to Assignment Agreement dated December 18, 1997 by and among Landlord, Informix and Assignee. The Lease was thereafter amended by that certain First Amendment dated March 20, 1998 and by that certain Second Amendment dated September 1, 1998. The foregoing documents are collectively referred to herein as the "Lease"). B. The Premises described in the Lease consist of approximately 201,948 square feet on Floors 1 through 11 and approximately 6,420 square feet on the Lower Level (the "Premises") in the multi-story building located at 3965 Freedom Circle, Santa Clara, California (the "Property"). C. Lender has made or has committed to make a loan (the "Loan") to Landlord in the approximate principal amount of $37,000,000 secured by a mortgage, deed of trust or security deed 1 (hereinafter referred to as the "Mortgage") and an assignment of leases and rents from Landlord to Lender covering the Property including the Premises. Informix and Assignee have agreed that the Lease shall be subject and subordinate to the Mortgage held by Lender, provided Assignee and Informix (as may be applicable) are assured of continued occupancy of the Premises under the terms of the Lease; STATEMENT OF AGREEMENT For and in consideration of the mutual covenants herein contained, the sum of Ten Dollars ($10.00) and other good and valuable considerations, and receipt and sufficiency of which are hereby acknowledged, and notwithstanding anything in the Lease to the contrary, it is hereby agreed as follows: 1. Lender, Informix, Assignee and Landlord do hereby covenant and agree that the Lease with all rights, options (including options to acquire or lease all or any part of the Premises), liens and charges created thereby, is and shall continue to be subject and subordinate in all respects to the Mortgage and to any renewals, modifications, consolidations, replacements and extensions thereof and to all advancements made thereunder. 2. Lender does hereby agree with Assignee that, in the event Lender, other purchaser at the foreclosure sale or the grantee of any conveyance in lieu of foreclosure (the "Succeeding Owner") becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure or otherwise, so long as Assignee complies with and performs its obligations under the Lease, (a) the Lease shall continue in full force and effect as a direct Lease between the Succeeding Owner of the Property and Assignee, upon and subject to all of the terms, covenants and conditions of the Lease, for the balance of the term of the Lease, and the Succeeding Owner will not disturb the possession of Assignee, and (b) the Premises shall be subject to the Lease and the Succeeding Owner shall recognize Assignee as the tenant of the Premises for the remainder of the term of the Lease in accordance with the provisions thereof; provided, however, that Succeeding Owner shall not be subject to any claims, offsets or defenses which Assignee might have against any prior landlord (including Landlord) nor shall Succeeding Owner be liable for any act or omission of any prior landlord (including Landlord), nor shall Succeeding Owner be bound by any rent or additional rent which Assignee might have paid for more than the current month or any security deposit or other prepaid charge paid to any prior landlord (including Landlord), nor shall Succeeding Owner be bound by any amendment or modification of the Lease made without written consent of the Lender. Nothing contained herein shall prevent Lender from naming Assignee in any foreclosure or other action or proceeding initiated by Lender pursuant to the Mortgage to the extent necessary under applicable Law in order for Lender to avail itself of and complete the foreclosure or other remedy. 3. In the event that Informix is reinstated as Tenant under the Lease pursuant to paragraph 14 of the Consent to Assignment Agreement, Lender does hereby agree with Informix that, 2 in the event Lender become the owner of the Premises by foreclosure, conveyance in lieu of foreclosure or otherwise, so long as Informix complies with and performs its obligations under the Lease, (a) the Lease shall continue in full force and effect as a direct Lease between the succeeding owner of the Property and Informix, upon and subject to all of the terms, covenants and conditions of the Lease, for the balance of the term of the Lease, and Lender will not disturb the possession of Informix, and (b) the Premises shall be subject to the Lease and Lender shall recognize Informix as the tenant of the Premises for the remainder of the term of the Lease in accordance with the provisions thereof; provided, however, that Lender shall not be subject to any claims, offsets or defenses which Informix might have against any prior landlord (including Landlord) nor shall Lender be liable for any act or omission of any prior landlord (including Landlord), nor shall Lender be bound by any rent or additional rent which Informix might have paid for more than the current month or any security deposit or other prepaid charge paid to any prior landlord (including Landlord), nor shall Lender be bound by any amendment or modification of the Lease made without its written consent. Nothing contained herein shall prevent Lender from naming Informix in any foreclosure or other action or proceeding initiated by Lender pursuant to the Mortgage to the extent necessary under applicable Law in order for Lender to avail itself of and complete the foreclosure or other remedy. 4. Informix and Assignee do hereby agree with Lender that, in the event Lender or any other Succeeding Owner becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure or otherwise, then Informix and Assignee shall attorn to and recognize Lender or any other Succeeding Owner as the landlord under the Lease for the remainder of the term thereof, and Informix and Assignee shall perform and observe their obligations thereunder, subject only to the terms and conditions of the Lease. Informix and Assignee further covenant and agree to execute and deliver upon request of Lender or any other Succeeding Owner an appropriate agreement of attornment to Lender or any other Succeeding Owner and any subsequent titleholder of the Premises; provided the rights of Informix and Assignee under this Agreement and Lease are preserved. 5. Informix and Assignee acknowledge that Landlord will execute and deliver to Lender an assignment of the Lease as security for said loan, and Informix and Assignee hereby expressly consent to such assignment. 6. Lender shall have no obligation or incur any liability with respect to the construction or completion of the improvements in which the Premises are located or for completion of the Premises or any improvements for the use and occupancy thereof by Informix and/or Assignee arising prior to the time it becomes a Succeeding Owner. Lender shall have no obligations nor incur any liability with respect to any warranties of any nature whatsoever, including any warranties respecting use, compliance with zoning, hazardous wastes or environmental laws, Landlord's title, Landlord's authority, habitability, fitness for purpose or possession arising prior to the time it becomes a Succeeding Owner. In the event that Lender or any other Succeeding Owner shall acquire title to the Premises or the Property, Lender or any other Succeeding Owner shall have no obligation, nor incur any liability, beyond Lender's then equity interest, if any, in the Property, and Informix and Assignee shall look exclusively to such equity interest of Lender or any other Succeeding Owner, if any, in the 3 Property for the payment and discharge of any obligations or liability imposed upon Lender or any other Succeeding Owner hereunder, under the Lease or under any new lease of the Premises. 7. Informix and Assignee understand and acknowledge that Lender is about to make a loan to Landlord and receive as part of the security for such loan (i) the Mortgage, and (ii) an Assignment of Leases and Rents ("Assignment of Leases") which affects the Lease, and that Lender (and persons or entities to whom the Mortgage and/or Assignment of Leases may subsequently be assigned) are relying upon the covenants, representations and warranties contained herein in making such loan. Further, Informix and Assignee have notice that the Lease and the rent and all other sums due thereunder have been assigned or are to be assigned to lender as security for the Loan secured by the Mortgage. In the event that Lender (or any person or entity to whom the Mortgage and/or Assignment of Leases may subsequently be assigned) notify Informix and Assignee of a default under the Mortgage and/or Assignment of Leases and demand that Informix and Assignee pay their rent and all other sums due under the Lease to Lender (or such future lender), Informix and Assignee shall honor such demand and pay the rent and all other sums due under the Lease directly to Lender (or such future lender) or as otherwise required pursuant to such notice. Informix and Assignee agree to notify Lender of any default(s) by Landlord under the Lease; Lender shall have the same right to cure such default(s) as is provided to Landlord under the Lease. 8. If any portion or portions of this Agreement shall be held invalid or inoperative, then all of the remaining portions shall remain in full force and effect, and, so far as is reasonable and possible, effect shall be given to the intent manifested by the portion or portions held to be invalid or inoperative. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 10. Lender shall not, either by virtue of the Mortgage, the Assignment of Leases or this Agreement, be or become a mortgagee in possession or be or become subject to any liability or obligation under the Lease or otherwise until Lender shall have acquired the interest of Landlord in the Premises, by foreclosure or otherwise, and then such liability or obligation of Lender under the Lease shall extend only to those liabilities or obligations accruing subsequent to the date that Lender has acquired the interest of Landlord in the Premises as modified by the terms of this Agreement. 11. Any and all notices, elections, approvals, consents, demands, requests and responses thereto ("Communications") permitted or required to be given under this Agreement shall be in writing and shall be deemed to have been properly given and shall be effective upon the earlier of receipt thereof or deposit thereof in the United States mail, postage prepaid, certified with return receipt requested, to the other party at the address of such other party set forth hereinbelow or at such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any Communication must be given shall commence on the date of receipt thereof, and provided further that no notice of change of address 4 shall be effective with respect to Communications sent prior to the time of receipt thereof. Any notice, if given to Lender, must be addressed as follows, subject to change as provided hereinabove: Column Financial, Inc. 3414 Peachtree Road, N.E. Suite 1140 Atlanta, Georgia 30326-1113 and, if given to Informix, must be addressed as follows, subject to change as provided hereinabove: Informix Corporation 4100 Bohannon Drive Menlo Park, California 94025 Attn: ---------------------- and, if given to Assignee, must be addressed as follows, subject to change as provided hereinabove: Networks Associates, Inc. 3965 Freedom Circle Santa Clara, California 95054 Attn: Prabhat Goyal and, if given to Landlord, must be addressed as follows, subject to change as provided hereinabove: Birk S. McCandless, LLC 3945 Freedom Circle, Suite 640 Santa Clara, California 95054 Attn: Birk S. McCandless 12. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, successors-in-title and assigns. When used herein, the term "Landlord" refers to Landlord and to any successor to the interest of Landlord under the Lease. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement [under seal] as of the date first above written. LENDER: COLUMN FINANCIAL, INC, a Delaware corporation By: /s/ DOLEY LAUBACH ------------------------------ Name: Doley Laubach ---------------------------- Title: Assistant Vice President --------------------------- INFORMIX: INFORMIX CORPORATION, a Delaware corporation By: /s/ ERVIN A. RIDDLE ------------------------------ Name: Ervin A. Riddle ---------------------------- Title: Assistant Secretary --------------------------- ASSIGNEE: NETWORKS ASSOCIATES, INC., a Delaware corporation By: /s/ PRABHAT K. GOYAL ------------------------------ Name: Prabhat K. Goyal ---------------------------- Title: CFO --------------------------- 6 LANDLORD: BIRK S. McCANDLESS, LLC, a California limited liability company By: /s/ BIRK S. McCANDLESS ----------------------------------- Name: Birk S. McCandless --------------------------------- Title: Manager -------------------------------- STATE OF CALIFORNIA ) )ss. COUNTY OF SANTA CLARA ) On June 8, 2000 before me Persis M. McGinn, notary public, personally appeared Birk S. McCandless, personally known to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [SEAL] /s/ PERSIS M. McGINN PERSIS M. McGINN ------------------------------- Comm. #1106916 Notary Public NOTARY PUBLIC - CALIFORNIA SANTA CLARA COUNTY Comm. Exp. July 25, 2000 (official seal here) 7 STATE OF GEORGIA ) ) ss. COUNTY OF FULTON ) On June 15, 2000 before me, Heather C. Jones, personally appeared [ILLEGIBLE], personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal. /s/ HEATHER C. JONES ---------------------------------- Notary Public (official seal here) STATE OF CALIFORNIA ) ) ss. COUNTY OF SANTA CLARA ) On May 22, 2000 before me, Diohonne M. Beltramo, personally appeared Prabhat Goyal, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. /s/ DIOHONNE M. BELTRAMO ---------------------------------- Notary Public ==================================== DIOHONNE M. BELTRAMO Commission # 1195491 [SEAL] [ILLEGIBLE] Notary Public - California Santa Clara County My Comm. Expires Sep 4, 2002 ==================================== 8 STATE OF NORTH CAROLINA ) ) ss. COUNTY OF BEAUFORT ) On June 7, 2000 before me, Karen K. Moore, personally appeared Ervin A. Riddle, personally known to be (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature on the instrument the person(s), or the entity upon behalf of which the person(s), acted, executed the instrument. WITNESS my hand and official seal. /s/ KAREN K. MOORE ----------------------------------- Notary Public My Commission Expires March 6, 2005 (official seal here) 9 EX-10.32 7 f76817ex10-32.txt EXHIBIT 10.32 Exhibit 10.32 STANDARD OFFICE LEASE AGREEMENT This Lease Agreement (this "Lease Agreement") is made this 14th day of November 1996 between Blue Lake Partners, Ltd., a Texas limited partnership (hereinafter called "Landlord"), and McAfee Associates, Inc., a Delaware Corporation (hereinafter called "Tenant"). This Lease consists of this paragraph, the Basic Lease Provisions, the Supplemental Lease Provisions and each exhibit, rider, schedule and addendum attached to the Basic Lease Provisions and Supplemental Lease Provisions. BASIC LEASE PROVISIONS 1. Building a. Name: The Centre Address: 4099 McEwen Road b. Agreed Rentable Area: 123,770 square feet. 2. Premises: a. Suites #: 500 & 700; Floors: Fifth & Seventh b. Agreed Rentable Area: 31,729 square feet. 3. Basic Rent (See Article 2, Supplemental Lease Provisions):

4. Tenant's Pro Rate Share percentage: 25.64% (the Agreed Rentable Area of the Premises divided by the Agreed Rentable Area of the Building, expressed in a percentage). 5. Tenant's Operating Expense Stop: Equal to actual Operating Expenses for the calendar year 1997 adjusted in accordance with subsection 2.202 of the Supplemental Lease Provisions (see Article 2, Supplemental Lease Provisions). 6. Tenant's Real Estate Taxes Stop: Equal to actual Real Estate Taxes for the calendar year 1997, adjusted in accordance with subsection 2.202 of the Supplemental Lease Provisions (see Article 2, Supplemental Lease Provisions). 7. Term: Five (5) years and zero (0) months (see Article 1, Supplemental Lease Provisions). 8. Commencement Date: February 1, 1997 (see Article 1, Supplemental Lease Provisions). 9. Expiration Date: January 31, 2002 (see Article 1, Supplemental Lease Provisions). 10. Security Deposit: $40,983.29 (see Article 3, Supplemental Lease Provisions). 11. Tenant's Broker: The Stoneleigh Group (such broker is represented by Rod Martin). 12. Permitted Use: General Office Purposes Only (see Article 4, Supplemental Lease Provisions). 13. All payments shall be sent to Landlord in care of Granite Properties ("Property Manager") at Blue Lake Partners, Ltd., P.O. Box 911597, Dallas, TX 75391-1597 or such other place as Landlord may designate from time to time. All payments shall be in the form of check until otherwise designated by Landlord. 14. Parking: See Section 15.17 and Exhibit F if any, attached to the Supplemental Lease Provisions. 15. Addresses for notices due under this Lease (see Article 14, Supplemental Lease Provisions): Landlord: Tenant: Blue Lake Partners, Ltd., a PRIOR TO COMMENCEMENT DATE: limited partnership c/o Granite Properties, Inc. Bill Beecher The Centre McAfee, Inc. 4099 McEwen, Suite 360 5944 Luther Lane Farmers Branch, Texas 75244 Dallas, Texas 75225 Attention: Property Manager Fax: 361-1014 Fax: (214) 991-5931 ON OR AFTER COMMENCEMENT DATE: The Premises, Attn: Site Manager. Fax: ----------------------------- Landlord and Tenant are initialing these Basic Lease Provisions in the appropriate space provided below as an acknowledgment that they are a part of this Lease. Initial: Landlord: ----- Tenant: ------ 1 TABLE OF CONTENTS FOR SUPPLEMENTAL LEASE PROVISIONS Description Page Article 1 Term and Possession...................................... 1 Article 2 Rent..................................................... 2 Article 3 Security Deposit......................................... 3 Article 4 Occupancy and Use........................................ 4 Article 5 Utilities and Services................................... 5 Article 6 Maintenance, Repairs, Alterations and Improvements....... 6 Article 7 Insurance, Fire and Casualty............................. 7 Article 8 Condemnation............................................. 9 Article 9 Liens.................................................... 10 Article 10 Taxes on Tenant's Property............................... 10 Article 11 Subletting and Assigning................................. 10 Article 12 Transfers by Landlord, Subordination and Tenant's Estoppel Certificate............................ 11 Article 13 Default.................................................. 11 Article 14 Notices.................................................. 14 Article 15 Miscellaneous Provisions................................. 15 LIST OF EXHIBITS AND RIDERS TO SUPPLEMENTAL LEASE PROVISIONS Exhibit A Floor Plan Exhibit B Land Legal Description Exhibit B.1 Project Legal Description Exhibit C Rentable Area Calculations Exhibit D Work Letter Exhibit E Acceptance of Premises Memorandum Exhibit F Intentionally Deleted Addendum ____ Check, if applicable Rider 1 Building Rules and Regulations Rider 2 Renewal Option Rider 3 Tenant's Right of First Refusal Rider 4 Cap on Certain Operating Expenses Rider 5 Signage Rider 6 General Janitorial Specifications Rider 7 Right To Audit Rider H-1 Hazardous Materials Rider H-2 Tenant's Study, Testing and Inspection Rights Initial: Landlord _____ Tenant _______ 2 SUPPLEMENTAL LEASE PROVISIONS ARTICLE 1 TERM AND POSSESSION SECTION 1.1 LEASE OF PREMISES, COMMENCEMENT AND EXPIRATION. 1.101 LEASE OF PREMISES. In consideration of the mutual covenants herein, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to all the terms and conditions of this Lease, the portion of the Building (as described in Item 1 of the Basic Lease Provisions) described as the Premises in Item 2 of the Basic Lease Provisions and that is more particularly described by the crosshatched area on Exhibit A attached hereto (hereinafter called the "Premises"). The agreed rentable area of the Premises is hereby stipulated to be the "Agreed Rentable Area" of the Premises set forth in Item 2b of the Basic Lease Provisions, irrespective of whether the same should be more or less as a result of minor variations resulting from construction of Tenant's Improvements (as defined in Exhibit D attached hereto). The agreed rentable area of the Building is hereby stipulated to be the "Agreed Rentable Area" of the Building set forth in Item 1b of the Basic Lease Provisions, irrespective of whether the same should be more or less as a result of minor variations resulting from actual construction or repair of the Building. The Building, the land (the "Land) on which the Building is situated (which Land is more particularly described on Exhibit B attached hereto) and all improvements and appurtenances to the Building and the Land are referred to collectively herein as the "Property". The Property is part of an overall Project known as The Centre, Farmers Branch, Texas, currently consisting of eleven (11) office buildings totalling 880,940 rentable square feet, together with parking facilities, all of which are reflected on the drawing attached hereto as Exhibit B-1 (such land and all improvements located thereon are herein referred to as the "Project"). 1.102 INITIAL TERM AND COMMENCEMENT. The initial term of this Lease shall be the period of time specified in Item 7 of the Basic Lease Provisions. The initial term shall commence on the Commencement Date (herein so called) set forth in Item 8 of the Basic Lease Provisions (as such Commencement Date may be adjusted pursuant to Section 3 of Exhibit E attached hereto) and, unless sooner terminated pursuant to the terms of this Lease, the Initial term of this Lease shall expire, without notice to Tenant, on the Expiration Date (herein so called) set forth in Item 9 of the Basic Lease Provisions (as such Expiration Date may be adjusted pursuant to Section 3 of Exhibit E attached hereto). SECTION 1.2 INSPECTION AND DELIVERY OF PREMISES, CONSTRUCTION OF LEASE SPACE IMPROVEMENTS AND POSSESSION. 1.201 DELIVERY AND COMPLETION. Tenant hereby acknowledges that Tenant has inspected the Premises and the Common Areas (as hereinafter defined) and, except for latent defects discovered and reported to Landlord by Tenant within 180 days from the Commencement Date, hereby (i) accepts the Common Areas in "as is" condition for all purposes and (ii) subject to Landlord's completion of its obligations under the Work Letter (herein so called) attached hereto as Exhibit D. Tenant hereby accepts the Premises (including the suitability of the Premises for the Permitted Use) for all purposes. Landlord will perform or cause to be performed the work and/or construction of Tenant's Improvements as defined in the Work Letter) in accordance with the terms of the Work Letter and will use reasonable efforts to Substantially Complete (as defined in the Work Letter) Tenant's Improvements by the Commencement Date. If Tenant's Improvements are not Substantially Complete by the Commencement Date set forth in Item 8 of the Basic Lease Provisions for any reason whatsoever, Tenant's sole remedy shall be an adjustment of the Commencement Date and the Expiration Date as provided in Section 3 of the Work Letter. The Premises shall be delivered to Tenant on the Commencement Date. NOTWITHSTANDING THE FOREGOING, SHOULD LANDLORD BE UNABLE TO DELIVER THE PREMISES TO TENANT, EXCEPT IN THE CASE OF TENANT DELAY, WITHIN SIXTY (60) DAYS OF THE STATED COMMENCEMENT IN ITEM 8 OF THE BASIC LEASE PROVISIONS, TENANT SHALL HAVE THE RIGHT AND OPTION TO CANCEL THIS LEASE. TENANT SHALL BE PROVIDED ACCESS TO THE SPACE FOR THE PURPOSES OF INSTALLING PHONE AND 3 COMPUTER EQUIPMENT PRIOR TO THE ACTUAL COMMENCEMENT DATE ASSUMING THE TENANT IMPROVEMENTS ARE SUBSTANTIALLY COMPLETE. 1.202 ACCEPTANCE OF PREMISES MEMORANDUM. Upon Substantial Completion (as defined in the Work Letter) of Tenant's Improvements, Landlord and Tenant shall execute the Acceptance of Premises Memorandum (herein so called) attached hereto as Exhibit E. If Tenant occupies the Premises without executing an Acceptance of Premises Memorandum EXCEPT BY REASON OF A BONA FIDE DISPUTE REGARDING THE PUNCH LIST, Tenant shall be deemed to have accepted the Premises for all purposes and Substantial Completion shall be deemed to have occurred on the earlier to occur of (i) actual occupancy or (ii) the Commencement Date set forth in Item 8 of the Basic Lease Provisions (AS ADJUSTED PURSUANT TO SECTION 3 OF THE WORK LETTER). SECTION 1.3 REDELIVERY OF THE PREMISES. Upon the expiration or earlier termination of this Lease or upon the exercise by Landlord of its right to re-enter the Premises without terminating this Lease, Tenant shall immediately deliver to Landlord the Premises free of offensive odors and in a safe, clean, neat, sanitary and operational condition REASONABLE WEAR AND TEAR, CASUALTY, AND OBSOLESCENCE EXCEPTED, together with all keys and parking access cards. Tenant shall, by the Expiration Date or, if this Lease is earlier terminated, within seven (7) days after the termination, remove from the Premises, at the sole expense of Tenant: (i) any equipment, machinery, trade fixtures and personalty installed or placed in the Premises by or on behalf of Tenant and (ii) if requested by Landlord, NO LESS THAN THIRTY (30) DAYS PRIOR TO SUCH TERMINATION OR RE-ENTRY all or any part of the improvements (other than Tenant's Improvements and other improvements approved by Landlord without the requirement that same be removed upon expiration or earlier termination of the Lease) made to the Premises by or on behalf of Tenant. All removals described above shall be accomplished in a good and workmanlike manner so as not to damage the Premises or the primary structure or structural qualities of the Building or the plumbing, electrical lines or other utilities. Tenant shall, at its expense, promptly repair ANY SUCH DAMAGE caused by any such removal, provided that in the case of improvements that Tenant is required to remove PURSUANT TO THE SECOND SENTENCE OF THIS SECTION, Tenant shall restore the Premises to the condition existing prior to the installation of such improvements. If Tenant fails to deliver the Premises in the condition aforesaid, AFTER LANDLORD HAS PROVIDED ALL NECESSARY APPROVALS, ACCESS AND REASONABLE COOPERATION FOR SUCH RESTORATION AND/OR REPAIR then Landlord may restore the Premises to such a condition at Tenant's expense. All property required to be removed pursuant to this Section not removed within time period required hereunder shall thereupon be conclusively presumed to have been abandoned by Tenant and Landlord may, at its option, take over possession of such property and either (a) declare the same to be the property of Landlord by written notice to Tenant at the address provided herein or (b) at the sole cost and expense of Tenant, remove and store and/or dispose of the same or any part thereof in any manner that Landlord shall choose without incurring liability to Tenant or any other person. SECTION 1.4 HOLDING OVER. In the event Tenant or any Party under Tenant claiming rights to this Lease, retains possession of the Premises after the expiration or earlier termination of this Lease, such possession shall constitute and be construed as a tenancy at will only, subject, however, to all of the terms, provisions, covenants and agreements on the part of Tenant hereunder; such parties shall be subject to immediate eviction and removal and Tenant or any such Party shall pay Landlord as rent for the period of such holdover an amount equal to one and one-half (1-1/2) times the Basic Annual Rent (as hereinafter defined) in effect immediately preceding expiration or termination, as applicable, prorated on a daily basis. Tenant shall also pay any and all damages sustained by Landlord as a result of such holdover. The rent during such holdover period shall be payable to Landlord from time to time on demand; provided, however, if no demand is made during a particular month, holdover rent accruing during such month shall be paid in accordance with the provisions of Article 2. IN THE EVENT OF A HOLDOVER, Tenant will vacate the Premises and deliver same to Landlord immediately upon Tenant's receipt of notice from Landlord to so vacate. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend the term of this Lease; no payments of money by Tenant to Landlord after the expiration or earlier termination of this Lease shall reinstate, continue or extend the term of this Lease; and no extension of this Lease after the expiration or earlier termination thereof shall be valid unless and until the same shall be reduced to writing and signed by both Landlord and Tenant. ARTICLE 2 RENT SECTION 2.1 BASIC RENT. Tenant shall pay as annual rent for the Premises the applicable Basic Annual Rent shown in Item 3 of the Basic Lease Provisions. The Basic Annual Rent shall be payable in monthly installments equal to the applicable Basic Monthly Rent shown in Item 3 of the Basic Lease Provisions in advance, without demand, offset or deduction, EXCEPT AS PROVIDED IN THIS LEASE AGREEMENT, which monthly installments shall commence on the Commencement Date and shall continue on the first (1st) day of each calendar month thereafter. If the Commencement Date occurs on a day other than the first day of a calendar month or the Expiration Date occurs on a day other than the last day of a calendar month, the Basic Monthly Rent for such partial month shall be prorated. 4 SECTION 2.2 ADDITIONAL RENT. 2.201 DEFINITIONS. For purposes of this Lease, the following definitions shall apply: (a) "Additional Rent", for a particular calendar year, shall equal the sum of (i) Tenant's Pro Rata Share Percentage (as set forth in Item 4 of the Basic Lease Provisions) multiplied by the amount by which Real Estate Taxes (as hereinafter defined) for such year exceeds Tenant's Real Estate Taxes Stop (as set forth in Item 6 of the Basic Lease Provisions) plus (ii) SUBJECT TO RIDER NO. 4, Tenant's Pro Rata Share Percentage multiplied by the amount by which Operating Expenses (as hereinafter defined) for such year exceed Tenant's Operating Expense Stop (as set forth in Item 5 of the Basic Lease provisions) plus (iii) SUBJECT TO RIDER NO. 4, Tenant's Pro Rata Share Percentage multiplied by Permitted Capital Pass Through Costs (as hereinafter defined) for such year. (b) "Operating Expenses" shall mean all of the costs and expenses Landlord incurs, pays or becomes obligated to pay in connection with operating, maintaining, insuring and managing the Building for a particular calendar year or portion thereof as determined by Landlord in accordance with generally accepted accounting principles CONSISTENTLY APPLIED, including, but not limited to, the following: (i) insurance premiums ("Insurance Premiums"); (ii) water, sewer, electrical and other utility charges ("Utility Expenses"); (iii) service and other charges incurred in the operation and maintenance of the elevators and the plumbing, fire sprinkler, security, heating, ventilation and air conditioning system; (iv) cleaning and other janitorial services, tools and supplies costs; (v) repair costs; (vi) costs of landscaping, including landscape maintenance and sprinkler maintenance costs and rental and supply costs in connection therewith; (vii) security services; (viii) license, permit and inspection fees; (ix) MARKET management fees; (x) wages and related benefits payable to employees directly relating thereto, including taxes and insurance relating thereto; (xi) accounting services; (xii) legal services, unless incurred in connection with tenant defaults or lease obligations; (xiii) trash removal; (xiv) garage and parking maintenance, repair, repaving and operation costs; (xv) the charges assessed against the Property pursuant to any contractual covenants or recorded declaration of covenants or the covenants, conditions and restrictions or any other similar instrument affecting the Property. Notwithstanding the foregoing, Operating Expenses shall not include Real Estate Taxes or Permitted Capital Pass Through Costs; and (xvi) a fair and equitable pro rata share of all costs and expenses Landlord incurs, pays or becomes obligated to pay in connection with operating, maintaining, insuring and managing the landscaping, water features, common areas, private streets, alleys, sidewalks and medians which are a part of the Project and which benefit all buildings included in the Project. (c) "REAL ESTATE TAXES" shall mean all real estate taxes and other taxes or AD VALOREM assessments which are levied with respect to the Property or any portion thereof for each calendar year and shall include any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate taxes, the costs and expenses of a consultant, if any, or of contesting the validity or amount of such real estate or other taxes and shall also include any rental, excise, sales, transaction, privilege or other tax or levy, however denominated, imposed upon or measured by the rental reserved hereunder or on Landlord's business of leasing the Premises, excepting only Landlord's net income, FRANCHISE, OR SIMILAR taxes. (d) "PERMITTED CAPITAL PASS THROUGH COSTS" shall mean the following costs and expenses incurred by Landlord from and after January 1, 1998: (i) the cost of any capital improvement made to the Property by Landlord that is required under any governmental law or regulation which was not promulgated, or which was promulgated but was not applicable to the Building, at the time the Building was constructed, amortized over ITS USEFUL LIFE IN ACCORDANCE WITH GAAP, together with an amount equal to interest at the rate of TEN PERCENT (10%) per annum (the "Amortization Rate") on the unamortized balance thereof, (ii) the cost of any labor-saving or energy-saving device or other equipment installed in the Building (provided Landlord reasonably anticipates that the installation thereof will reduce Operating Expenses), amortized over ITS USEFUL LIFE IN ACCORDANCE WITH GAAP, together with an amount equal to interest at the Amortization Rate on the unamortized balance thereof, and (iii) all other capital costs and expenses CONSISTING OF NEW OR UPGRADED ITEMS IN AMOUNTS NOT TO EXCEED $10,000.00 which would generally be regarded as ownership, operating, maintenance and management costs and expenses which would normally be amortized over a period not to exceed five (5) years. 5 2.202 Gross-Up. Operating Expenses shall be adjusted to include all additional costs and expenses of owning, operating, maintaining and managing the Building which Landlord reasonably determines that it would have incurred, paid or been obligated to pay during such year if the Building had been one hundred percent (100%) occupied. Real Estate Taxes shall be adjusted to include the ad valorem taxes that would have been assessed if the Building had been fully assessed for ad valorem tax purposes. 2.203 Payment Obligation. In addition to the Basic Rent specified in this Lease, Tenant shall pay to Landlord the Additional Rent, in each calendar year or partial calendar year during the term of this Lease, payable in monthly installments as hereinafter provided. On or prior to the Commencement Date and at least thirty (30) days prior to each calendar year thereafter (or as soon thereafter as is reasonably possible), Landlord shall give Tenant written notice of Tenant's estimated Additional Rent (as reasonably estimated by Landlord) for the applicable calendar year and the amount of the monthly installment due for each month during such year. Tenant shall pay to Landlord on the Commencement Date and on the first day of each month thereafter the amount of the applicable monthly installment, without demand, offset or deduction, provided, however, if the applicable installment covers a partial month, then such installment shall be prorated on a daily basis. Within ninety (90) days after the end of (i) each calendar year and (ii) the Expiration Date or as soon thereafter as is reasonably possible, Landlord shall prepare and deliver to Tenant a statement showing Tenant's actual Additional Rent for the applicable calendar year, provided that with respect to the calendar year in which the Expiration Date occurs, (x) that calendar year shall be deemed to have commenced on January 1 of that year and ended on the Expiration Date (the "Final Calendar Year") and (y) Landlord shall have the right to estimate the actual Operating Expenses allocable to the Final Calendar Year but which are not determinable within such ninety day period. If Tenant's total monthly payments of Additional Rent for the applicable year are less than Tenant's actual Additional Rent, then Tenant shall pay to Landlord the amount of such underpayment. If Tenant's total monthly payments of Additional Rent for the applicable year are more than Tenant's actual Additional Rent, then Landlord shall credit against the next Additional Rent payment or payments due from Tenant the amount of such overpayment, provided, however, with respect to the Final Calendar Year, Landlord shall pay to Tenant the amount of such excess payments, less any amounts then owed to Landlord. Unless Tenant takes written exception to any item within ninety (90) days after the furnishing of an annual statement, such statement shall be considered as final and accepted by Tenant. Any amount due Landlord as shown on any such statement shall be paid by Tenant within thirty (30) days after it is furnished to Tenant (See Rider No. 7 attached hereto). 2.204 Revisions in Estimated Additional Rent. If Real Estate Taxes, Insurance Premiums, Utility Expenses or Permitted Capital Pass Through Costs increase during a calendar year or if the number of square feet of rentable area in the Premises increases, Landlord may revise the estimated Additional Rent during such year by giving Tenant written notice to that effect and thereafter Tenant shall pay to Landlord, in each of the remaining months of such year, an additional amount equal to the amount of such increase in the estimated Additional Rent divided by the number of months remaining in such year. SECTION 2.3 RENT DEFINED AND NO OFFSETS. Basic Annual Rent, Additional Rent and all other sums (whether or not expressly designated as rent) required to be paid to Landlord by Tenant under this Lease (including, without limitation, any sums payable to Landlord under any addendum, exhibit, rider or schedule attached hereto) shall constitute rent and are sometimes collectively referred to as "Rent". Each payment of Rent shall be paid by Tenant when due, without prior demand therefor and without deduction or setoff, except as provided in this Lease Agreement. SECTION 2.4 LATE CHARGES. If any installment of Basic Annual Rent or Additional Rent or any other payment of Rent under this Lease shall not be paid within ten (10) days of the date when due, a "Late Charge" of five cents ($.05) per dollar so overdue may be charged by Landlord to defray Landlord's administrative expense incident to the handling of such overdue payments. Each Late Charge shall be payable on demand. ARTICLE 3 SECURITY DEPOSIT Tenant will pay Landlord on the date this Lease is executed by Tenant the Security Deposit set forth in Item 10 of the Basic Lease Provisions as security for the performance of the terms hereof by Tenant. Tenant shall not be entitled to interest thereon and Landlord may commingle such Security Deposit with any other kinds of Landlord. The Security Deposit shall not be considered an advance payment of rental or a measure of Landlord's damages in case of default by Tenant. If Tenant defaults with respect to any provision of this Lease, which is not cured within the applicable cure period, Landlord may, but shall not be required to, from time to time, without prejudice to any other remedy, use, apply or retain all or any part of this Security Deposit for the payment of any Rent or any other sum in default or for the Payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of 6 Tenant's default, including, without limitation, costs and attorneys' fees incurred by Landlord to recover possession of the Premises. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit shall be returned to Tenant within sixty (60) days after the Expiration Date. Tenant agrees that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as the Security Deposit and that Landlord and its successors and assigns shall not be bound by any such actual or attempted assignment or encumbrance. Regardless of any assignment of this Lease by Tenant, Landlord may return the Security Deposit to the original Tenant, in the absence of evidence satisfactory to Landlord of an assignment of the right to receive the Security Deposit or any part of the balance thereof. ARTICLE 4 OCCUPANCY AND USE SECTION 4.1 USE OF PREMISES. 4.101 GENERAL. The Premiss shall, subject to the remaining Provisions of this Section, be used solely for the purpose specified in Item 12 of the Basic Lease Provisions. Without in any way limiting the foregoing, Tenant will not use, occupy or permit the use or occupancy of the Premises for any purpose which if forbidden by or in violation of any law, ordinance or governmental or municipal regulation, order, or certificate of occupancy, or which may be dangerous to life, limb or property; or permit the maintenance of any public or private nuisance; or do or permit any other thing which may disturb the quiet enjoyment of any other tenant of the Building; or keep any substance or carry on or permit any operation which might emit offensive odors or conditions from the Premises; or commit or suffer or permit any waste in or upon the Premises; or sell, purchase or give away, or permit the sale, purchase or gift of food in any form by or to any of Tenant's agents or employees or other parties in the Premises except through vending machines in employee lunch or rest areas within the Premises for use by Tenant's employees only; or use any apparatus which might make undue noise or set up vibrations in the Building; or permit anything to be done which would increase the fire and extended coverage insurance rate on the Building or Building contents and, if there is any increase in such rate by reason of acts of Tenant, the Tenant agrees to pay such increase upon demand therefor by Landlord. Payment by Tenant of any such rate increase shall not be a waiver of Tenant's duty to comply herewith. Tenant shall indemnify and hold Landlord harmless from any and all costs, expenses (including reasonable attorneys' fees), claims and causes of action arising from Tenant's failure to comply with this Section without limitation upon Landlord's obligations under Section 5.105. Tenant shall keep the Premises neat and clean at all times. Tenant shall promptly correct any violation of a governmental law, rule or regulation relating to the Premises. Tenant shall comply with any direction or any governmental authority having jurisdiction which imposes any duty upon Tenant or Landlord with respect to the Premises or with respect to the occupancy or use thereof. 4.102 HAZARDOUS AND TOXIC MATERIALS. (a) Tenant shall not knowingly incorporate into, or use or otherwise place or dispose of at, the Premises, the Building or on the Land any hazardous or toxic materials, except for use and storage of cleaning and office supplies used in the ordinary course of Tenant's business and then only if (i) such materials are in small quantities, properly labeled and contained, (ii) such materials are handled and disposed of in accordance with the highest accepted industry standards for safety, storage, use and disposal, (iii) notice of and a copy of the current material safety data sheet if provided to Landlord for each such hazardous or toxic material and (iv) such materials are used, transported, stored, handled and disposed of in accordance with all applicable governmental laws, rules and regulations. Landlord shall have the right to periodically inspect, take samples for testing and otherwise investigate the Premises for the presence of hazardous or toxic materials. Landlord shall not knowingly dispose of at the Premises, Building or the Land any hazardous or toxic materials and shall otherwise deal with all hazardous or toxic materials at the Premises, Building or Land in a manner that will not materially and adversely affect Landlord's access, use or occupancy of the Premises. If Landlord or Tenant ever has knowledge of the presence in the Premises or the Building or Land of hazardous or toxic materials which affect the Premises, the party having knowledge shall notify the other party thereof in writing promptly after obtaining such knowledge. For purposes of this Lease, hazardous or toxic materials shall mean asbestos containing materials ("ACM") and all other materials, substances, wastes and chemicals classified as hazardous or toxic substances, materials, wastes or chemicals under then-current applicable governmental laws, rules or regulations or that are subject to any right-to-know laws or requirements. (b) Prior to commence of any tenant finish work to be performed by Landlord, Tenant shall have the right to make such studies and investigations and conduct such tests and surveys of the Premises from an environmental standpoint as permitted under Rider H-2 attached hereto. If Tenant requests that Landlord commence construction of Tenant's Improvements prior to 7 exercising such right, Tenant shall be deemed to have waived the termination right set forth in Rider H-2. (c) If Tenant or its employees, agents or contractors shall ever violate the provisions of paragraph (a) of this subsection 4.102 or otherwise contaminate the Premises or the Property, then Tenant shall clean-up, remove and dispose of the material causing the violation, in compliance with all applicable governmental standards, laws, rules and regulations and then prevalent industry practice and standards and shall repair any damage to the Premises or Building within such period of time as may be reasonable under the circumstances after written notice by Landlord. Tenant shall notify Landlord of its method, time and procedure for any clean-up or removal and Landlord shall have the right to require reasonable changes in such method, time or procedure or to require the same to be done after normal business hours. Tenant's obligations under this subsection 4.102(c) shall survive the termination of this Lease. Tenant represents to Landlord that, except as has been disclosed to Landlord, Tenant has never been cited for or convicted of any hazardous or toxic materials violations under applicable laws, rules or regulations. SECTION 4.2 RULES AND REGULATIONS. Tenant will comply with such rules and regulations (the "Rules and Regulations") generally applying to tenants in the Building as may be adopted from time to time by Landlord for the management, safety, care and cleanliness of; and the preservation of good order and protection of property in, the Premises and the Building and at the Property. All such Rules and Regulations are hereby made a part hereof. The Rules and Regulations in effect on the date hereof are on file with the Property Manager. All changes and amendments to the Rules and Regulations sent by Landlord to Tenant in writing and conforming to the foregoing standards shall be carried out and observed by Tenant. Landlord hereby reserves all rights necessary to implement and enforce the Rules and Regulations and each and every provision of this Lease. Notwithstanding the foregoing, no amendment to the Rules and Regulations which materially decreases the benefits of the Lease Agreement to Tenant or increases its obligations hereunder shall be enforceable against Tenant. SECTION 4.3 ACCESS. Without being deemed guilty of an eviction of Tenant and without abatement of Rent, Landlord or its authorized agents shall have the right to enter the Premises at reasonable times and, upon reasonable notice, to inspect the Premises, to show the Premises to prospective lenders, purchasers or during the last nine (9) months of the term, tenants and to fulfill Landlord's obligations or exercise its rights under this Lease. Landlord shall exercise good faith reasonable efforts not to interfere with the operation of Tenant's business on the Premises. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises and any other loss occasioned thereby, unless caused by Landlord's gross negligence or willful misconduct. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock the doors to and within the Premises, excluding Tenant's vaults and safes. Landlord shall have the right to use any and all means which Landlord may deem proper to enter the Premises in an emergency without liability therefor unless caused by Landlord's gross negligence or willful misconduct. SECTION 4.4 QUIET POSSESSION. Provided Tenant timely pays Rent and observes and performs all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have the quiet possession of the Premises for the entire term hereof, subject to all of the provisions of this Lease and all laws and restrictive covenants to which the Property is subject. ARTICLE 5 UTILITIES AND SERVICES SECTION 5.1 SERVICES TO BE PROVIDED. Landlord agrees to furnish or cause to be furnished to the Premises, the utilities and services described in subsections 5.101 through 5.106 below, subject to all other provisions of this Lease. 5.101 Elevator Service. Except for holidays generally recognized by businesses, Landlord shall provide automatic elevator facilities on generally accepted business days from 7:00 a.m. to 7:00 p.m. and on Saturdays from 7:00 a.m. to 1:00 p.m. and have at least one (1) elevator available for use at all other times. 5.102 Heat and Air Conditioning. On generally accepted business days from 7:00 a.m. to 7:00 p.m. and on Saturdays (other than holidays generally recognized by businesses) from 7:00 a.m. to 1:00 p.m., Landlord shall ventilate the Premises and furnish heat or air conditioning, at such temperatures and in such amounts as is customary in buildings of comparable size, quality and in the general vicinity of the Building, with such adjustments as Landlord reasonably deems necessary for the comfortable occupancy of the Premises, subject to any governmental requirements, ordinances, rules, regulations, guidelines or standards relating to, among other things, energy conservation. Upon request, Landlord shall make available, at Tenant's expense, 8 after hours heat or air conditioning. After hours heat or air conditioning is currently billed at $25.00 per hour. The minimum charge and the hourly rate for the use of after hours heat or air conditioning shall be determined from time to time by Landlord and confirmed in writing to Tenant. 5.103 ELECTRICITY. Landlord shall furnish to the Premises electric current not in excess of that required by the office lighting and receptacles included in Tenant's Improvements, provided, however, Tenant shall be solely responsible for the costs of electrical consumption (without duplication) (i) by equipment which requires a voltage other than 120 volts single phase, (ii) in excess of that currently supplied to the Premises or (iii) by any single piece of equipment in excess of 0.5 kilowatts at rated capacity (such consumption is herein referred to as "Excess Consumption" and the costs of Excess Consumption are herein referred to as "Excess Consumption Costs"). Without in any way limiting Tenant's responsibility for Excess Consumption Costs, Tenant shall not (i) without the express prior written consent of Landlord, install or use or permit the installation or use of any computer or electronic data processing equipment or any other electrical equipment which (singly) consumes more than 0.5 kilowatts at rated capacity or requires a voltage other than 120 volts single phase or otherwise has high electrical consumption or (ii) use electric current in excess of the capacity of the feeders or lines to the Building or the risers or wiring installation of the Building or the Premises. Landlord may determine Excess Consumption by a survey performed by a reputable consultant or by an additional separate meter in the Premises. Tenant shall be responsible for (i) the cost of any such survey performed by Landlord and (ii), if Landlord installs a meter to measure Excess Consumption, all costs associated with such separate metering including, but not limited to the cost of installing, maintaining, repairing and reading the separate metering devices and subpanels. Notwithstanding the foregoing, Landlord acknowledges and agrees that Tenant will operate within the Premises computer terminals for software development and testing, telephone system, office copiers, facsimile machines, printers, standard kitchen appliances and portable cooling units. 5.104 WATER. Landlord shall furnish water for drinking, cleaning and lavatory purposes only. 5.105 JANITORIAL SERVICES. Landlord shall provide janitorial services to the Premises, as provided in Rider No. 6. 5.106 COMMON AREAS. Landlord shall perform routine maintenance in the Common Areas and all other common areas of the Project (hereinafter defined). SECTION 5.2 ADDITIONAL SERVICES. Landlord may impose a reasonable charge for any utilities and services, including without limitation, air conditioning, electrical current and water, provided by Landlord by reason of any use of the services at any time other than the hours set forth in subsection 5.102 above or beyond the levels or quantities that Landlord agrees herein to furnish or because of special electrical, cooling or ventilating needs created by Tenant's hybrid telephone equipment, computers or other equipment. SECTION 5.3 TENANTS OBLIGATION. Tenant agrees to cooperate fully at all times with Landlord and to abide by all regulations and requirements which Landlord reasonably prescribes for the use of the above utilities and services. Any failure to pay any excess costs as described in Section 5.2 above ten (10) days following demand by Landlord shall constitute a breach of the obligation to pay Rent under this Lease and shall entitle Landlord to the rights herein granted for such breach. SECTION 5.4 SERVICE INTERRUPTION. 5.401 SERVICE INTERRUPTION. Landlord shall not be liable for and, except as provided in subsection 5.402 below, Tenant shall not be entitled to any abatement or reduction of Rent by reason of: Landlord's failure to maintain temperature or electrical constancy levels or to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbance or labor dispute of any character, governmental regulation, moratorium or other governmental action, inability by exercise of reasonable diligence to obtain electricity, water or fuel, or by any other cause beyond Landlord's reasonable control (collectively, "Uncontrollable Events"), nor shall any such Uncontrollable Event or results or effects thereof be construed as an eviction (constructive or actual) of Tenant or as a breach of the implied warranty of suitability, or relieve Tenant from the obligation to perform any covenant or agreement herein and in no event shall Landlord be liable for damage to persons or property (including, without limitation, business interruption), or be in default hereunder, as a result of any such Uncontrollable Event or results or effects thereof. 5.402 LIMITED RIGHT TO ABATEMENT OF RENT. If any portion of the Premises becomes unfit for occupancy because Landlord fails to deliver any service as required under Section 5.1 above for 9 any period (other than a reconstruction period conducted pursuant to Section 7.1 or Article 8 below) exceeding five (5) consecutive days after written notice by Tenant to Landlord and provided such failure is not caused by Tenant, Tenant's Contractors or any of their respective agents or employees, Tenant shall be entitled to a fair partial abatement of Basic Annual Rent and Additional Rent for any such portion of the Premises from the failure of such service until such portion is again fit for occupancy until such service is restored. SECTION 5.5 MODIFICATIONS. Notwithstanding anything hereinabove to the contrary, Landlord reserves the right from time to time to make reasonable modifications to the above standards for utilities and services, but in no event shall services be below the standard for comparable buildings in the North Dallas/LBJ submarket. ARTICLE 6 MAINTENANCE, REPAIRS, ALTERATIONS AND IMPROVEMENTS SECTION 6.1 LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR. Landlord shall (subject to Section 7.1, Section 7.4, Article 8 below and Landlord's rights under Section 2.2 above and except for ordinary wear and tear) maintain exterior walls, roof and load bearing elements of the Building. Except for load bearing elements of the Building located within the Premises, Landlord shall not be required to maintain or repair any portion of the Premises. SECTION 6.2 TENANTS OBLIGATION TO MAINTAIN AND REPAIR. 6.201 TENANT'S OBLIGATIONS. Subject to Sections 6.1, 7.1 and 7.4 and Articles 5 and 8 of this Lease, Tenant shall, at Tenant's sole cost and expense, (i) maintain and keep the interior of the Premises (including, but not limited to, all fixtures, walls, ceilings, floors, doors, windows [except replacement of exterior plate glass unless the replacement is by reason of damage caused by Tenant], appliances and equipment which are a part of the Premises) in good repair and condition, (ii) repair or replace any damage or injury done to the Building or any other part of the Property caused by Tenant, Tenant's agents, employees, licensees, invitees or visitors or resulting from a breach of its obligations under this Section 6.2 and (iii) indemnify and hold Landlord harmless from any and all costs, expenses (including reasonable attorneys' fees), claims and causes of action arising from or incurred by and/or asserted in connection with such maintenance, repairs, replacements, damage or injury or Tenant's breach of its obligations under this subsection 6.201. All repairs and replacements performed by or on behalf of Tenant shall be performed in a good and workmanlike manner and in accordance with the standards applicable to alterations or improvements performed by Tenant. Tenant shall continue to pay Rent, without abatement, during any period that repairs or replacements are performed or required to be performed by Tenant under this Section 6.2. 6.202 RIGHTS OF LANDLORD. Landlord shall have the same rights with respect to repairs performed by Tenant as Landlord has with respect to improvements and alterations performed by Tenant under subsection 6.303 below. In the event Tenant fails, in the reasonable judgment of Landlord, to maintain the Premises in good order, condition and repair, or otherwise satisfy its repair and replacement obligations under subsection 6.201 above, AFTER FIVE (5) DAYS WRITTEN NOTICE, Landlord shall have the right to perform such maintenance, repairs and replacements at Tenant's expense. Tenant shall pay to Landlord on demand any such cost or expense incurred by Landlord, together with interest thereon at the rate specified in Section 15.10 below from the date of demand until paid. SECTION 6.3 IMPROVEMENTS AND ALTERATIONS. 6.301 LANDLORD'S CONSTRUCTION OBLIGATION. Landlord's sole construction obligation under this Lease is as set forth in the Work Letter attached hereto as Exhibit D. 6.302 ALTERATION OF BUILDING. Landlord hereby reserves the right and at all times shall have the right to repair, change, redecorate, alter, improve, modify, renovate, enclose or make additions to any part of the Property (including structural elements and load bearing elements within the Premises) and to enclose and/or change the arrangement and/or location of driveways or parking areas (SUBJECT TO SECTION 15.17) or landscaping or other Common Areas of the Property, all without being held guilty of an actual or constructive eviction of Tenant or breach of the implied warranty of suitability and without an abatement of Rent (the "Reserved Right"). Without in any way limiting the generality of the foregoing, Landlord's Reserved Right shall include, but not be limited to, the right to (i) construct scaffolding and other structures and perform all work and other activities associated with such changes, alterations, improvements, modifications, renovations and/or additions, (ii) repair, change, renovate, remodel, alter, improve, modify or make additions to the arrangement, appearance, location and/or size of entrances or passageways, doors and doorways, corridors, elevators, elevator lobbies, stairs, toilets or other Common Areas or Service Areas, (iii) temporarily close any Common Area and/or temporarily 10 suspend Building services and facilities in connection with any repairs, changes, alterations, modifications, renovations or additions to any part of the Building, (iv) repair, change, alter or improve plumbing, pipes and conduits located in the Building, including without limitation, those located within the Premises, the Common Areas, the Service Corridors or the Service Areas (hereinafter defined) of the Building and (v) repair, change, modify, alter, improve, renovate or make additions to the Building central heating, ventilation, air conditioning, electrical, mechanical or plumbing systems. When exercising the Reserved Right, Landlord will interfere with Tenant's use and occupancy of the Premises as little as is reasonably practicable. 6.303 ALTERATIONS, ADDITIONS, IMPROVEMENTS AND INSTALLATIONS BY TENANT. Tenant shall not, without the prior written consent of Landlord, make any changes, modifications, alterations, additions or improvements (other than Tenant's Improvements under the Work Letter) to, or install any equipment or machinery (other than office equipment and unattached personal property) on, the Premises (all such changes, modifications, alterations, additions, improvements (other than Tenant's Improvements under the Work Letter) and installations approved by Landlord are herein collectively referred to as "Installations") if any such Installations would (i) affect structural or load bearing portions of the Premises, (ii) result in a material increase of electrical usage above the normal type and amount of electrical current to be provided by Landlord, (iii) result in A MATERIAL increase in Tenant's usage of heating or air conditioning, (iv) MATERIALLY IMPACT mechanical, electrical or plumbing systems in the Premises or the Building, (v) materially affect areas of the Premises which can be viewed from Common Areas, (vi) require materially greater or more difficult cleaning work (e.g., kitchens, reproduction rooms and interior glass partitions) or (vii) violate any provision in Article 4 above or Rider H-1 or Rider H-2 attached hereto. As to Installations not covered by the preceding sentence, Tenant will not perform same without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. All Installations shall be at Tenant's sole cost and expense. Without in any way limiting Landlord's consent rights, Landlord shall not be required to give its consent until (a) Landlord approves the contractor or person making such Installations and approves such contractor's insurance coverage to be provided in connection with the work, (b) Landlord approves final and complete plans and specifications for the work and (c) the appropriate governmental agency, if any, has approved the plans and specifications for such work. All work performed by Tenant or its contractor relating to the Installations shall conform to applicable governmental laws, rules and regulations, including, without limitation, the Disability Acts. Upon completion of the Installations, Tenant shall deliver to Landlord "as built" plans. If Landlord performs such Installations AT TENANT'S REQUEST, Tenant shall pay Landlord, as additional Rent, the cost thereof plus fifteen percent (15%) as reimbursement for Landlord's overhead. Each payment shall be made to Landlord within ten (10) days after receipt of an invoice from Landlord. All Installations that constitute improvements constructed within the Premises shall be surrendered with the Premises at the expiration or earlier termination of this Lease, unless Landlord requests that same be removed pursuant to Section 1.3 above. Tenant shall indemnify and hold harmless from any and all costs, expenses (including reasonable attorneys' fees), demands, claims, causes of action and liens arising from or in connection with any Installations performed by or on behalf of Tenant. All Installations performed by or on behalf of Tenant will be performed diligently and in a first-class workmanship manner and in compliance with all applicable laws, ordinances, regulations and rules of any public authority having jurisdiction over the Building and/or Tenant's and Landlord's insurance carriers. Landlord will have the right, but not the obligation, to inspect periodically the work on the Premises and may reasonably require changes in the method or quality of the work. 6.304 APPROVALS. Any approval by Landlord (or Landlord's architect and/or engineers) of any of Tenant's contractors or Tenant's drawings, plans or specifications which are prepared in connection with any construction of improvements (including without limitation, Tenant's Improvements) in the Premises shall not in any way be construed as or constitute a representation or warranty of Landlord as to the abilities of the contractor or the adequacy or sufficiency of such drawings, plans or specifications or the improvements to which they relate, for any use, purpose or condition. ARTICLE 7 INSURANCE, FIRE AND CASUALTY SECTION 6.1 TOTAL OR PARTIAL DESTRUCTION OF THE BUILDING OR THE PREMISES. In the event that the Building should be totally destroyed by fire or other casualty or in the event the Building (or any portion thereof) should be so damaged that rebuilding or repairs cannot be completed, in Landlord's reasonable opinion, within one hundred eighty (180) days after the date of such damage, Landlord may, at its option, terminate this Lease, in which event Basic Annual Rent and Additional Rent shall be abated during the unexpired portion of this Lease effective with the date of such damage. Landlord shall exercise the termination right pursuant to the preceding sentence, if at all, by delivering written notice of termination to Tenant within ten (10) days after determining that the repairs cannot be completed within such one hundred eighty (180) day period. In the event that the Premises should 11 be so damaged by fire or other casualty that rebuilding or repairs cannot be completed, in Landlord's reasonable opinion, within one hundred eighty (180) days after the date of such damage, Tenant may, at its option terminate this Lease, in which event Basic Annual Rent and Additional Rent shall be abated during the unexpired portion of this Lease, effective the date of such damage. Tenant shall exercise the termination right pursuant to the preceding sentence, if at all, by delivering written notice of termination to Landlord within fifteen (15) days after being advised by Landlord that the repairs cannot be completed within such one hundred eighty (180) day period. In the event the Building or the Premises should be damaged by fire or other casualty and, in Landlord's reasonable opinion, the rebuilding or repairs can be completed within one hundred eighty (180) days after the date of such damage, or if the damage should be more serious but neither Landlord nor Tenant elect to terminate this Lease pursuant to this Section, in either such event Landlord shall, within (60) days after the date of such damage, commence to rebuild or repair the Building and the Premises (including Tenant's Improvements, but only to the extent of insurance proceeds actually received by Landlord for the repair of Tenant's Improvements), and shall pursue with reasonable diligence the repair and restoration of the Building and the Premises to substantially the same condition which existed immediately prior to the happening of the casualty, except that Landlord shall not be required to rebuild, repair or replace any part of the furniture, equipment, fixtures, inventory, supplies or any other personalty or any other improvements (except Tenant's Improvements, but only to the extent of insurance proceeds actually received by Landlord for the repair of Tenant's Improvements) which may have been placed by Tenant or other tenants within the Building or at the Premises. Landlord shall allow Tenant a fair diminution of Basic Annual Rent and Additional Rent during the time the Premises are unfit for occupancy; provided, that if such casualty was caused by Tenant, its agents, employees, licensees or invitees, Basic Annual Rent and Additional Rent shall be abated only to the extent Landlord is compensated for such Basic Annual Rent and Additional Rent by loss of rents insurance, if any. Notwithstanding Landlord's restoration obligation, in the event any mortgagee under a deed of trust, security agreement or mortgage on the Building should require that the insurance proceeds be used to retire or reduce the mortgage debt or if the insurance company issuing Landlord's fire and casualty insurance policy fails or refuses to pay Landlord the proceeds under such policy, Landlord shall have no obligation to rebuild and this Lease shall terminate upon notice by Landlord to Tenant. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Building or to the Premises shall be for the sole benefit of the party carrying such insurance and under its sole control. SECTION 7.2 TENANT'S INSURANCE. 7.201 TYPES OF COVERAGE. Tenant covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Tenant will carry and maintain, at its sole cost and expense, the insurance set forth in paragraphs (a), (b), (c) and (d) of this subsection. (a) PUBLIC LIABILITY INSURANCE. General Comprehensive Public Liability Insurance covering the Premises and Tenant's use thereof against claims for personal or bodily injury or death or property damage occurring upon, in or about the Premises (including contractual indemnity and liability coverage), such insurance to insure both Tenant and, as additional named insureds, Landlord and its subsidiaries, directors, agents and employees and the Property Manager, and to afford protection to the limit of not less than $1,000,000.00, combined single limit, in respect to injury or death to any number of persons and all property damage arising out of any one (1) occurrence, with a deductible acceptable to Landlord. If the Agreed Rentable Area of the Premises is more than 30,000 square feet, then, in addition to and not in lieu of the above stated coverage, Tenant shall carry umbrella or so called excess coverage in an amount not less than $1,000,000.00 over Tenant's base coverage amount. This insurance coverage shall extend to any liability of Tenant arising out of the indemnities provided for in this Lease. (b) PROPERTY INSURANCE. Property insurance on an all-risk extended coverage basis (including coverage against fire, wind, tornado, vandalism, malicious mischief, water damage and sprinkler leakage) covering all fixtures, equipment and personalty located in the Premises, in an amount not less than one hundred percent (100%) of full replacement cost thereof. Such policy will be written in the names of Tenant, Landlord and any other parties reasonably designated by Landlord from time to time, as their respective interests may appear. The property insurance may, with the consent of the Landlord, provide for a reasonable deductible. (c) WORKERS COMPENSATION INSURANCE. Worker's compensation insurance insuring against and satisfying Tenant's obligations and liabilities under the worker's compensation laws of the State of Texas. (d) EMPLOYERS LIABILITY INSURANCE. Employer's liability insurance in an amount not less than $1,000,000.00. 7.202 OTHER REQUIREMENTS OF INSURANCE. All such insurance will be issued and underwritten by companies reasonably acceptable to Landlord and will contain endorsements that (a) such insurance may not lapse with respect to Landlord or Property Manager or be canceled or amended with respect to Landlord or Property Manager without the insurance company giving Landlord and Property Manager at least thirty (30) days prior written notice of such cancellation 12 or amendment, (b) Tenant will be solely responsible for payment of premiums, (c) in the event of payment of any loss covered by such policy, Landlord or Landlord's designees will be paid first by the insurance company for Landlord's loss and (d) Tenant's insurance is primary in the event of overlapping coverage which may be carried by Landlord. 7.203 PROOF OF INSURANCE. Tenant shall deliver to Landlord duplicate originals of all policies of insurance required by this Section 7.2 or duly executed originals of the certificates of such insurance evidencing in-force coverage, within ten (10) days prior to the commencement of construction of Tenant's Improvements. Further, Tenant shall deliver to Landlord renewals thereof at least thirty (30) days prior to the expiration of the respective policy terms. SECTION 7.3 LANDLORD'S INSURANCE. 7.301 TYPES OF COVERAGE. Landlord covenants and agrees that from and after the date of delivery of the Premises from Landlord to Tenant, Landlord will carry and maintain, at its sole cost and expense, the insurance set forth in paragraphs (a) and (b) of this subsection. (a) PUBLIC LIABILITY INSURANCE. General Comprehensive Public Liability Insurance covering the Building and all Common Areas, but excluding the Premises, insuring against claims for personal or bodily injury or death or property damage occurring upon, in or about the Building or Common Areas to afford protection to the limit of not less than $2,000,000.00 combined single limit in respect to injury or death to any number of persons and property damage arising out of any one (1) occurrence. This insurance coverage shall extend to any liability of Landlord arising out of the indemnities provided for in this Lease. (b) FIRE AND EXTENDED COVERAGE INSURANCE. Landlord shall at all times during the term hereof maintain in effect a policy or policies of fire and extended coverage insurance covering the Building (excluding property required to be insured by Tenant) in such amounts as Landlord may from time to time determine, providing protection against perils included within the standard Texas form of fire and extended coverage insurance policy, together with insurance against sprinkler damage, vandalism, malicious mischief and such other risks as Landlord may from time to time determine and with any such deductibles as Landlord may from time to time determine. 7.302 SELF INSURANCE. Any insurance provided for in subsection 7.301 above may be effected by self-insurance or by a policy or policies of blanket insurance covering additional items or locations or assureds, provided that the requirements of this Section 7.3 are otherwise satisfied. Tenant shall have no rights in any policy or policies maintained by Landlord. SECTION 7.4 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any rights it may have against the other (including, but not limited to, a direct action for damages) on account of any loss or damage occasioned to Landlord or Tenant, as the case may be (whether or not such loss or damage is caused by the fault, negligence or other tortious conduct, acts or omissions of Landlord or Tenant or their respective officers, directors, employees, agents or invitees), to their respective property, the Premises, its contents or to any other portion of the Building or the Property arising from any risk covered by the current Texas State Board of Insurance promulgated form of property insurance and fire and extended coverage insurance required to be carried by Tenant and Landlord, respectively, under subsections 7.201(b) and 7.301(b) above. If a party waiving rights under this Section is carrying a fire and extended coverage insurance policy in the promulgated form used in the State of Texas and an amendment to such promulgated form is passed, such amendment shall be deemed not a part of such promulgated form until it applies to the policy being carried by the waiving party. Without in any way limiting the foregoing waivers and to the extent permitted by applicable law, the parties hereto each, on behalf of their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, waive any right of subrogation that Landlord or Tenant or their respective insurers may have against the other party or their respective officers, directors, employees, agents or invitees and all rights of their respective insurance companies based upon an assignment from its insured. Each party to this Lease agrees immediately to give to each such insurance company written notification of the terms of the mutual waivers contained in this Section and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers. The foregoing waiver shall be effective whether or not the parties maintain the required insurance. SECTION 7.5 INDEMNITY. 7.501 TENANT'S INDEMNITY. Tenant will indemnify and hold Landlord, Property Manager and their respective officers, directors, employees and agents harmless from all claims, demands, actions, damages, loss, liabilities, judgments, costs and expenses, including without limitation, attorney's fees and court costs (each a "Claim" and collectively the "Claims") which (i) are suffered by, recovered from or asserted against Landlord, (ii) are not paid by insurance carried by Tenant or Landlord (without in any way affecting the requirements of or Landlord's rights under 13 subsection 7.202[d] above) and (iii) arise from or in connection with (a) the use or occupancy of the Premises by Tenant and/or any accident, injury or damage occurring in or at the Premises or (b) any breach by Tenant of any representation or covenant in this Lease; provided, however, such indemnification of Landlord by Tenant shall not include any Claim waived by Landlord under Section 7.4 above, any Claim to the extent caused by the negligence, gross negligence or willful misconduct of Landlord or any Claim relating to hazardous or toxic materials except to the extent such Claim arises out of a breach by Tenant of any of the provisions of subsection 4.102 above, or Rider H-1 or Rider H-2 attached hereto. 7.502 LANDLORD INDEMNITY. Landlord will indemnify and hold Tenant and its officers, directors, employees and agents harmless from all Claims which are suffered by, recovered from or asserted against Tenant and which are not paid by proceeds of insurance carried by Landlord or Tenant and which arise from or in connection with (a) the use of the Common Areas and/or any accident, injury or damage occurring in or on the Common Areas or (b) any breach by Landlord of any representations or covenant in this Lease; provided, however, such indemnification of Tenant by Landlord shall not include any Claim waived by Tenant under Section 7.4 above, any Claim to the extent caused by the negligence, gross negligence or willful misconduct of Tenant or any Claim relating to hazardous or toxic materials except to the extent such Claim arises out of a breach by Landlord of any of the provisions of subsection 4.102 above or Rider H-1 or Rider H-2 attached hereto. ARTICLE 8 CONDEMNATION SECTION 8.1 CONDEMNATION RESULTING IN CONTINUED USE NOT FEASIBLE. If the Property or any portion thereof that, in Landlord's reasonable opinion, is necessary to the continued efficient and/or economically feasible use of the Property shall be taken or condemned in whole or in part for public purpose, or sold to a condemning authority in lieu of taking, then the term of this Lease shall, at the option of Landlord, forthwith cease and terminate. SECTION 8.2 TOTAL CONDEMNATION OF PREMISES. In the event that all or substantially all of the Premises is taken or condemned or sold in lieu thereof or Tenant will be unable to use a substantial portion of the Premises for a period of one hundred eighty (180) consecutive days by reason of a temporary taking, either Landlord or Tenant may terminate this Lease by delivering written notice thereof to the other within ten (10) business days after the taking, condemnation or sale in lieu thereof. SECTION 8.3 CONDEMNATION WITHOUT TERMINATION. If upon a taking or condemnation or sale in lieu of the taking of all or less than all of the Property which gives either Landlord or Tenant the right to terminate this Lease pursuant to Section 8.1 or 8.2 above and neither Landlord nor Tenant elect to exercise such termination right, then this Lease shall continue in full force and effect, provided that, if the taking, condemnation or sale includes any portion of the Premises, the Basic Annual Rent and Additional Rent shall be redetermined on the basis of the remaining square feet of Agreed Rentable Area of the Premises. Landlord, at Landlord's sole option and expense, shall restore and reconstruct the Building to substantially its former condition to the extent that the same may be reasonably feasible, but such work shall not be required to exceed the scope of the work done by Landlord in originally constructing the Building, nor shall Landlord in any event be required to spend for such work an amount in excess of the amount received by Landlord as compensation or damages (over and above amounts going to the mortgagee of the property taken) for the part of the Building or the Premises so taken. SECTION 8.4 CONDEMNATION PROCEEDS. Landlord shall receive the entire award (which shall include sales proceeds) payable as a result of a condemnation, taking or sale in lieu thereof of the Premises. Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in and to any such award with respect to the Premises but not Tenant's tangible property. Tenant shall, however, have the right to recover from such authority through a separate award which does not reduce Landlord's award, any compensation as may be awarded to Tenant on account of moving and relocation expenses and depreciation to and removal of Tenant's physical property and Tenant Improvements in excess of the Finish Allowance. ARTICLE 9 LIENS Tenant shall keep the Premises free from all liens arising out of any work performed, materials furnished or obligations incurred by or for Tenant and Tenant shall indemnify and hold Landlord harmless from any and all claims, causes of action, damages, expenses (including reasonable attorney's fees), arising from or in connection with any such liens. In the event that Tenant shall not, within twenty (20) days following notification to Tenant of the imposition of any such lien, cause the same to be released of record by payment or the posting of a bond in amount, form and substance acceptable to Landlord, Landlord shall have, in addition to all other remedies provided herein and by law, the right but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of or defense against the claim giving rise to such lien. All amounts paid or incurred by Landlord in connection therewith shall be paid by Tenant to Landlord on demand and shall bear interest from the date of demand until paid at the rate set forth in Section 15.10 below. Nothing in this Lease shall be deemed or construed in any way 14 as constituting the consent or request of Landlord, express or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration or repair of or to the Building or the Premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanic's or other liens against the interest of Landlord in the Property or the Premises. ARTICLE 10 TAXES ON TENANT'S PROPERTY Tenant shall be liable for and shall pay, prior to their becoming delinquent, any and all taxes and assessments levied against, and any increases in Real Estate Taxes as a result of; any personal property or trade or other fixtures placed by Tenant in or about the Premises and any improvements (other than Tenant's Improvements) constructed in the Premises by or on behalf of Tenant. In the event Landlord pays any such addition taxes or increases, Tenant will, within ten (10) days after demand, reimburse Landlord for the amount thereof. ARTICLE 11 SUBLETTING AND ASSIGNING SECTION 11.1 SUBLEASE AND ASSIGNMENT. Tenant shall not assign this Lease, or allow it to be assigned, in whole or in part, by operation of law or otherwise or mortgage or pledge the same, or sublet the Premises or any part thereof or permit the Premises to be occupied by any firm, person, partnership or corporation or any combination thereof, other than Tenant, without the prior written consent of Landlord, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD. In no event shall any assignment or sublease ever release Tenant from any obligation or liability hereunder. No assignee or sublessee of the Premises or any portion thereof may assign or sublet the Premises or any portion thereof. Consent by Landlord to one or more assignments or sublettings shall not operate as a waiver of Landlord's right as to any subsequent assignments and/or sublettings. All reasonable legal fees and expenses incurred by Landlord in connection with any assignment or sublease proposed by Tenant will be the responsibility of Tenant and will be paid by Tenant within five (5) days of receipt of an invoice from Landlord. SECTION 11.2 LANDLORD'S RIGHTS RELATING TO ASSIGNEE OR SUBTENANT. If this Lease or any part hereof is assigned or the Premises or any Premises thereof are sublet, Landlord may at its option collect directly from such assignee or sublessee all rents becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord by Tenant hereunder. Tenant hereby authorizes and directs any such assignee or sublessee to make such payments of rent direct to Landlord upon receipt of notice from Landlord and Tenant agrees that any such payments made by an assignee or sublessee to Landlord shall, to the extent of the payments so made, be a full and complete release and discharge of rent owed to Tenant by such assignee or sublessee. No direct collection by Landlord from any such assignee or sublessee shall be construed to constitute a novation or a release of Tenant or any guarantor of Tenant from the further performance of its obligations hereunder. Receipt by Landlord of rent from any assignee, sublessee or occupant of the Premises or any part thereof shall not be deemed a waiver of the above covenant in this Lease against assignment and subletting or a release of Tenant under this Lease. In the event that, following an assignment or subletting, this Lease or the rights and obligations of Tenant hereunder are terminated for any reason, including without limitation in connection with default by or bankruptcy of Tenant (which, for the purposes of this Section 11.2, shall include all persons or entities claiming by or through Tenant), Landlord may, at its sole option, consider this Lease to be thereafter a direct lease to the assignee or subtenant of Tenant upon the terms and conditions contained in this Lease. ARTICLE 12 TRANSFERS BY LANDLORD, SUBORDINATION AND TENANT'S ESTOPPEL CERTIFICATE SECTION 12.1 SALE OF THE PROPERTY. In the event of a sale of conveyance by Landlord of the Property, the same shall operate to release Landlord from any and all liability under this Lease arising after the date of such sale, PROVIDED THE PURCHASE IS A FULLY CAPITALIZED, ONGOING BONA FIDE BUSINESS ENTITY, WHICH IN WRITING ASSUMES ALL OBLIGATIONS OF LANDLORD HEREUNDER INCLUDING WITHOUT LIMITATION ALL OBLIGATIONS REGARDING THE SECURITY DEPOSIT. SECTION 12.2 SUBORDINATION, ATTORNMENT AND NOTICE. This Lease is subject and subordinate to (i) any lease wherein Landlord is the tenant and to the liens of any and all mortgages and deeds of trust, regardless of whether such lease, mortgage or deed of trust now exists or may hereafter be created with regard to all or any part 15 of the Property, (ii) any and all advances (including interest thereon) to be made under any such lease, mortgage or deed of trust and (iii) all modifications, consolidations, renewals, replacements and extensions of any such lease, mortgage or deed of trust; provided that the foregoing subordination in respect of any mortgage or deed of trust placed on the Property after the date hereof shall not become effective until and unless the holder of such mortgage or deed of trust delivers to Tenant a non-disturbance agreement (which may include Tenant's agreement to attorn as set forth below) permitting Tenant, if Tenant is not then in default under, or in breach of any provision of, this Lease, to remain in occupancy of the Premises in the event of a foreclosure of any such mortgage or deed of trust UPON THE TERMS AND CONDITIONS HEREIN CONTAINED. Tenant also agrees that any lessor, mortgagee or trustee may elect (which election shall be revocable) to have this Lease superior to any lease or lien of its mortgage or deed of trust and, in the event of such election and upon notification by such lessor, mortgagee or trustee to Tenant to that effect, this Lease shall be deemed superior to the said lease, mortgage or deed of trust, whether this Lease is dated prior to or subsequent to the date of said lease, mortgage or deed of trust. Subject to the foregoing, Tenant shall, in the event of the sale or assignment of Landlord's interest in the Premises (except in a sale-leaseback financing transaction), or in the event of the termination of any lease in a sale-leaseback financing transaction wherein Landlord is the lessee, attorn to and recognize such purchaser, assignee or mortgagee as Landlord under this Lease. Tenant shall, in the event of any proceedings brought for the foreclosure of, or in the event of the exercise of the power of sale under, any mortgage or deed of trust covering the Premises, attorn to and recognize purchaser at such sale, assignee or mortgagee, as the case may be, as Landlord under this Lease. The above subordination and attornment clauses shall be self-operative (subject to the proviso herein contained) and no further instruments of subordination or attornment need be required by any mortgagee, trustee, lessor, purchaser or assignee. In confirmation thereof, Tenant agrees that, upon the request of Landlord, or any such lessor, mortgagee, trustee, purchaser or assignee, Tenant shall execute and deliver whatever instruments may be required for such purposes and to carry out the intent of this Section 12.2. LANDLORD ACKNOWLEDGES TO TENANT, THAT AS OF THE DATE OF THIS LEASE AND AS OF THE COMMENCEMENT DATE, THE PROPERTY, OR ANY PART THEREOF, SHALL BE SUBJECT TO NO GROUND LEASE, MORTGAGE, OR DEED OF TRUST. SECTION 12.3 TENANTS ESTOPPEL CERTIFICATE. Tenant shall, upon the request of Landlord or any mortgagee of Landlord, without additional consideration, deliver an estoppel certificate, consisting of reasonable statements required by Landlord, any mortgagee or purchaser of any interest in the Property, which statements may include but shall not be limited to the following: this Lease is in full force and effect, with rental paid through _________________; this Lease has not been modified or amended; and Landlord is not in default and Landlord has fully performed all of Landlord's obligations hereunder. If Tenant is unable to make any of the statements contained in the estoppel certificate because the same is untrue, Tenant shall with specificity state the reason why such statement is untrue. Tenant shall, if requested by Landlord or any such mortgagee, deliver to Landlord a fully executed instrument in form reasonably satisfactory to Landlord evidencing the agreement of Tenant to the mortgage or other hypothecation by Landlord of the interest of Landlord hereunder. ARTICLE 13 DEFAULT SECTION 13.1 DEFAULTS BY TENANT. The occurrence of any of the events described in subsections 13.101 through 13.108 shall constitute a default by Tenant under this Lease. 13.101 FAILURE TO PAY RENT. With respect to the first two payments of Rent not made by Tenant when due in any twelve (12) month period, the failure by Tenant to make either such payment to Landlord within three (3) business days after Tenant receives written notice specifying that the Payment was not made when due. With respect to any other payment of Rent, the failure by Tenant to make such payment of Rent to Landlord when due, no notice of any such failure being required. 13.102 FAILURE TO PERFORM. Except for a failure covered by subsection 13.101 above or 13.103 below, any failure by Tenant to observe and perform any provision of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice to Tenant, provided that if such failure cannot be cured within said thirty (30) day period, Tenant shall not be in default hereunder so long as Tenant commences curative action within such thirty (30) day period, diligently and continuously pursues the curative action and fully and completely cures the failure within sixty (60) days after such written notice to Tenant. 13.103 CONTINUAL FAILURE TO PERFORM. The third failure by Tenant in any twelve (12) month period to perform and observe a particular provision of this Lease to be observed or performed by Tenant (other than the failure to pay Rent, which in all instances will be covered by subsection 13.101 above), no notice being required for any such third failure. 13.104 BANKRUPTCY, INSOLVENCY, ETC. Tenant (i) cannot meet its obligations as they become due, (ii) becomes or is declared insolvent according to any law, (iii) makes a transfer in fraud of creditors according to any applicable law, (iv) assigns or conveys all or a substantial portion of its property for the benefit or creditors or (v) Tenant files a petition for relief under the Federal Bankruptcy Code or any other present or future federal or state insolvency, bankruptcy or similar law (collectively, "applicable bankruptcy law"); a receiver or 16 trustee is appointed for Tenant or its property; the interest of Tenant under this Lease is levied on under execution or under other legal process; any involuntary petition is filed against Tenant under applicable bankruptcy law; or any action is taken to reorganize or modify Tenant's capital structure if either Tenant be a corporation or other entity (provided that no such levy, execution, legal process or petition filed against Tenant shall constitute a breach of this Lease if Tenant shall vigorously contest the same by appropriate proceedings and shall remove or vacate the same within ninety (90) days from the date of its creation, service or filing). 13.105 ABANDONMENT. The abandonment of the Premises by Tenant. 13.106 VACATION. The vacating of the Premises by Tenant, which shall be conclusively presumed if Tenant is absent from the Premises for ten (10) consecutive days (OTHER THAN DURING A PERIOD THE PREMISES ARE UNFIT FOR OCCUPANCY) or more if Tenant shall fail to move into or take possession of the Premises within ten (10) days after the date on which Rent is to commence under the terms of this Lease. 13.107 LOSS OF RIGHT TO DO BUSINESS. If Tenant is a corporation or limited partnership, Tenant fails to maintain its right to do business in the State of Texas or fails to pay any applicable annual franchise taxes as and when same become finally due and payable. 13.108 DISSOLUTION OR LIQUIDATION. If Tenant is a corporation or partnership, Tenant dissolves or liquidates or otherwise fails to maintain its corporate or partnership structure, as applicable. With respect to the defaults described in subsections 13.103 through 13.108, Landlord shall not be obligated to give Tenant notices of default and Tenant shall have no right to cure such defaults. SECTION 13.2 REMEDIES OF LANDLORD. Upon the occurrence of any default by Tenant specified in Section 13.1 above, Landlord, at its option, may in addition to all other rights and remedies provided herein or at law or in equity, exercise one or more of the remedies set forth in subsections 13.201, 13.202 or 13.203 below. 13.201 TERMINATION OF THE LEASE. Upon the occurrence of a default by Tenant hereunder, Landlord may, without judicial process, terminate this Lease by giving written notice thereof to Tenant (whereupon all obligations and liabilities of Landlord hereunder shall terminate) and, without further notice and without liability, repossess the Premises. Landlord shall be entitled to recover all loss and damage Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise, including without limitation, the following (without duplication of any element of damages): (a) accrued Rent to the date of termination and Late Charges, plus interest thereon at the rate established under Section 15.10 below from the date due through the date paid or date of any judgment or award by any court of competent jurisdiction, the unamortized cost of Tenant's Improvements, brokers' fees and commissions, attorneys' fees, moving allowances and any other costs incurred by Landlord in connection with making or executing this Lease, the cost of recovering the Premises and the costs of reletting the Premises (including, without limitation, advertising costs, brokerage fees, leasing commissions, reasonable attorneys' fees and refurbishing costs and other costs in readying the Premises for a new tenant); (b) the Present value of the Rent (discounted at a rate of interest equal to eight Percent [8%] per annum [the "Discount Rate]) that would have accrued under this Lease for the balance of the Lease term but for such termination, reduced by the reasonable fair market rental value of the Premises for such balance of the Lease term (determined from the present value of the actual base rents, discounted at the Discount Rate, received and to be received from Landlord's reletting of the Premises or, if the Premises are not relet, the base rents, discounted at the Discount Rate, that would be received from a comparable lease and comparable tenant for a comparable term and taking into account among other things, the condition of the Premises, market conditions and the period of time the Premises may reasonably remain vacant before Landlord is able to re-lease the same to a suitable replacement tenant, it being agreed that Landlord shall have no obligation to relet or attempt to relet the Premises); (c) plus any other costs or amounts necessary to compensate Landlord for its damages. 13.202 REPOSSESSION AND RE-ENTRY. Upon the occurrence of a default by Tenant hereunder, Landlord may, without judicial process, immediately terminate Tenant's right of possession of the Premises (whereupon all obligations and liability of Landlord hereunder shall terminate), but not terminate this Lease, and, without notice, demand or liability, enter upon the Premises or any part thereof, take absolute possession of the same, expel or remove Tenant and any other person or entity who may be occupying the Premises and change the locks. If Landlord terminates Tenant's possession of the Premises under this subsection 13.202, (i) Landlord shall have no 17 obligation whatsoever to tender to Tenant a key for new locks installed in the Premises, (ii) Tenant shall have no further right to possession of the Premises and (iii) Landlord shall have no obligation whatsoever to relet or attempt to relet the Premises. Landlord may, however, at its sole option relet the Premises or any part thereof for such terms and such rents as Landlord may in its sole discretion elect. If Landlord elects to relet the Premises, rent received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord (in such order as Landlord shall designate), second, to the payment of any cost of such reletting, including, without limitation, refurbishing costs, reasonable attorneys' fees, advertising costs, brokerage fees and leasing commissions and third, to the payment of Rent due and unpaid hereunder (in such order as Landlord shall designate), and Tenant shall satisfy and pay to Landlord any deficiency upon demand therefor from time to time. Landlord shall not be responsible or liable for any failure to relet the Premises or any part thereof or for any failure to collect any rent due upon any such reletting. No such re-entry or taking of possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such termination is given to Tenant pursuant to subsection 13.201 above. If Landlord relets the Premises, either before or after the termination of this Lease, all such rentals received from such lease shall be and remain the exclusive property of Landlord and Tenant shall not be, at any time, entitled to recover any such rental. Landlord may at any time after a reletting elect to terminate this Lease. 13.203 CURE OF DEFAULT. Landlord may, without judicial process, enter upon the Premises, without having any liability therefor and do whatever Tenant is obligated to do under the terms of this Lease and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise. 13.204 CONTINUING OBLIGATIONS. No repossession of or re-entering upon the Premises or any part thereof pursuant to subsection 13.202 or 13.203 above or otherwise and no reletting of the Premises or any part thereof pursuant to subsection 13.202 above shall relieve Tenant of its liabilities and obligations hereunder, all of which shall survive such repossession or re-entering. In the event of any such repossession of or re-entering upon the Premises or any party thereof by reason of the occurrence of a default, Tenant will continue to pay to Landlord Rent required to be paid by Tenant. 13.205 CUMULATIVE REMEDIES. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy and each and every right and remedy shall be cumulative and in addition to any other right or remedy given hereunder or now or hereafter existing at law or in equity or by statute. In addition to the other remedies provided in this Lease, Landlord shall be entitled, to the extent permitted by applicable law, to injunctive relief in case of the violation, or attempted or threatened violation, of any of the covenants, agreements, conditions or provisions of this Lease, or to a decree compelling performance of any of the covenants, agreements, conditions or provisions of this Lease, or to any other remedy allowed to Landlord at law or in equity. SECTION 13.3 DEFAULTS BY LANDLORD. EXCEPT AS SET FORTH IN SECTION 5.4, Landlord shall be in default under this Lease if Landlord fails to perform any of its obligations hereunder and said failure continues for a period of thirty (30) days after Tenant delivers written notice thereof to Landlord (to each of the addresses required by this Section) and each mortgagee who has a lien against any portion of the Property and whose name and address has been provided to Tenant, provided that if such failure cannot reasonably be cured within said thirty (30) day period, Landlord shall not be in default hereunder if the curative action is commenced within said thirty (30) day period and is thereafter diligently pursued until cured. EXCEPT AS SET FORTH IN SECTION 5.4, in no event shall (i) Tenant claim a constructive or actual eviction or that the Premises have become unsuitable hereunder or (ii) a constructive or actual eviction or breach of the implied warranty of suitability be deemed to have occurred under this Lease, prior to the expiration of the notice and cure periods provided under this Section 13.3. Any notice of a failure to perform by Landlord shall be sent to Landlord at the addresses and to the attention of the parties set forth in the Basic Lease Provisions. Any notice of a failure to perform by Landlord not sent to Landlord at all addresses and/or to the attention of all parties required under this Section and to each mortgagee who is entitled to notice or not sent in compliance with Article 14 below shall be of no force or effect. SECTION 13.4 LANDLORD'S LIABILITY. 13.401 TENANT'S RIGHT IN RESPECT OF LANDLORD DEFAULT. Tenant is granted no contractual right of termination by this Lease, except to the extent and only to the extent set forth in Sections 5.4, 7.1, 8.2 and 12.2 above and Rider H-2 attached hereto. IN THE EVENT THAT LANDLORD COMMITS A DEFAULT HEREUNDER, TENANT MAY PURSUE ANY REMEDIES AVAILABLE TO TENANT AT LAW OR IN EQUITY; PROVIDED, HOWEVER, LANDLORD'S LIABILITY HEREUNDER SHALL BE LIMITED AS PROVIDED IN SECTION 13.402 HEREOF. If Tenant shall recover a money judgment against Landlord, such 18 judgment shall be satisfied only out of the right, title and interest of Landlord in the Property as the same may then be encumbered and Landlord shall not be liable for and deficiency. If Landlord is found to be in default hereunder by reason of its failure to give a consent that it is required to give hereunder, Tenant's sole remedy will be an action for specific performance or injunction. The foregoing sentence shall in no event be construed as mandatorily requiring Landlord to give consents under this Lease. In no event shall Landlord be liable to Tenant for consequential or special damages by reason of a failure to perform (or a default) by Landlord hereunder or otherwise. In no event shall Tenant have any right to levy execution against any property of Landlord other than its interest in the Property as hereinbefore expressly provided. NOTWITHSTANDING THE FOREGOING, HOWEVER, TENANT SHALL ALSO HAVE THE RIGHT TO SATISFY A JUDGMENT AGAINST LANDLORD OUT OF (a) THE PROCEEDS COLLECTED BY LANDLORD OR WHICH LANDLORD HAS THE RIGHT TO COLLECT FROM ANY INSURER WITH RESPECT TO DAMAGE OR DESTRUCTION OF ALL OR ANY PART OF THE PROJECT; (b) THE PROCEEDS OF ANY SALE OF ALL OR ANY PART OF LANDLORD'S RIGHT, TITLE AND INTEREST IN ALL OR ANY PART OF THE PROJECT; (c) THE PROCEEDS OF ANY LOAN SECURED IN WHOLE OR IN PART BY THE PROJECT OR ALL OR ANY PART OF LANDLORD'S RIGHT, TITLE OR INTEREST IN THE PROJECT; AND (d) ANY AND ALL RENTS COLLECTED BY LANDLORD OR WHICH LANDLORD HAS THE RIGHT TO COLLECT WITH RESPECT TO ALL OR ANY PART OF THE PROJECT. 13.402 CERTAIN LIMITATIONS ON LANDLORD'S LIABILITY. Unless covered by subsection 7.502 above or caused by Landlord's gross negligence or willful misconduct, Landlord shall not be liable to Tenant for any claims, actions, demands, costs, expenses, damage or liability of any kind (ii) caused by or arising out of fire, explosion, falling sheetrock, gas, electricity, water, rain, snow or dampness, or leaks in any part of the Premises, (iii) caused by or arising out of damage to the roof, pipes, appliances or plumbing works or any damage to or malfunction of heating, ventilation or air conditioning equipment or (iv) caused by tenants or any persons either in the Premises or elsewhere in the Building (other than Common Areas) or by occupants of property adjacent to the Building or Common Areas or by the public or by the construction of any private, public or quasi-public work. In no event shall Landlord be liable to Tenant for any loss of or damage to property of Tenant or of others located in the Premises or the Building by reason of theft or burglary. SECTION 13.5 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. It is the intent of Landlord and Tenant to waive all of the provisions (other than Section 17.555) of the Texas Deceptive Trade Practices -- Consumer Protection Act, Subchapter E of Chapter 17 of the Texas Business and Commerce Code (the "DTPA") as such provisions are or may be applicable to this Lease and the transaction evidenced hereby. Accordingly, Landlord and Tenant hereby represent and agree as follows: (a) Tenant represents to Landlord that Tenant is not in a significantly disparate bargaining position with respect to this Lease and the transaction evidenced hereby. (b) Tenant represents to Landlord that Tenant is represented by legal counsel in connection with this Lease. (c) Tenant represents to Landlord that this Lease does not involve a purchase or lease of a family residence occupied or to be occupied as Tenant's residence and that, with respect to this Lease, Tenant is a business consumer as that term is used in the DTPA (i.e. Tenant is an individual, partnership or corporation who seeks or acquired by purchase or lease, any goods or services for commercial or business use). (d) Landlord and Tenant agree that the total consideration paid or to be paid by Tenant over the term of this Lease exceeds $500,000.00, failing which this part (d) shall be deemed deleted. (e) Tenant represents to Landlord that Tenant has assets of $5 million or more according to the most recent financial statement of Tenant prepared in accordance with generally accepted accounting principles, failing which Landlord and Tenant shall have their respective legal counsel sign this Lease in the space provided on the signature page hereof. Tenant further represents that it has knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of this transaction. (f) Landlord and Tenant hereby agree, for themselves, their agents, property managers, brokers and contractors and their respective heirs, personal representatives, successors and assigns, that all of the provisions of the DTPA (except for Section 17.555 thereof) which 19 are or may be applicable to this Lease and the transaction evidenced hereby are hereby WAIVED, including specifically, without limitation, all rights and remedies resulting from or arising out of any and all acts or practices of the other party or their agents, property managers or brokers or their respective heirs, personal representatives or assigns in connection with this Lease and/or the transaction evidenced hereby, regardless of whether such acts or practices occurred before or after the execution of this Lease. The provisions of this Section shall survive the execution and any termination of this Lease. IF PART (d) ABOVE IS DEEMED DELETED, THIS SECTION 13.5 SHALL NOT BE APPLICABLE AND SHALL BE WITHOUT FORCE OR EFFECT. SECTION 13.6 LANDLORD'S LIEN. ANY LANDLORD'S LIEN, WHETHER STATUTORY, COMMON LAW, CONTRACTUAL OR OTHERWISE, IS HEREBY WAIVED. ARTICLE 14 NOTICES Any notice or communication required or permitted in this Lease shall be given in writing, sent by (a) personal delivery, (b) expedited delivery service with proof of delivery, (c) United States mail, Postage Prepaid, registered or certified mail, return receipt requested or (d) prepaid telegram (provided that such telegram is confirmed by expedited delivery service or by mail in the manner previously described), addressed as provided in Item 15 of the Basic Lease Provisions and Section 13.3 above or to such other address or to the attention of such other person as shall be designated from time to time in writing by the applicable party and sent in accordance herewith. Notice also may be given by telex or fax, provided each such transmission is confirmed (and such confirmation is supported by documented evidence) as received and further provided a telex or fax number, as the case may be, is set forth in Item 15 of the Basic Lease Provisions. Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telegram or telex or fax, upon receipt. COPIES OF ANY NOTICES TO TENANT SHALL BE SENT TO PRABHAT GOYAL, McAFEE ASSOCIATES, INC., 2710 WALSH AVENUE, SANTA CLARA, CALIFORNIA 95051 AND KENT H. ROBERTS, MOSELEY & STANDERFER, P.C., 500 HAMPTON COURT, 4311 OAK LAWN AVENUE, LB14, DALLAS, TEXAS 75219. ARTICLE 15 MISCELLANEOUS PROVISIONS SECTION 15.1 BUILDING NAME AND ADDRESS. Tenant shall not, without the written consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises and in no event shall Tenant acquire any rights in or to such names. Landlord shall have the right at any time to change the name, number or designation by which the Building is known. SECTION 15.2 SIGNAGE. Tenant shall not inscribe, paint, affix or display any signs, advertisements or notices on or in the Building, except for such tenant identification information as Landlord permits to be included or shown on the directory in the main lobby and adjacent to the access door or doors to the Premises. REFERENCE IS MADE TO RIDER NO. 5. SECTION 15.3 NO WAIVER. No waiver by Landlord or by Tenant of any provision of this Lease shall be deemed to be a waiver by either party of any other provision of this Lease. No waiver by Landlord of any breach by Tenant shall be deemed a waiver of any subsequent breach by Tenant of the same or any other provision. No waiver by Tenant of any breach by Landlord shall be deemed a waiver of any subsequent breach by Landlord of the same or any other provision. The failure of Landlord or Tenant to insist at any time upon the strict performance of any covenant or agreement or to exercise any option, right, power or remedy contained in this Lease shall not be construed as a 20 waiver or a relinquishment thereof for the future. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant. Tenant's consent to or approval of any act by Landlord requiring Tenant's consent or approval shall not be deemed to render unnecessary the obtaining of Tenant's consent to or approval of any subsequent act of Landlord. No act or thing done by Landlord or Landlord's agents during the term of this Lease shall be deemed an acceptance of a surrender of the Premises, unless done in writing signed by Landlord. The delivery of the keys to any employee or agent of Landlord shall not operate as a termination of this Lease or a surrender of the Premises. The acceptance of any Rent by Landlord following a breach of this Lease by Tenant shall not constitute a waiver by Landlord of such breach or any other breach. The payment of Rent by Tenant following a breach of this Lease by Landlord shall not constitute a waiver by Tenant of any such breach or any other breach. No waiver by Landlord or Tenant of any provision of this Lease shall be deemed to have been made unless such waiver is expressly stated in writing signed by the waiving party. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Rent due under this Lease shall be deemed to be other than on account of the earliest Rent due hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy which may be available to Landlord. SECTION 15.4 APPLICABLE LAW. This Lease shall be governed by and construed in accordance with the laws of the State of Texas. SECTION 15.5 COMMON AREAS. "Common Areas" will mean all areas, space, facilities and equipment (whether or not located within the Building) made available by Landlord for the common and joint use of Landlord, Tenant and others designated by Landlord using or occupying space in the Building, including but not limited to, tunnels, walkways, sidewalks and driveways necessary for access to the Building, Building lobbies, landscaped areas, public corridors, Public rest rooms, Building stairs,, elevators open to the public, service elevators (provided that such service elevators shall be available only for tenants of the Building and others designated by Landlord), drinking fountains and any such other areas and facilities, if any, as are designated by Landlord from time to time as Common Areas. Common Areas shall not include the Garage. "Service Corridors" shall mean all loading docks, loading areas and all corridors that are not open to the public but which are available for use by Tenant and others designated by Landlord. "Service Areas" will refer to areas, spaces, facilities and equipment serving the Building (whether or not located within the Building) but to which Tenant and other occupants of the Building will not have access, including, but not limited to, mechanical, telephone, electrical and similar rooms and air and water refrigeration equipment. Tenant is hereby granted a nonexclusive right to use the Common Areas and Service Corridors during the term of this Lease for their intended purposes, in common with others designated by Landlord, subject to the terms and conditions of this Lease, including, without limitation, the Rules and Regulations. The Building, Common Areas, Service Corridors and Service Areas will be at all times under the exclusive control, management and operation of the Landlord. Tenant agrees and acknowledges that the Premises (whether consisting of less than one floor or consisting of one or more full floors within the Building) do not include, and Landlord hereby expressly reserves for its sole and exclusive use, any and all mechanical, electrical, telephone and similar rooms, janitor closets, elevator, pipe and other vertical shafts and ducts, flues, stairwells, any area above the acoustical ceiling and any other areas not specifically shown on Exhibit A as being part of the Premises. SECTION 15.6 SUCCESSORS AND ASSIGNS. Subject to Article 11 hereof, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. SECTION 15.7 BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the broker named in Item 11 of the Basic Lease Provisions and that it knows of no other real estate brokers or agents who are or might be entitled to a commission in connection with this Lease. Tenant agrees to indemnify and hold harmless Landlord from and against any liability or claim, whether meritorious or not, arising in respect to brokers and/or agents not so named. Landlord has agreed to pay the fees of the broker (but only the broker) named in Item 11 of the Basic Lease Provisions to the extent that Landlord has agreed to do so pursuant to a written agreement with such broker. SECTION 15.8 SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, the application of such provisions to other persons or circumstances and the remainder of this Lease shall not be affected thereby and shall be enforced to the greatest extent permitted by Law. SECTION 15.9 EXAMINATION OF LEASE. Submission by Landlord of this instrument to Tenant for examination or signature does not constitute a reservation of or option for lease. This Lease will be effective as a lease or otherwise only upon execution by and delivery to both Landlord and Tenant. SECTION 15.10 INTEREST ON TENANT'S OBLIGATIONS. Any amount due from Tenant to Landlord which is not paid within thirty (30) days after the date due shall bear interest at the lower of (i) eighteen percent (18%) per annum or (ii) the highest rate from time to time allowed by applicable law, from the date such payment is due until paid, but the payment of such interest shall not excuse or cure the default. SECTION 15.11 TIME. Time is of the essence in this Lease an in each and all of the provisions hereof. Whenever 21 a period of days is specified in this Lease, such period shall refer to calendar days unless otherwise expressly stated in this Lease. SECTION 15.12 DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and "Tenant" as used herein shall include the plural as well as singular. If more than one person is named as Tenant, the obligations of such persons are joint and several. The headings and titles to the articles, sections and subsections of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part of this Lease. SECTION 15.13 AUTHORITY OF TENANT. Tenant and each person signing this Lease on behalf of Tenant represents to Landlord as follows: Tenant, if a corporation, is duly incorporated and legally existing under the laws of the state of its incorporation and is duly qualified to do business in the State of Texas. Tenant, if a partnership or joint venture, is duly organized under the Texas Uniform Partnership Act. Tenant, if a limited partnership, is duly organized under the applicable limited partnership act of the State of Texas or, if organized under the laws of a state other than Texas, is qualified under said Texas limited partnership act. Tenant has all requisite power and all governmental certificates of authority, licenses, permits, qualifications and other documentation to lease the Premises and to carry on its business as now conducted and as contemplated to be conducted. Each person signing on behalf of Tenant is authorized to do so. The foregoing representations in this Section 15.13 shall also apply to any corporation, partnership, joint venture or limited partnership which is a general partner or joint venturer of Tenant. SECTION 15.14 FORCE MAJEURE. Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, the party taking the action shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the reasonable control of such party; provided, however, in no event shall the foregoing apply to the financial obligations of either Landlord or Tenant to the other under this Lease, including Tenant's obligation to pay Basic Annual Rent, Additional Rent or any other amount payable to Landlord hereunder. SECTION 15.15 RECORDING. This Lease shall not be recorded. However, Landlord shall have the right to record a short form or memorandum hereof, at Landlord's expense, at any time during the term hereof and, if requested, Tenant agrees (without charge to Landlord) to join in the execution thereof. SECTION 15.16 NO REPRESENTATIONS. Landlord and Landlord's agents have made no warranties, representations or promises (express or implied) with respect to the Premises, the Building or any other part of the Property (including, without limitation, the condition, use or suitability of the Premises, the Building or the Property), except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease. SECTION 15.17 PARKING. If the Property includes a Garage, there shall be an Exhibit F attached hereto, which shall set forth the agreements between Landlord and Tenant relating to parking. If there is no Garage included in the Property, then the remaining provisions of this Section shall be applicable with respect to parking. The parking areas shall be designated for automobile parking on a non-exclusive basis for all Property tenants (including Tenant) and their respective employees, customers, invitees and visitors. Parking and delivery areas for all vehicles shall be in accordance with parking regulations established from time to time by Landlord, with which Tenant agrees to conform. Tenant shall only permit parking by its employees, customers and agents of automobiles in appropriate designated parking areas. TENANT COVENANTS THAT ALL TIMES DURING THE TERM OF THE LEASE THAT TENANT WILL NOT USE IN EXCESS OF 3.55 PARKING SPACES FOR EACH ONE THOUSAND (1,000) RENTABLE SQUARE FEET IN THE PREMISES FOR TENANT'S EMPLOYEES, INVITEES AND AGENTS. SECTION 15.18 ATTORNEYS' FEES. In the event of any legal action or proceeding brought by either party against the other arising out of this Lease, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs incurred in such action (including, without limitation, all costs of appeal) and such amount shall be included in any judgment rendered in such proceeding. SECTION 15.19 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air or view by any structure which may be erected on the Property or lands adjacent to the Property shall in no way affect this Lease or impose any liability on Landlord (even if Landlord is the adjacent land owner). SECTION 15.20 RELOCATION. 22 SECTION 15.21 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold harmless agreement contained herein shall survive the expiration or termination of this Lease. SECTION 15.22 ENTIRE AGREEMENT. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease and no prior agreement, understanding or representation pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Lease, as of the date first written in this Lease. For purposes of Section 13.5(e) LANDLORD only, Landlord's attorney and Tenant's attorney have executed Blue Lake Partners, Ltd., a Texas limited partnership this Lease: By: Granite Properties, Inc., a general partner - --------------------------------- By: /s/ JAMES H. KIRCHHOFF --------------------------------- Name: James H. Kirchhoff ------------------------------- Attorney for Landlord Title: Vice President ------------------------------ TENANT McAfee Associates, Inc., a Delaware Corporation --------------------------------------------------- /s/ KENT H. ROBERTS By: /s/ PRABHAT K. GOYAL - --------------------------------- --------------------------------- Attorney for Tenant Name: Prabhat K. Goyal ------------------------------- Title: CFO ------------------------------

EXHIBIT A THE PREMISES [GRAPHIC] EXHIBIT A THE PREMISES [GRAPHIC] EXHIBIT "B" BEING a tract of land, situated in the Noah Good Survey, Abstract No. 520 band being all of Lot 1, Block C of The Centre, an addition to the City of Farmers Branch, Texas, as recorded in Volume 79206, Page 0358 of the Deed Records for all of Dallas County, Texas, and being more particularly described as follows: BEGINNING at a point in the West line of Greenview Boulevard (a 74' R.O.W.), said point being South 381.52 feet from the most Westerly corner clip of the South line of Alpha Road, (an 80' R.O.W.); THENCE South along the said West line of Greenview Boulevard, a distance of 484.00 feet to a point for corner; THENCE 45 00'00" W, a distance of 14.14 feet to a point in the North line of McEwen Road (a 60' R.O.W.); THENCE West along the said north line of McEwen Road, a distance of 472.03 feet to the beginning of a curve to the left having a central angle of 53 07'00" and a radius of 202.50 feet; THENCE along said curve in a Southwesterly direction, a distance of 181.73 feet to a point for corner in the said North line of McEwen Road; THENCE North, a distance of 574.96 feet to a point for corner; THENCE East a distance of 444.00 feet to the PLACE OF BEGINNING and containing 224,020 square feet or 5.1248 acres of land, more or less. Page 1 of 2 EXHIBIT B-1 PROJECT LEGAL DESCRIPTION [GRAPHIC] THE CENTRE Office Park Development Farmers Branch, Texas EXHIBIT C RENTABLE AREA CALCULATIONS The rentable area of The Premises is The Agreed Rentable Area of The Premises set forth in Item 2b of the Basic Lease Provisions. Rentable areas shown in The Basic Lease Provisions and The Riders which are a apart of This Lease are agreed to be as shown regardless of minor variations resulting from actual construction. All other rentable area calculations shall be calculated in accordance with The remaining provisions of This Exhibit C. The term "Rentable Area" as used in the lease shall mean: (a) As to each floor in the Building in which the Premises are located and on where the entire space rentable to tenants is or will be leased to one tenant (hereinafter referred to as "Single Tenant Floor"), Rentable Area shall be: (i) the entire area bounded by the inside surface of the four exterior glass walls (or the inside surface of the permanent exterior wall where there is no glass) on such floor, including all areas used for elevator lobbies, corridors, special stairways, elevators, restrooms, mechanical rooms, electrical rooms and telephone closets without deduction for columns and other structural portions of the Building or vertical Penetrations that are included for the special use of Tenant but excluding the area contained within the exterior walls of the Building stairs, fire towers, vertical ducts, elevator shafts, flues, vents stacks and pipe shafts, plus (ii) a prorata portion of the area covered by the elevator lobbies, corridors, restrooms, mechanical rooms and telephone closets in the Building not located on the Single Tenant Floor but for such Tenant's use and/or benefit. (b) As to each floor of the Building in which the Premises are located and on which space is or will be leased to more than one tenant (hereinafter referred to as "Multi-Tenant Floor"), Rentable Area attributable to each such lease shall be the total of (i) Usable Area defined as the entire area included within the Premises covered by such lease, being the area bounded by the inside surface of any exterior glass walls (or the inside surface of the permanent exterior wall where there is no glass) of the Building bounding such Premises, the exterior of all walls separating such Premises from any public corridors or other public areas on such floor and the centerline of all walls separating such Premises from other areas leased or to be leased to other tenants on such floor, and (ii) a prorata portion of the area covered by the elevator lobbies, corridors, restrooms, mechanical rooms, electrical rooms and telephone closets in the building. (c) For purposes of establishing the Tenant's proportionate share based on the Percentage of Rentable Areas of the Premises to the Rentable Area of the Building, the Rentable Area of the Premises and Rentable Area of the Building are deemed to be as set forth in this provision. 24 EXHIBIT D WORK LETTER PLANS AGREED UPON/FINISH ALLOWANCE Blue Lake Partners, Ltd., a Texas limited partnership ("Landlord"), and McAfee Associates, Inc., a Delaware Corporation ("Tenant") have entered into that certain Lease Agreement dated Nov. 14, 1996 (the "Lease") for the lease of certain space in the office building located at 4099 McEwen Road in Dallas, Texas (the "Building"). Pursuant to subsection 1.201 of the Supplemental Lease Provisions, Landlord and Tenant are entering into this Work Letter (this "Agreement"). Any capitalized term not defined herein shall have the meaning assigned to it in the Supplemental Lease Provisions. Landlord and Tenant mutually agree as follows: 1. Plans. 1.1 Approved Plans. Landlord and Tenant have agreed that the Premises will be improved in accordance with the plans and specifications (or description thereof) approved and initialed by Landlord and Tenant (the "Construction Plans" and all improvements required thereby, "Tenant's Improvements"). Tenant represents to Landlord that Tenant has furnished to Landlord and the party preparing the Construction Plans all information necessary such that (following construction of Tenant's Improvements in accordance with the Construction Plans) Tenant, the Premises and Tenant's Improvements will be in compliance with the Disability Acts. Tenant shall indemnify and hold harmless Landlord from and against any and all claims, liabilities and expenses (including, without limitation reasonable attorneys' fees and expenses) incurred by or asserted against Landlord by reason of or in connection with any violation of the Disability Acts by Tenant and/or Tenant's Improvements. The foregoing indemnity shall not include any claims, liabilities or expenses (including reasonable attorneys' fees and expenses) arising out of the negligence or gross negligence of Landlord or Landlord's employees, agents or contractors. 1.2 Changes to Approved Plans. If any re-drawing or re-drafting of either the Space Plan or the Construction Plans is necessitated by Tenant's requested changes (all of which shall be subject to Landlord's approval), the expense of any such re-drawing or re-drafting required in connection therewith and the expense of any work and improvements necessitated by such re-drawing or redrafting will be charged to Tenant. 1.3 Coordination of Planners and Designers. If Tenant shall arrange for interior design services, whether with Landlord's space planner or any other planner or designer, it shall be Tenant's responsibility to cause necessary coordination of its agents' efforts with Landlord's agents to ensure that no delays are caused to either the planning or construction of the Tenant's Improvements. 2. Construction and Cost of Tenant's Improvements. 2.1 Construction Obligation and Finish Allowance. Landlord agrees to construct, BASED UPON THE LOWEST OF FIVE (5) COMPETITIVE BIDS FOR SUCH WORK, Tenant's Improvements, at Tenant's cost and expense; provided, however, Landlord shall provide Tenant with an allowance up to $7.00 PER SQUARE FOOT OF THE AGREED RENTABLE AREA (the "Finish Allowance"), which allowance shall be disbursed by Landlord, from time to time, for payment of (in the following priority) (i) the contract sum required to be paid to the general contractor engaged to construct Tenant's Improvements (the "Contract Sum"), (ii) the fees of the preparer of the Construction Plans and (iii) payment of the Construction Management Fee (hereinafter defined). Upon completion of Tenant's Improvements and in consideration of Landlord administering the construction of Tenant's Improvements, Tenant agrees to pay Landlord a fee equal to five percent (5%) of the Contract Sum to construct Tenant's Improvements (the "Construction Management Fee") (the foregoing costs are collectively referred to as the "Permitted Costs"). 2.2 Excess Costs. If the sum of the Permitted Costs exceeds the Finish Allowance, then Tenant shall pay all such excess costs ("Excess Costs"), provided, however, Landlord will, prior to the commencement of construction of Tenant's Improvements, advise Tenant of the Excess Costs, if any, and the Contract Sum. Tenant shall have two (2) business days from and after the receipt of such advice within which to approve or disapprove the Contract Sum and Excess Costs. If Tenant fails to approve same by the expiration of the second such business day, then Tenant shall be deemed to have approved the Proposed Contract Sum and Excess Costs. If Tenant disapproves the Contract Sum and Excess Costs within such two (2) business day period, then Tenant shall either reduce the scope of Tenant's Improvements such that there shall be no Excess Costs or, at Tenant's option, Landlord shall obtain two (2) additional bids, provided that each day beyond such two (2) business day period and until the rebid is accepted by Tenant shall constitute a Tenant Delay hereunder. Subject to the last sentence of this subsection, the foregoing process shall continue until a Contract Sum and resulting Excess Costs if any, are accepted or deemed accepted by Tenant. Landlord and Tenant must approve (or be deemed to have approved the Contract Sum for the construction of Tenant's Improvements in writing prior to the commencement of construction. If Tenant fails to accept a Contract Sum by November 25, 1996, Landlord shall have the right to terminate this Lease. 2.3 Liens Arising from Excess Costs. Tenant agrees to keep the Premises free from any liens arising out of nonpayment of Excess Costs. In the event that any such lien is filed and Tenant, within ten (10) days following such 25 filing fails to cause same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it in its sole discretion deems proper, including payment of or defense against the claim giving rise to such lien. All sums paid by Landlord in connection therewith shall constitute Rent under the Lease and a demand obligation of Tenant to Landlord and such obligation shall bear interest at the rate provided for in Section 15.10 of the Supplemental Lease Provisions from the date of payment by Landlord until the date paid by Tenant. 2.4 Construction Deposit. Tenant shall remit to Landlord an amount (the "Prepayment") equal to the projected Excess Costs, if any, within five (5) working days after commencement of construction by Landlord. On or prior to the Commencement Date, Tenant shall deliver to Landlord the actual Excess Costs, minus the Prepayment previously paid. Failure by Tenant to timely tender to Landlord the full Prepayment shall permit Landlord to stop all work until the Prepayment is received. All sums due Landlord under this Section 2.4 shall be considered Rent under the terms of the Lease and nonpayment shall constitute a default under the Lease and entitle Landlord to any and all remedies specified in the Lease. 3. Delays. Delays in the completion of construction of Tenant's Improvements or in obtaining a certificate of occupancy, if required by the applicable governmental authority, caused by Tenant, Tenant's Contractors (hereinafter defined) or any person, firm or corporation employed by Tenant or Tenant's Contractors shall constitute "Tenant Delays". In the event that Tenant's Improvements are not Substantially Complete by the Commencement Date referenced in Item 8 of the Basic Lease Provisions, then the Commencement Date referenced in Item 8 shall be amended to be the Adjusted Substantial Completion Date (hereinafter defined) and the Expiration Date referenced in Item 9 of the Basic Lease Provisions shall be adjusted forward by the same number of days as is the Commencement Date, so that the term of the Lease will be the term set forth in Item 7 of the Basic Lease Provisions. The Adjusted Substantial Completion Date shall be the date Tenant's Improvements are Substantially Complete, adjusted backward, however, by one day for each day of Tenant Delays, if any. The foregoing adjustments in the Commencement Date and the Expiration Date shall be Tenant's sole and exclusive remedy in the event Tenant's Improvements are not Substantially Complete by the initial Commencement Date set forth in Item 8 of the Basic Lease Provisions. 4. Substantial Completion and Punch List. The terms "Substantial Completion" and "Substantially Complete," as applicable, shall mean when Tenant's Improvements are completed in accordance with the Construction Plans subject only to monitor items ("Punch List Items") which may be completed in a manner so that Tenant can reasonably use the Premises for the Permitted Use (as described in Item 12 of the Basic Lease Provisions) without material interruption. When Landlord considers Tenant's Improvements to be Substantially Complete, Landlord will notify Tenant and within two (2) business days thereafter, Landlord's representative and Tenant's representative shall conduct a walk-through of the Premises and identify any necessary touch-up work repairs and minor completion items as are necessary for final completion of Tenant's Improvements. Neither Landlord's representative nor Tenant's representative shall unreasonably withhold his agreement on punch list items. Landlord will use reasonable efforts to cause the contractor to complete all punch list items within thirty (30) days after agreement thereon. 5. Tenant's Contractors. If Tenant should desire to enter the Premises or authorize its agent to do so prior to the Commencement Date of the Lease, to perform approved work not requested of the Landlord, Landlord shall permit such entry if: (a) Tenant shall use only such contractors which Landlord shall approve in its reasonable discretion and Landlord shall have approved the plans to be utilized by Tenant, which approval will not be unreasonably withheld or delayed; and (b) Tenant, its contractors, workmen, mechanics, engineers, space planners or such others as may enter the Premises (collectively, "Tenant's Contractors"), work in harmony with and do not in any way disturb or interfere with Landlord's space planners, architects, engineers, contractors, workmen, mechanics or other agents or independent contractors in the performance of their work (collectively, "Landlord's Contractors"), it being understood and agreed that if entry of Tenant or Tenant's Contractors would cause, has caused or is causing a material disturbance to Landlord or Landlord's Contractors, then Landlord may, with notice, refuse admittance to Tenant or Tenant's Contractors causing such disturbance; and (c) Tenant (notwithstanding the first sentence of subsection 7.201 of the Supplemental Lease Provisions), Tenant's Contractors and other agents shall provide landlord sufficient evidence that each is covered under such Worker's Compensation, public liability and property damage insurance as Landlord may reasonably request for its protection. Landlord shall not be liable for any injury, loss or damage to any of Tenant's installations or decorations made prior to the Commencement Date and not installed by Landlord or Landlord's contractors. Tenant shall indemnify and hold harmless Landlord and Landlord's Contractors from and against any and all costs, expenses, claims, liabilities and causes of action arising out of or in connection with work performed in the Premises by or on behalf of Tenant (but excluding work performed by Landlord or Landlord's Contractors). Landlord is not responsible for the function and maintenance of improvements, equipment, cabinets or fixtures not installed by Landlord. Such entry by Tenant and Tenant's Contractors pursuant to this Section 5 shall be deemed to be under all of the terms, covenants, provisions and 26 conditions of the Lease except the covenant to pay Rent. 6. Construction Representatives. Landlord's and Tenant's representatives for coordination of construction and approval of change orders will be as follows, provided that either party may change its representative upon written notice to the other: LANDLORD'S REPRESENTATIVE: NAME Dennis Kelly or Jim Barron ADDRESS 4099 McEwen, Suite 370 Dallas, Texas 75244 PHONE (972) 386-6810 TENANT'S REPRESENTATIVE: NAME Bill Beecher Copies To: ADDRESS 5944 Luther Lane Evan Collins Dallas, Texas 75225 2710 Walsh Avenue PHONE 361-1014 Santa Clara, CA 408-653-3140 Kent Roberts 500 Hampton Court 4311 Oak Lawn Avenue Dallas, Texas 75219 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement simultaneously with the execution and delivery of the Lease. LANDLORD Blue Lake Partners, Ltd., a Texas limited partnership By: Granite Properties, Inc., general partner By: /s/ JAMES H. KIRCHHOFF ----------------------------------------- Name: James H. Kirchhoff --------------------------------------- Title: Vice President -------------------------------------- TENANT McAfee Associates, Inc., a Delaware Corporation By: /s/ PRABHAT K. GOYAL ----------------------------------------- Name: Prabhat K. Goyal --------------------------------------- Title: CFO -------------------------------------- 27 EXHIBIT E ACCEPTANCE OF PREMISES MEMORANDUM This Acceptance of Premises Memorandum is being executed pursuant to that certain Lease Agreement (the "Lease") dated the ____ day of __________, 19__ between Blue Lake Partners, Ltd., a Texas limited partnership and McAfee Associates, Inc., a Delaware Corporation ("Tenant"), pursuant to which Landlord leased to Tenant and Tenant leased from Landlord certain space in the office building located at 4099 McEwen Road in Dallas, Texas (the "Building"). Landlord and Tenant hereby agree that: 1. Except for the Punch List Items (as shown on the attached Punch List). Landlord has fully completed the construction work required under the terms of the Lease and the Work Letter attached thereto. 2. The Premises are tenantable, Landlord has no further obligation for construction (except with respect to Punch List Items) and Tenant acknowledges that the Building, the Premises and Tenant's Improvements are satisfactory in all respects, except for the Punch List Items and are suitable for the permitted Use. 3. The Commencement Date of the Lease is the ____ day of __________, 19__. If the date set forth in Item 8 of the Basic Lease Provisions is different than the date set forth in the preceding sentence, then Item 8 of the Basic Lease Provisions is hereby amended to be the Commencement Date set forth in the preceding sentence. 4. The Expiration Date of the Lease is the ____ day of __________, 19__. If the date set forth in Item 9 of the Basic Lease Provisions is different than the date set forth in the preceding sentence, then Item 9 of the Basic Lease Provisions is hereby amended to be the Expiration Date set forth in the preceding sentence. 5. Tenant acknowledges receipt of the current Rules and Regulations for the Building. 6. Tenant represents to Landlord that Tenant has obtained a Certificate of Occupancy covering the Premises. 7. All capitalized terms not defined herein shall have the meaning assigned to them in the Lease. Agreed and Executed this ____ day of ____________, 19___. LANDLORD Blue Lake Partners, Ltd., a Texas limited partnership By: Granite Properties, Inc., general partner By: ---------------------------- James H. Kirchhoff ---------------------------- Vice President ---------------------------- TENANT McAfee, Inc., a California Corporation ------------------------------------------ By: /s/ PRABHAT K. GOYAL --------------------------------------- Name: Prabhat K. Goyal ------------------------------------- Title: CFO ------------------------------------ 28 RIDER NO. 1 BUILDING RULES AND REGULATIONS 1. The operating hours for the Building shall be as follows: (A) Mondays - Fridays (except State and Federal holidays) 7:00 A.M. - 7:00 P.M. (B) Saturdays - 7:00 A.M. - 1:00 P.M. Landlord agrees to furnish to Tenant two (2) suite keys and two (2) after-hour building keys without charge. Additional keys will be furnished at a nominal charge. 2. Tenant will refer all contractors, contractor's representatives and installation technicians rendering any service on or to the Premises for Tenant to Landlord for Landlord's approval and supervision before performance of any contractual service. This provision shall apply to all work performed in the Building including installation of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings equipment or any other physical portion of the Building. 3. No Tenant shall at any time occupy any part of the Building as sleeping or lodging quarters. 4. Tenant shall not place, install or operate on Premises or in any part of the Building any engine, stove or machinery or conduct mechanical operations or cook thereon or therein, or place or use in or about Premises any explosives, gasoline, kerosene, oil, acids, caustics, or any other inflammable, explosive, or hazardous material without prior written consent of Landlord. 5. Landlord will not be responsible for lost or stolen personal property, equipment, money or jewelry from Tenant's area or public rooms regardless of whether such loss occurs when area is locked against entry or not. 6. No birds, fowl, dogs, animals or pets of any kind shall be brought into or kept in or about the Premises. 7. Landlord will not permit entrance to Tenant's offices by use of pass key controlled by Landlord to any person at any time without permission by Tenant, except employees, contractors, or service personnel directly supervised by Landlord. 8. None of the entries, passages, doors, hallways or stairways shall be blocked or obstructed, or any rubbish, litter, trash or material of any nature placed, emptied or thrown into these areas, nor shall such areas be used at any time except for ingress or egress by Tenant, Tenant's agents, employees or invitees. 9. The water closets, restrooms and other water fixtures shall not be used for any purpose other than those for which they were constructed. No person shall waste water by interfering with the faucets or otherwise. 10. No person shall disturb the occupants of the Building by the use of any musical instruments, the making of noxious odors or mucous noises, or other unreasonable use. 11. Nothing shall be thrown out of the windows of the Building or down the stairways or other passages. 12. Tenant shall not store any materials, equipment, products, by-products, rubbish, refuse, etc., outside the Premises. 13. Tenant shall comply with all local and federal codes and ordinances. 14. Tenant and its agents, employees and invitees shall observe and comply with the driving and parking signs and markers on the Building grounds and surrounding areas. 15. Corridor and passage doors, when not in use, shall be kept closed. 16. All deliveries of other than hand-carried items must be made via the service entrances and service elevators. Any deliveries of an abnormally large, bulky or voluminous nature, such as furniture, office machinery, file cabinets, etc., can only be made after obtaining approval from Landlord and at those times specified by Landlord, before 7:30 A.M. and after 5:30 P.M. on weekdays or on Saturday or Sunday. A certificate of insurance from the moving company showing that the movers have workman's compensation and have named the building owner as additionally insured must be delivered to the management office 24 hours prior to the delivery. 17. The common areas of the Building including lobbies, corridors, stairwells, and restrooms are currently designated as non-smoking. 18. The complex currently employs a 24-hour a day, seven day a week courtesy patrol and Landlord agrees to provide such service in such a manner as is customary in buildings of comparable size, quality and in the general vicinity of the complex. 29 RIDER NO. 2 RENEWAL OPTION 1. If, and only if, on the Expiration Date and the date Tenant notifies Landlord of its intention to renew the term of this Lease (as provided below), (i) Tenant is not in default under this Lease, (ii) Tenant then occupies and the Premises then consist of at least all the original Premises and (iii) this Lease is in full force and effect, then Tenant, but not any assignee or subtenant of Tenant, shall have and may exercise an option to renew this Lease for one (1) additional term of five (5) years (the "Renewal Term") upon the same terms and conditions contained in this Lease with the exceptions that (x) this Lease shall not be further available for renewal and (y) the rental for the Renewal Term shall be the "Renewal Rental Rate", but in no event will the Base Annual Rent be less than the Base Annual Rent for the last twelve (12) calendar months of the initial term of the Lease. The Renewal Rental Rate is hereby defined to mean the then prevailing rents (including, without limitation, those similar to the Basic Annual Rent and Additional Rent) payable by renewal tenants having a credit standing substantially similar to that of Tenant, for properties of equivalent quality, size, utility and location as the Premises, including any additions thereto, located within the area described below and leased for a renewal term approximately equal to the Renewal Term. The Renewal Rental Rate will take into consideration the tenant inducements offered in the renewal transactions considered by Landlord in determining the Renewal Rental Rate. THE TENANT'S OPERATING EXPENSE STOP AND TENANT'S REAL ESTATE TAXES STOP SHALL BE ADJUSTED TO BE THE ACTUAL SUCH EXPENSES FOR THE YEAR THE RENEWAL OCCURS. 2. If Tenant desires to renew this Lease, Tenant must notify Landlord in writing of its intention to renew on or before the date which is at least six (6) months but no more than twelve (12) months prior to the Expiration Date. Landlord shall, within the next sixty (60) days, notify Tenant in writing of Landlord's determination of the Renewal Rental Rate and Tenant shall, within the next twenty (20) days following receipt of Landlord's determination of the Renewal Rental Rate, notify Landlord in writing of Tenant's acceptance or rejection of Landlord's determination of the Renewal Rental Rate. If Tenant timely notifies Landlord of Tenant's acceptance of Landlord's determination of the Renewal Rental Rate, this Lease shall be extended as provided herein and Landlord and Tenant shall enter into an amendment to this Lease to reflect the extension of the term and changes in Rent in accordance with this Rider. If (x) Tenant timely notifies Landlord in writing of Tenant's rejection of Landlord's determination of the Renewal Rental Rate or (y) Tenant does not notify Landlord in writing of Tenant's acceptance or rejection of Landlord's determination of the Renewal Rental Rate within such twenty (20) day period, this Lease shall end on the Expiration Date and Landlord shall have no further obligations or liability hereunder. 3. The area with respect to which the Renewal Rental Rate will be determined is North Dallas/LBJ Corridor. 30 RIDER NO. 3 TENANT'S RIGHT OF FIRST REFUSAL Prior to leasing any of the area described on Schedule A attached to this Rider ("Right of First Refusal Space"), Landlord shall deliver to Tenant a written statement ("Statement") which shall reflect Landlord's and the prospective tenant's agreement with respect to rent, term, finish allowances, tenant inducements and the description of the applicable Right of First Refusal Space. Tenant shall have five (5) business days after receipt of the Statement within which to notify Landlord in writing that it desires to lease the applicable Right of First Refusal Space upon the terms and conditions contained in the Statement. Failure by Tenant to notify Landlord within such five (5) business day period shall be deemed an election by Tenant not to lease the applicable Right of First Refusal Space at that time and Landlord shall have the right to lease such space to the proposed tenant upon the terms and conditions contained in the Statement. Should a lease not be consummated with the proposed tenants, the aforementioned rights will remain in full force and effect. Notwithstanding the above, Tenant's right of opportunity on the First Right of Refusal Space will be subordinate to any and all existing renewal, expansion and refusal rights of existing tenants. Furthermore, Landlord shall have the right to renew, expand, or extend the lease of any existing tenant in the Building without offering such premises to Tenant pursuant to this Rider No. 3. Landlord agrees to use its best efforts to provide Tenant with as much notice as possible as it relates to non-renewing tenants. 31 RIDER NO. 4 CAP ON CERTAIN OPERATING EXPENSES For the purpose of determining Additional Rent, Permitted Capital Past Through Costs and Operating Expenses (exclusive of the Non-Capped Operating Expenses, as hereinafter defined) for any calendar year shall not be increased over the amount of Operating Expenses (exclusive of Non-Capped Operating Expenses) during the calendar year in which the term of this Lease commences by more than eight percent (8%) per year on a cumulative basis, compounded annually. It is understood and agreed that there shall be no cap on Non-Capped Operating Expenses, which are hereby defined to mean all Utility Expenses, Real Estate Taxes and Insurance Premiums. 32 RIDER NO. 5 SIGNAGE At the point and time Tenant leases and occupies one third (1/3) of the building or more, Landlord will grant Tenant the right, at Tenant's sole cost and expense, to erect and install one (1) exterior Building type sign on the south elevation of the Building in a location to be approved by Landlord. Landlord reserves the right to approve style, type of construction, color, size and location of the sign. Landlord's approval, shall be submitted to Tenant in writing after receipt by Landlord of Tenant's request accompanied by drawings, schematics and site location for said signage together with any applicable plans and specifications for review. Installation shall be subject to: (i) Tenant's receipt of all necessary governmental permits and approvals, (ii) Landlord's written consent and (iii) supervision by Landlord of installation. Installation shall include restoration of the Building's grounds and common areas and all expenses associated with the same to be paid by Tenant. Tenant agrees to remove any exterior building signage installed by Tenant at Tenant's sole cost and expense when the Premises are vacated or the Lease Term is terminated or otherwise cancelled and to restore the exterior of the Building and Building grounds and common areas to their original condition. 33 RIDER NO. 6 GENERAL JANITORIAL SPECIFICATIONS Janitorial services are to be performed nightly Monday through Friday or Sunday through Thursday, five (5) days per week. Services to be furnished shall include, but not be limited to: all office areas, including service areas, all restrooms (private and public), all stairways, all elevators and elevator lobbies, all entrance walkways (plaza), truck loading/receiving area, active storage/files areas and janitorial areas. Areas not serviced are: Mechanical and electrical equipment rooms, mechanical and maintenance shops (maintenance offices should be cleaned), elevator pits, dead storage areas and garage areas. While areas listed in this paragraph are not included in regular services, they will be swept, mopped or cleaned on request and handled on a work order as special work. I. GENERAL CLEANING, FIVE DAYS PER WEEK: A. All carpeting will be vacuumed and spot cleaned. Chair mats should be lifted and areas underneath vacuumed monthly. B. Empty and clean all wastebaskets, sand urns and/or jardinieres, receptacles, ash trays, etc.; damp dust or wet wipe and polish as necessary. (Liners will be placed in receptacles and wastebaskets and replaced as needed.) C. Remove all trash and wastepaper to designated collection points. Bag trash and non-bag trash will be placed in designated area and either removed nightly or placed in trash compactor (to be designated by manager). D. All horizontal surfaces of desks, other furniture and file cabinets should be dusted with clean dry cloth as necessary. Personal items, papers, folders, etc. will not be moved in order to avoid misplacement or breakage. NOTE: Computer keyboards will not be dusted. E. All chairs will be dusted and replaced around desks and conference tables. F. Drinking fountains will be cleaned and disinfected, and all exposed metal shall be polished and kept free of foreign matter. G. All interior doors and partition panels will be cleaned to remove smudge marks and dust. H. All glass doors, windows around front and rear entrances and glass panels will be cleaned and polished. I. All tenant's entrance doors, frames, glass and adjacent metal will be cleaned and polished. Partition glass will be spot cleaned to remove smudges and fingerprints. J. Vacuum entrance mats nightly. K. All thresholds shall be cleaned and polished nightly. L. Wash and polish all restroom mirrors, powder shelves, bright work, dispensers, etc. M. Clean and sanitize all restroom fixtures. Toilet, wash basins, urinals, shower walls, and floors to be kept free of scale and mildew. Wash and sanitize top and underside of toilet seats and benches. N. Refill soap, towel, and tissue containers, and holders. O. Wipe down toilet partitions and counters and walls around wash basins. P. Mop all restroom and shower room floors. Q. Mop hard surfaced floors. R. Mop outside main lobby entrances. S. Sweep outside loading dock truck area. T. Dust mop and sweep loading dock and service elevator area. Page 1 of 4 U. Wipe clean window sills. V. Empty and sanitize all receptacles and sanitary disposals. W. Clean building directory and remove fingerprints and smudges. X. All counter tops of wet bar areas will be wiped down nightly and sinks will be cleaned if free of dishes. Y. Blackboards and chalk trays will be cleaned as requested. Z. Clean all lobby furniture, remove fingerprints and smudges from metal and glass trim on furniture. AA. Sweep exterior porch access to buildings. II. GENERAL CLEANING - WEEKLY A. Vacuum upholstery in executive areas. B. Spray buff hard tile floors. C. Machine scrub, wash, buff all resilient tile, and concrete floors. D. Wash down with disinfectant all ceramic tile walls, toilet partitions, ledges and sills in restrooms. E. Wash all door glass and sidelights. F. Paneled walls will be dusted with a clean dry cloth. G. Loading dock will be hosed down and cleaned of all foreign matter. H. Sweep and dust service elevator lobbies. III. GENERAL CLEANING - MONTHLY A. Dust all cabinets, files, chairs, chair rails, paneling, sills, trim and baseboards. B. Dust pictures, frames and picture glass. C. Dust exterior of lighting fixtures and air conditioning grills. D. Venetian blinds are to be dusted or vacuumed. E. Remove high cobwebs from all entry areas. V. GENERAL CLEANING - QUARTERLY. A. Dust and spot clean where necessary all vertical surfaces such as walls, partitions, ventilating louvers, and other surfaces not reached in nightly or monthly cleaning. B. High dust (ladder required) all shelves, cabinets and other objects in tenant offices. C. Vacuum upholstery and draperies. D. Wash desk floor mats if necessary. ELEVATOR CLEANING A. Elevator carpet will be vacuumed daily, spot cleaned as required, and shampooed monthly. B. Exterior doors and trim will be dusted and fingerprint and smudges removed daily. C. Thresholds will be cleaned and polished as needed. D. Fingerprints and smudges will be removed daily from the interior metal doors and panels. E. Ceiling will be dusted monthly. F. Elevator thresholds will be brushed clean and polished daily. G. Service elevator will be cleaned daily, after cleaning personnel have completed their work. Page 2 of 4 VI. FLOOR CLEANING A. Hard Surface (granite included) 1. Common areas: Sweep, wet mop nightly and spray buff nightly, scrub and refinish monthly and strip and refinish semi-annually. 2. Tenant areas: Dust mop and mop nightly, spray buff weekly, scrub and refinish monthly, strip and refinish quarterly. 3. Restroom floors: Strip and reseal monthly, keep grout clean at all times. 4. Scrub and polish door thresholds daily. B. Concrete Floors 1. Dust mop nightly, damp mop weekly and scrub and seal quarterly. 2. Police building stairwells nightly, wet mop quarterly, scrub and seal annually. C. Wood Floors 1. Dust mop daily. 2. Spot damp mop for spillage daily. 3. Wax and buff floors according to installers instruction. D. Carpet Floors 1. Thorough nightly vacuuming. 2. Spot removal as required. 3. Common area carpet on multi-tenant floors will be shampooed quarterly. E. Granite Floors 1. Wet mopped and buffed nightly. 2. Wash and scrub weekly. 3. Grout will be kept clean and free of spotting at all times. F. Outside Sidewalks 1. Police and sweep as required. 2. Sweep and hose down monthly, per managers instructions. VII. WINDOW CLEANING A. The exterior surfaces of the building windows will be cleaned twice per year. III. SPECIAL RULES AND REGULATIONS A. No computer should ever be unplugged. If lamps, etc. are unplugged so outlet may be used for vacuuming, all unplugged items should be re-plugged and left as originally found. B. Vending machines, refrigerators, microwave ovens, etc. in tenant spaces are not to be used by the cleaning crew. No eating is allowed in tenant space or common areas. C. Telephones may not be used by cleaning crew, except by cleaning supervisor, who may use management office or security desk telephones for business or emergency calls only. D. No radios or other personal property of tenants may be used by cleaning crew. E. Cleaning crew will work behind closed doors when possible. All exterior suite doors will be closed and locked while cleaning is being performed. F. Cleaning crew shall perform all work Monday through Friday or Sunday through Thursday commencing at 6:00 p.m. and completing no later than 7:00 am. Page 3 of 4 G. Cleaning crew shall observe the same holidays observed by the building. Cleaning crew will work on holidays that the building is open for normal business. H. Unless the Tenant is in the office, cleaning personnel will turn off all lights and lock all lockable tenant and common area doors when cleaning is complete. IX. ADDITIONAL REQUIREMENTS A. Specification Intent: The outlined specifications for cleaning and related frequencies contained in this Exhibit are intended as a frame work for a janitorial contractor to provide the cleaning standards normally provided in a Building located in The Centre; and are not intended to be all inclusive. the contractor is expected to provide the manpower, supervision and equipment to produce these cleaning standards. Page 4 of 4 RIDER NO. 7 RIGHT TO AUDIT If a statement reflecting annual Operating Expenses is delivered to Tenant pursuant to subsection 2.202 of the Supplemental Lease Provisions, Tenant shall have the right to perform an annual audit at Tenant's expense on Landlord's books and records to the extent necessary to verify Landlord's calculation of actual Additional Rent for the prior calendar year, provided that such audit shall be conducted by a certified Public accountant and further provided that the auditor's report reflecting the results of such audit shall be promptly delivered to Landlord. Any such audit shall be conducted, if at all, (i) within ninety (90) days after the receipt of the annual statement of actual Additional Rent from Landlord, (ii) during Landlord's normal business hours, (iii) at the place where Landlord maintains its records (or such other place as Landlord shall deliver the appropriate records) and (iv) only after Landlord has received ten (10) days prior written notice. IF THE AUDIT REPORT REFLECTS AN OVERCHARGE IN ADDITIONAL RENT OF MORE THAN FIVE PERCENT (5%), THEN LANDLORD SHALL REIMBURSE TENANT FOR REASONABLE COSTS INCURRED BY TENANT FOR SUCH AUDIT. If the audit report reflects that estimated Additional Rent was overcharged or undercharged in the audited calendar year and provided Landlord agrees with such audit, Tenant shall within twenty (20) days after receipt of such report pay to Landlord the amount of any underpayment or, if applicable, Landlord shall allow Tenant a credit against the next accruing installment of Additional Rent in the amount of any overpayment 34 RIDER H-1 (HAZARDOUS MATERIALS SURVEYS) NO KNOWN HAZARDOUS MATERIALS Landlord has heretofore engaged one or more independent contractors to perform limited surveys at the Property to determine if hazardous materials exist on or at the Property (whether one or more, the "Survey"). The scope of visual inspection, testing and sampling performed in connection with the Survey is set forth in the written report (whether one or more, the "Written Report") submitted to Landlord by independent contractor(s) performing the Survey. However, the Tenant is advised that neither extensive testing nor sampling of any portion of the Property was performed in connection with the Survey of the Property. A copy of each Written Report is on file in the Property Manager's office and Tenant shall have the right to inspect each such report. Except as expressly stated in the next following sentence, Landlord makes no representations or warranties whatsoever (express or implied) to Tenant regarding (x) the Survey (including, without limitation, the contents, accuracy and/or scope thereof) or the Written Report or (y) the presence or absence of hazardous or toxic materials or wastes in, at, or under the Premises or the Property. Landlord is not aware of (i) any written reports or surveys concerning the Building other than the Written Report and the Survey on file with the Property Manager and (ii) any fact that makes the Written Report or Survey inaccurate in any material respect. Tenant (a) shall not rely on and has not relied on the Survey or the Written Report, the same having been provided for informational purposes only and (b) acknowledges that Tenant has taken such actions as Tenant deems appropriate to fairly evaluate the Premises and has otherwise satisfied itself that the Premises are acceptable and suitable from an environmental perspective WITHOUT LIMITING LANDLORD'S OBLIGATIONS UNDER THE LEASE. Tenant shall furnish Landlord with a complete and legible copy of any study, report, test, survey or investigation performed by or on behalf of Tenant at any time involving the Premises and shall fully restore all areas and improvements where samples were taken or work was performed and repair all damage resulting from any of the same and shall indemnify and hold Landlord harmless from any against all claims, actions, liabilities, damages, losses, injuries or deaths in connection with or arising out of or from any inspection, testing, sampling or similar or dissimilar activity conducted by or on behalf of Tenant at or in the Premises or the Property for hazardous or toxic materials or wastes. 35 RIDER H-2 TENANT'S STUDY, TESTING AND INSPECTION RIGHTS Prior to commencement of any tenant finish work to be performed by Landlord, Tenant shall have the right to make such studies and investigations and conduct such tests and surveys of the Premises from an environmental standpoint as Tenant deems necessary or appropriate, subject to the condition that all such studies and investigations shall be completed prior to the commencement of any tenant finish work to be performed by Landlord. Tenant shall restore the Premises and hold Landlord harmless from and indemnify Landlord against all loss, damages and claims resulting from or relating to Tenant's studies, tests and investigations. If such study, test, investigation or survey evidences hazardous or toxic materials which effect the Premises, Tenant shall have the right to terminate this Lease provided such right shall be exercised, if at all, prior to the commencement of any tenant finish work to be performed by Landlord and within five (5) days after Tenant receives the evidence of hazardous or toxic materials. If Tenant does not exercise such right prior to commencement of any such tenant finish work and within such five (5) day period, Tenant's right to terminate this Lease shall be null and void and of no further force or effect. 36 EX-10.33 8 f76817ex10-33.txt EXHIBIT 10.33 EXHIBIT 10.33 LEASE AGREEMENT This document amends the Lease Agreement dated November 14, 1996 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), successor under Assignment to McAfee Associates, Inc., for the Premises located at 4099 McEwen, Suites 500 & 700, Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvements, Tenant shall expand within the Building to Suite 620 containing 5,983 rentable square feet and as further defined and delineated on the attached Exhibit "A-1", increasing the total leased Premises to 37,712 rentable square feet. Basic Lease Provision No. 3 "Basic Rent" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvements, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~Jan. 1, 1998 thru Jan. 31, 2002 $49,583.85 Feb. 1, 2002 thru Jan. 31, 2003 $54,211.00~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvements, Tenant's proportionate share shall adjust to 30.47% for all purposes under the Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvement, the Expense Stop for the expansion space only (suite #620-5, 983 rsf) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1998, expressed as a function of 123,770 rentable square feet for the building. Basic Lease Provision No. 7 "Term" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvement, Tenant's Lease Term for the expansion suite 620 (5,983 rsf) shall be sixty-one (61) months for an expiration date of January 31, 2003. Additionally, the Lease Term on Tenant's existing space (31,729 rsf) shall be extended twelve (12) months for a new expiration date of January 31, 2003. Basic Lease Provision No. 10 "Security Deposit" Effective January 1, 1998, pending the substantial completion of construction of certain leasehold improvements, Tenant's Security Deposit shall increase to $49,583.85. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment, except as listed below, and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith: By separate letter agreement between Landlord and The Stoneleigh Group. Exhibit "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $35,898 (The "Finish Allowance"). Should tenant improvements be in excess of the Finish Allowance, Landlord agrees to provide Tenant up to an additional $17,949 (The "Additional Finish Allowance") above the previously stated Finish Allowance. Tenant shall repay the Additional Finish Allowance by increasing the Basic Rent due under the Amendment. The amount of the increase to the Basic Rent shall be the same required to amortize the Additional Finish Allowance with simple interest at eleven percent (11%) per annum over the term of the Amendment, in equal monthly installments. Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment. Tenant Improvements shall be constructed in accordance with Exhibit D. Tenant agrees to execute an Acceptance of Premises Memorandum upon Substantial Completion as defined in Exhibit D. Rider No. 5 "Signage" Rider No. 5 shall be amended as follows: Landlord hereby grants Tenant exterior building signage effective upon the full execution of this Amendment, subject to the requirements and guidelines stated in Rider No. 5 of the Lease Agreement. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 24th day of November, 1997. LANDLORD: Blue Lake Partners, Ltd. By: Granite Properties, Inc. Its General Partner By: /s/ JAMES S. KIRCHHOFF ---------------------------------------------- James H. Kirchhoff, Vice President TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ SYDNEY McINTOSH ---------------------------------------------- Sydney McIntosh, Secretary Exhibit "A-1" [GRAPHIC] EX-10.34 9 f76817ex10-34.txt EXHIBIT 10.34 EXHIBIT 10.34 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 500, 620, & 700, Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective March 16, 1998, Tenant shall temporarily expand within the Building to Suites #135 and #405 containing 4,137 rentable square feet and as further defined and delineated on the attached Exhibit "A-3", increasing the total leased Premises to 41,849 rentable square feet. Basis Lease Provision No. 3 "Basic Rent" Effective March 16, 1998, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~March 16, 1998 thru May 31, 1998 $55,789.35~~
Basic Lease Provision No. 7 "Term" Effective March 16, 1998, Tenant's Lease Term for the temporary expansion space (Suites #130 and #405) shall be for two (2) months for an expiration date on the temporary expansion space only of May 31, 1998. Should long term expansion space not be available June 1, 1998, Landlord agrees to Tenant holdover on a month-to-month basis. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and holds harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Tenant accepts these temporary suites in there current "as is" condition and agrees that the Landlord has no leasehold improvement obligations. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 17th day of March, 1998. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON ---------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ SYDNEY McINTOSH ---------------------------------- Sydney McIntosh VP, Sales Finance Exhibit "A-3" [GRAPHIC] Exhibit "A-3" [GRAPHIC] EX-10.35 10 f76817ex10-35.txt EXHIBIT 10.35 EXHIBIT 10.35 LEASE AGREEMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 500, 620, & 700, Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective June 1, 1998, Tenant shall expand into Suite #300 in the 4101 McEwen Building containing 15,869 rentable square feet within The Centre office complex while maintaining all its space at 4099 McEwen Suites 500, 620, & 700. The new, combined square footage will total 53,581 rentable square feet. The expansion space (4101 McEwen, Suite #300) is further defined and delineated on the attached Exhibit "A-2". Tenant shall have the right to tie both buildings together with copper and fiber. Basic Lease Provision No. 3 "Basic Rent" Effective June 1, 1998, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~June 1, 1998 thru Jan. 31, 2002 $73,387.35 Feb. 1, 2002 thru Feb. 17, 2003 $78,014.50~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective June 1, 1998, Tenant's proportionate share of the 4101 McEwen Building shall be set at 12.76% for all purposes under this Lease. Tenant's proportionate share of the 4099 McEwen Building shall remain 30.47% for all purposes under the Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective June 1, 1998, the Expense Stop for the expansion space only (4101 McEwen, Suite #300) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1998, expressed as a function of 124,326 rentable square feet for the building. Basic Lease Provision No. 7 "Term" Effective June 1, 1998, Tenant's Lease Term for the expansion space (4101 McEwen, Suite 300) shall be fifty-six (56) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $130,919.25 (The "Finish Allowance"). Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment. Tenant Improvements shall be constructed in accordance with Exhibit D. Tenant agrees to execute an Acceptance of Premises Memorandum upon Substantial Completion as defined in Exhibit D. Rider No. 3 "Tenant's Right of First Refusal" Effective June 1, 1998, Tenant shall be granted a "Right of Second Refusal", in the expansion space only (4101 McEwen, Suite 300), on all the area described on the attached Schedule "A-1". Such Right shall be granted under the same terms and conditions as Tenant's existing Right of First Refusal except that Tenant's right of opportunity on the Second Right of Refusal space will be subordinate to any and all existing renewal, expansion, and refusal rights of existing tenants. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 27th day of March, 1998. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON ----------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ SYDNEY McINTOSH ----------------------------------- Sydney McIntosh VP Sales Finance Exhibit "A-2" [Graphic] Schedule "A-1" [Graphic] Schedule "A-1" [Graphic] EX-10.36 11 f76817ex10-36.txt EXHIBIT 10.36 EXHIBIT 10.36 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997 and March 27, 1998 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 500, 620, & 700, and 4101 McEwen, Suite 300 Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective June 1, 1998, Tenant shall expand within the same building into Suite #405 in the 4099 McEwen Building containing 2,123 rentable square feet maintaining all its space at 4099 McEwen Suites 500, 620, & 700 and 4101 McEwen Suite 300. The new, combined square footage will total 55,704 rentable square feet. The expansion space (4099 McEwen, Suite #405) is further defined and delineated on the attached Exhibit "A-3". Basic Lease Provision No. 3 "Basic Rent" Effective June 1, 1998, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~June 1, 1998 thru Jan. 31, 2002 $76,616.08 Feb. 1, 2002 thru Feb. 17, 2003 $81,243.23~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective June 1, 1998, Tenant's proportionate share of the 4099 McEwen Building shall be set at 32.18% for all purposes under this Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective June 1, 1998, the Expense Stop for the expansion space only (4099 McEwen, Suite #405 - 2,123 rsf) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1998, expressed as a function of 123,770 rentable square feet for the building. Basic Lease Provision No. 7 "Term" Effective June 1, 1998, Tenant's Lease Term for the expansion space (4099 McEwen, Suite 405 - 2,123 rsf) shall be fifty-six and one half (56 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $17,514.75 (The "Finish Allowance"). Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment. Tenant Improvements shall be constructed in accordance with Exhibit D. Tenant agrees to execute an Acceptance of Premises Memorandum upon Substantial Completion as defined in Exhibit D. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 4th day of June, 1998. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON ----------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT GOYAL, CFO ----------------------------------- Prabhat Goyal, CFO Exhibit "A-3" [GRAPHIC] EX-10.37 12 f76817ex10-37.txt EXHIBIT 10.37 EXHIBIT 10.37 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997, March 27, 1998, and June 4, 1998 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 405, 500, 620, & 700, and 4101 McEwen, Suite 300 Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective August 1, 1998, Tenant shall expand into Suite #270 in the 4101 McEwen Building containing 3,663 rentable square feet within The Centre office complex while maintaining all it present space at 4099 and 4101 McEwen. The new, combined square footage will total 59,367 rentable square feet. The expansion space (4101 McEwen, Suite #270) is further defined and delineated on the attached Exhibit "A-4". Basic Lease Provision No. 3 "Basic Rent" Effective August 1, 1998, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~August 1, 1998 thru July 31, 1999 $82,415.08 August 1, 1999 thru July 31, 2002 $76,616.08 Feb. 1, 2002 thru Feb. 17, 2003 $81,243.23~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective August 1, 1998, Tenant's proportionate share of the 4101 McEwen Building shall be set at 15.71% for all purposes under this Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective August 1, 1998, the Expense Stop for the expansion space (4101 McEwen, Suite #270 - 3,663 rsf) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1998, expressed as a function of 124,326 rentable square feet for the building. Basic Lease Provision No. 7 "Term" Effective August 1, 1998, Tenant's Lease Term for the expansion space only (4101 McEwen, Suite 270 - 3,663 rsf) shall be twelve (12) months for an expiration date of July 31, 1999. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Tenant accepts this expansion space (4101 McEwen, Suite #270 - 3,663 rsf) in its current "as is " condition and agrees that the Landlord has no leasehold improvement obligations. Rider No. 2 "Renewal Option" This expansion area (4101 McEwen, Suite #270 - 3,663 rsf) shall be subject to the same renewal option as the existing premises except the term shall be for forty two and one half months (42 1/2) to be coterminous with the existing premises' expiration date. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 21st day of July, 1998. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ JIM KIRKHOFF -------------------------------- Jim Kirkhoff, Director of Leasing TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT K. GOYAL -------------------------------- Prabhat Goyal CFO Exhibit "A-4" [GRAPHIC] EX-10.38 13 f76817ex10-38.txt EXHIBIT 10.38 EXHIBIT 10.38 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997, March 27, 1998, June 4, 1998, and July 21, 1998 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 405, 500, 620, & 700, and 4101 McEwen, Sites 270 and 300, Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective December 1, 1998, Tenant shall expand into Suite #660 in the 4099 McEwen Building containing 1,775 rentable square feet within The Centre office complex while maintaining all its present space at 4099 and 4101 McEwen. Additionally, effective January 1, 1999, Tenant shall expand into Suite #850 in the 4099 McEwen Building containing 10,777 rentable square feet within The Centre office complex while maintaining all its then current space at 4099 and 4101 McEwen. Tenant's new, combined square footage will total 71,919 rentable square feet for both Buildings. The expansion spaces (4099 McEwen, Suite #660 and Suite #850) are further defined and delineated on the attached Exhibits "A-5" and "A-6," respectively. If Landlord is unable to provide delivery of such spaces on the respective dates, the rental obligation for each should be delayed accordingly. If delivery is not made within 120 days, Tenant has right to terminate leasing of the specific space. Basic Lease Provision No. 3 "Basic Rent" Effective December 1, 1998, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~Dec. 1, 1998 thru Dec. 31, 1998 $85,373.41 Jan. 1, 1999 thru Jan. 31, 2002 $103,335.08 Feb. 1, 2002 thru Feb. 17, 2003 $107,962.98~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective January 1, 1999, Tenant's proportionate share of the 4099 McEwen Building shall be set at 42.33 % for all purposes under this Lease. Tenant's proportionate share of the 4101 McEwen Building shall remain 15.71% for all purposes under this Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective December 1, 1998, the Expense Stop for the expansion spaces (4099 McEwen, Suite #660 and Suite #850) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1998, expressed as a function of 123,770 rentable square feet for the building. Basic Lease Provision No. 7 "Term" Effective December 1, 1998, Tenant's Lease Term for the expansion space at 4099 McEwen, Suite #660 containing 1,775 rsf shall be fifty and one half (50 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. Effective January 1, 1999, Tenant's Lease Term for the expansion space at 4099 McEwen, Suite #850 containing 10,777 rsf shall be forty nine and one half (49 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. Additionally, Tenant's existing lease space located at 4101 McEwen, Suite #270 containing 3,663 rsf shall be extended by forty two and one half (42 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $72,174.00 (The "Finish Allowance") on the expansion spaces only (4099 McEwen, Suites #660 and #850). Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment. Tenant Improvements shall be constructed in accordance with Exhibit D. Tenant agrees to execute an Acceptance of Premises Memorandum upon Substantial Completion as defined in Exhibit D. Tenant accepts the space located at 4101 McEwen, Suite #270 containing 3,663 rsf in its current "as is" condition and agrees that the Landlord has no leasehold improvement obligations. Rider No. 2 "Renewal Option" This expansion areas (4099 McEwen, Suite #660 and Suite #850) shall be subject to the same renewal option as the existing premises. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 20th day of November, 1998. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON -------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT K. GOYAL -------------------------------- Prabhat Goyal, CFO Exhibit "A-5" [GRAPHIC] Exhibit "A-6" [GRAPHIC] EX-10.39 14 f76817ex10-39.txt EXHIBIT 10.39 EXHIBIT 10.39 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998 and November 20, 1998 by and between Blue Lake Partners. Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 405, 500, 620, 660, 700 and 850, and 4101 McEwen, Suites 270 and 300 Dallas, Texas 75244 as follows: Basic Lease Provision No. 2 "Premises" Effective June 1, 1999, Tenant shall expand into Suite #800 in the 4099 McEwen Building containing 4,750 rentable square feet and expand into Suite #100 in the 4101 McEwen Building containing 3,843 rentable square feet (for a total expansion of 8,593 rentable square feet) within The Centre office complex while maintaining all its then current space at 4099 and 4101 McEwen. Tenant's amended square footage will total 80,512 rentable square feet for both Buildings. The expansion spaces (4099 McEwen, Suite #800 and 4101 McEwen, Suite #100) are further defined and delineated on the attached Exhibits "A-7" and "A-8" respectively. IF LANDLORD IS UNABLE TO PROVIDE DELIVERY OR SUCH SPACES ON THE RESPECTIVE DATES, THE RENTAL OBLIGATION FOR EACH SHOULD BE DELAYED ACCORDINGLY. IF DELIVERY IS NOT MADE WITHIN 120 DAYS, TENANT HAS RIGHT TO TERMINATE LEASING OF THE SPECIFIC SPACE. Basic Lease Provision No. 3 "Basic Rent" Effective June 1, 1999, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~Jan. 1, 1999 thru Jan. 31, 2002 $117,657.00 Feb. 1, 2002 thru Feb. 17, 2003 $122,285.00~~
Basic Lease Provision No. 4 "Tenant's Pro Rate Share" Effective January 1, 1999, Tenant's proportionate share of the 4099 McEwen Building shall be amended to 46.16% for all purposes under this Lease. Tenant's proportionate share of the 4101 McEwen Building shall be amended to 18.80% for all purposes under this Lease. Basic Lease Provision No.'s 5&6 "Operating Expense Stop" Effective June 1, 1999, the Expense Stop for the expansion spaces (4099 McEwen, Suite #800 and 4101 McEwen, Suite #100) shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1999, expressed as a function of 123,770 rentable square feet for the 4099 McEwen building and 124,326 rentable square feet for the 4101 McEwen Building. Basic Lease Provision No. 7 "Term" Effective June 1, 1999, Tenant's Lease Term for the expansion space at 4099 McEwen, Suite #800 and 4101 McEwen, Suite 100 shall be forty-four and one-half (44 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. 1 Basic Lease Provision No. 11 "Tenant's Broker" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Exhibit "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $43,210.00 (The "Finish Allowance") on the expansion spaces only (4099 McEwen, Suites #800 and 4101 McEwen, Suite #100). Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment. Tenant Improvements shall be constructed in accordance with Exhibit D. Rider No. 2 "Renewal Option" This expansion areas (4099 McEwen, Suite #800 and 4101 McEwen, Suite #100) shall be subject to the same renewal option as the existing premises. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 18th day of March, 1999. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON -------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT K. GOYAL -------------------------------- Prabhat Goyal, CFO 2 EXHIBIT "A-9" [GRAPHIC] 4 EXHIBIT "A-10" [GRAPHIC] 5 EX-10.40 15 f76817ex10-40.txt EXHIBIT 10.40 EXHIBIT 10.40 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998 November 20, 1998 and March 18, 1999 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 405, 500, 620, 660, 700, 850 and 800, and 4101 McEwen, Suites 100, 270 and 300 Dallas, Texas 75244 as follows: BASIC LEASE PROVISION NO. 2 "PREMISES" Effective August 1, 1999, Tenant shall lease Suite #800 in the 4101 McEwen Building containing 15,669 rentable square feet, and effective February 1, 2000, lease Suite #700 in the 4101 McEwen Building containing 15,949 rentable square feet hereinafter "Expansion Spaces" (for a total expansion of 31,618 rentable square feet) within The Centre office complex while maintaining all its then current space at 4099 and 4101 McEwen. Tenant's amended square footage will total 112,130 rentable square feet for both Buildings. The Expansion Spaces (4101 McEwen, Suites 700 and 800) are further defined and delineated on the attached Exhibits "A-9" and "A-10" respectively. BASIC LEASE PROVISION NO. 3 "BASIC RENT" Effective August 1, 1999, Tenant's Basic Monthly Rent shall adjust as follows:
Term Monthly Rent ---- ------------ ~~August 1, 1999 thru January 31, 2000 $144,425.00 February 1, 2000 thru January 31, 2002 $173,000.00 Feb. 1, 2002 thru Feb. 17, 2003 $177,628.00~~
BASIC LEASE PROVISION NO. 4 "TENANT'S PRO RATE SHARE" Effective August 1, 1999, Tenant's proportionate share of the 4099 McEwen Building shall be unchanged at 46.16% for all purposes under this Lease. Tenant's proportionate share of the 4101 McEwen Building shall be amended to 31.40% for all purposes under this Lease. Effective February 1, 2000, contemporaneously with the expansion into Suite 700, Tenant's proportionate share for 4101 McEwen shall be amended to 44.23%. Notwithstanding "Tenant's Pro Rata Share", at the option of Tenant, shall be amended subsequently pursuant to the Reduction Option set forth herein. BASIC LEASE PROVISION NO.'S 5&6 "OPERATING EXPENSE STOP" Effective August 1, 1999, the Expense Stop for the Expansion Spaces shall be set at an amount equal to the sum of the actual grossed up operating expenses for 1999, expressed as a function of 124,326 rentable square feet for the 4101 McEwen Building. 1 BASIC LEASE PROVISION NO. 7 "TERM" Effective August 1, 1999, the Lease Term for the expansion space at 4101 McEwen, Suite #800 shall be forty-two and one-half (42 1/2) months and the Lease Term for 4101 McEwen, Suite #700 shall be thirty-six and one-half (36 1/2) months for an expiration date coterminous with Tenant's existing space of February 17, 2003. BASIC LEASE PROVISION NO. 11 "TENANT'S BROKER" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. REDUCTION OPTION Upon full occupancy of the seventh (7th) floor of 4101 McEwen, Tenant shall have sixty (60) days to notify Landlord in writing that it elects to vacate Suite 270 at 4101 McEwen (3,663/RSF) and Suite 660 at 4099 McEwen (1,775/RSF). If such notice is received within the period stipulated herein, the Base Rent and Tenant's Pro Rata Share shall be adjusted downward based on the rate per square foot of such space at its initial leasing and shall become effective 30 days after Tenant's notice to Landlord and Tenant's vacating such suite(s). Additionally, an amendment shall be submitted to Tenant which addresses the economic terms of the Lease affected in the vacating of either suite and the termination of same. Failure of Tenant to submit notice within the sixty (60) day period shall be deemed an acceptance by Tenant of such space for the remainder of the Lease Term. RIGHT OF FIRST REFUSAL Notwithstanding herein to the contrary, Tenant shall have a Right of First Refusal on the 5th floor of 4101 McEwen on the same terms and conditions specified in Rider No. 3. OTHER SPACE The Expansion Spaces are currently under lease to Unisource Worldwide. In the event Landlord is unable to successfully terminate the lease with Unisource Worldwide for such Expansion Spaces and the Condition Precedent has been exercised, then Tenant, may upon written notice to Landlord, lease any available space on the 5th floor of 4101 McEwen at the same terms and conditions set for the herein above except as may be adjusted based on the actual size of the available space and a pro-ration of the Finish Allowance. Additionally, in such event, Landlord shall provide Tenant a Right of First Refusal on the 7th and 8th floors of 4101 McEwen. TEMPORARY SPACE In the event there is any delay in delivering possession to Tenant Suite 800 of the Expansion Space beyond August 1, 1999, Tenant may utilize available space on the 5th floor under the terms of a temporary agreement. The agreement will be similar to that used for Suite 200 at 4099 McEwen. CONDITION PRECEDENT If Landlord is unable to provide Tenant possession of Suite 700 or Suite 800 at 4101 McEwen on or before August 1, 1999 and February 1, 2000 respectively, the Lease and the rental obligation for each should be delayed accordingly. If delivery is not made within 120 days of the full execution of this Amendment, Tenant has the right to terminate leasing of the specific space which is unavailable. 2 EXHIBIT "D" Exhibit D, Work Letter, Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $79,745 for Suite 700 and $76,151 for Suite 800 at 4101 McEwen (The "Finish Allowance"). Tenant acknowledges that Landlord has satisfactorily completed all of Landlord's work and all tenant improvements called for by or under all prior Exhibit "D" construction plans and specifications to the Lease and any Amendments, and the only work to be performed by Landlord is under this Amendment, except for the Suite 800 at 4099 McEwen. Tenant Improvements shall be constructed in accordance with Exhibit D. RIDER NO. 2 "RENEWAL OPTION" This Expansion Space (4101 McEwen, Suite #700 and #800) shall be subject to the same renewal option as the existing premises. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. EXECUTED the 3rd day of June, 1999. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its General Partner By: /s/ MARK HARRISON -------------------------------- Mark Harrison, Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT GOYAL -------------------------------- Prabhat Goyal, CFO 3 EXHIBIT "A-7" [GRAPHIC] 3 EXHIBIT "A-8" [GRAPHIC] 4 EX-10.41 16 f76817ex10-41.txt EXHIBIT 10.41 EXHIBIT 10.41 LEASE AMENDMENT This document amends the Lease Agreement dated November 14, 1996 and amended November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998, November 20, 1998, March 18, 1999, and June 3, 1999 by and between Blue Lake Partners, Ltd. ("Landlord"), and McAfee Software, Inc., a Delaware Corporation ("Tenant"), for the Premises located at 4099 McEwen, Suites 405, 500, 620, 660, 700, 850 and 800, and 4101 McEwen, Suites 100, 270, 300, 700 and 810, Dallas, Texas 75244 as follows: COMMENCEMENT DATE Landlord and Tenant confirm and agree that the Commencement Date for Suite 800 at 4101 McEwen shall be September 1, 1999 and the Commencement Date for Suite 700 at 4101 McEwen shall be February 1, 2000. EXHIBIT "D" Effective September 1, 1999, Tenant shall have access to Suite 700 at 4101 McEwen for the purpose of constructing its Tenant Improvements and installing fixtures, furniture, and data, telephone and network/computer cabling. GENERATOR Tenant shall have sole rights and use of the generator (formerly used by Unisource) located on the roof of the 4101 McEwen Building. Section 6.201, Tenant's Obligation, of Article 6 of the Lease, shall be amended such that Tenant's Obligations for maintenance and repair shall include the generator, at such intervals and at such time reasonably required by Landlord. Additionally, Tenant acknowledges that the use of the generator is an Additional Service and agrees all electrical expenses incurred shall be considered Excess Consumption Costs and agrees to pay for such Excess Consumption Costs pursuant to Article 5 of the Lease. In addition, at the expiration or earlier termination of the Lease, the generator shall be surrendered with the Premises. Any testing of the generator shall be conducted during non-business hours unless otherwise approved by Landlord. BASIC LEASE PROVISION NO. 11 "TENANT'S BROKER" Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. Submission of this instrument for examination or signature by Tenant is not effective until execution by and delivery to both Landlord and Tenant. All other terms and conditions shall remain the same and in full force and effect. 1 EXECUTED the 7th day of October, 1999. LANDLORD: Blue Lake Partners, Ltd. By: SF Realty, Inc. Its: General Partner By: /s/ MARK HARRISON -------------------------------- Mark Harrison Leasing Manager TENANT: McAfee Software, Inc. (a Delaware Corporation) By: /s/ PRABHAT GOYAL -------------------------------- Prabhat Goyal, CFO 2 EX-10.42 17 f76817ex10-42.txt EXHIBIT 10.42 EXHIBIT 10.42 LEASE AMENDMENT This document amends that certain Lease Agreement dated November 14, 1996 (the "LEASE"), as amended November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998, November 20, 1998, March 18, 1999, June 3, 1999, and October 7, 1999 is made and entered into by and between DALTEX CENTRE LP, a Delaware limited partnership (the "LANDLORD"), successor in interest to Blue Lake Partners, Ltd., AND NETWORK ASSOCIATES, INC., A DELAWARE CORPORATION, SUCCESSOR IN INTEREST TO MCAFEE SOFTWARE, INC., A DELAWARE CORPORATION (Tenant), with respect to certain leased premises (the "PREMISE") consisting of approximately 112,130 square feet of Rentable Area located at 4099 McEwen, Suites 405, 500, 620, 660, 700, 800, 850, and 4101 McEwen, Suites 100, 270, 300, 700, and 800 Dallas, Texas 75244 (the "BUILDING"). (All capitalized terms used herein shall have the same meaning as in the Lease, unless otherwise specified.) RECITALS Tenant is leasing approximately 112,130 square feet of Rentable Area of the Building under the Lease, with a scheduled expiration date of February 17, 2003. Tenant desires to expand the Premises by adding Suite 550 containing 4,607 rsf, Suite 545 containing 4,118 rsf, Suite 506 containing 2,357 rsf, and Suite 510 containing 1,176 rentable square feet (see Exhibit A), subject to the terms and provisions set forth hereinafter. The Premises will now total 124,388 rentable square feet. AGREEMENTS For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. BASIC LEASE PROVISION NO. 2 "PREMISES". Effective July 1, 2000, Tenant shall lease Suites 550, 545, 506, and 510 (consisting of 12,258 rentable square feet) in the 4101 McEwen Building within The Centre office complex while maintaining all its then current space at 4099 and 4101 McEwen. Tenants amended square footage will total 124,388 rentable square feet for both Buildings. Tenant shall have early access rights for construction and occupancy after May 1, 2000 upon execution of this Amendment. 2. BASIC LEASE PROVISION NO. 9 "EXPIRATION DATE". The Lease Term for the 124,388 rentable square feet area shall remain unchanged with an expiration date of February 17, 2003. 3. BASIC LEASE PROVISION NO. 3 "BASIC RENT". Effective June 1, 2000, the monthly Rental Payment shall adjust as follows:
S.F. DATES: MONTHLY BASE RENT - ------- ------ ----------------- ~~124,388 June 1, 2000 thru January 31, 2002 $193,430.00 February 1, 2002 thru February 17, 2003 $198,058.00~~
4. BASIC LEASE PROVISIONS NO. 4 "TENANT'S PRO RATE SHARE $". Effective February 1, 2000, Tenant's proportionate share of the 4099 McEwen Building shall be unchanged at 46.16% for all purposes under this Lease. Tenant's proportionate share of the 4101 McEwen Building shall be amended to 54.09% for all purposes under this Lease. Notwithstanding, "Tenant's Pro Rata Share", at the option of Tenant, shall be amended subsequently pursuant to the Reduction Options set forth in the prior amendment. 5. BASIC LEASE PROVISION NO. 5 & 6 "OPERATING EXPENSE STOP". Effective June 1, 2000, Expense Stop for the expansion space on the 5th floor of 4101 McEwen shall be set at an amount equal to the sum of the actual grossed up operating expenses for 2000, expressed as a function of 124,326 rentable square feet for the 4101 McEwen Building. 1 6. BASIC LEASE PROVISION NO. 11 "TENANT'S BROKER". Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. 8. RIGHT OF FIRST REFUSAL: Notwithstanding herein to the contrary, Tenant shall, subject to prior rights within the 4101 McEwen Building, have a Right of First Refusal to lease any remaining space in the 4101 McEwen Building during the term of this Lease. Tenant shall respond in writing to Landlord within five (5) business days after receipt of Landlord's written notice of any prospective lease in the 4101 McEwen building. Absent of any response from Tenant or if Tenant decides not to exercise such rights, Landlord shall be free to lease such space to any other party. 9. EXHIBIT "D". EXHIBIT D. Work Letter Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended such that Landlord shall provide an allowance up to $53,077.00 for Suites 550, 545, 506, and 510 at 4101 McEwen (The "Finish Allowance"). 10. FORCE AND BINDING EFFECT; GOVERNING LAW: Except as modified hereby and by the Amendments to Lease Agreement, all other terms and conditions of the Lease shall remain in full force and effect and this Amendment shall continue to be binding upon Landlord and Tenant and their respective successors and assigns. The Lease and this Amendment shall be governed by Texas law. 11. RENEWAL OPTION. This expansion space (4101 McEwen, Suites 550, 545, 506, and 510) shall be subject to the same renewal option as the existing premises. Executed on this 25 day of March 2000. LANDLORD: DALTEX CENTRE LP, a Delaware limited partnership, successor in interest to Blue Lake Partners, Ltd. By: DALTEX CENTRE GP, Inc. By: /s/ RON CHERRY -------------------------------- Name: Ron Cherry Title: Vice President By: /s/ JEAN FRANCIOS FOURNIER -------------------------------- Name: Jean Francios Fournier Title: Vice President TENANT: NETWORK ASSOCIATES, INC. (A DELAWARE CORPORATION) By: /s/ PRABHAT K. GOYAL -------------------------------- Name: Prabhat K. Goyal Title: CFO 2 EXHIBIT "A" (SEE ATTACHED FLOOR PLANS) [GRAPHIC] 2 EX-10.43 18 f76817ex10-43.txt EXHIBIT 10.43 EXHIBIT 10.43 LEASE AMENDMENT This document amends that certain Lease Agreement dated November 14, 1996 (the "LEASE"), as amended November 24, 1997, March 17, 1997, March 27, 1998, June 4, 1998, July 21, 1998, November 20, 1998, March 18, 1999, June 3, 1999, October 7, 1999, and March 25, 2000 is made and entered into by and between DALTEX CENTRE LP, a Delaware limited partnership (the "LANDLORD"), successor in interest to Blue Lake Partners, Ltd., AND NETWORK ASSOCIATES, INC., A DELAWARE CORPORATION, SUCCESSOR IN INTEREST TO MCAFEE SOFTWARE, INC., A DELAWARE CORPORATION (TENANT), with respect to certain leased premises (the "PREMISES") consisting of approximately 124,388 square feet of Rentable Area located at 4099 McEwen, Suites 405, 500, 620, 660, 700, 800, 850, and 4101 McEwen, Suites 100, 270, 300, 506, 545, 550, 700, and 800 Dallas, Texas 75244 (the "BUILDINGS"). (All capitalized terms used herein shall have the same meaning as in the Lease, unless otherwise specified.) RECITALS Tenant is leasing approximately 124,388 square feet of Rentable Area of the Building under the Lease, with a scheduled expiration date of February 17, 2003. Tenant desires to expand the Premises by adding the 13465 Midway Building containing 66,289 rsf. (see Exhibit A), subject to the terms and provisions set forth hereinafter. The Premises will total 190,677 rentable square feet upon full occupancy of the 13465 Midway Building. AGREEMENTS For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: 1. BASIC LEASE PROVISION NO. 2 "PREMISES". Effective October 1, 2000, Tenant shall lease the 1st floor (consisting of 14,139 rsf) and 2nd floor (consisting of 17,455 rsf) of the 13465 Midway Building. The total of these two floors represents 31,594 rentable square feet. Tenant shall have the right to expand onto the 3rd and 4th floors (consisting of 17,384 rsf on the 3rd floor and 17,311 rsf on the 4th floor, hereby referred as "Expansion Floor(s)) anytime after October 1, 2000 by giving Landlord written notice of the intent to occupy the Expansion Floor(s). If Tenant exercises such right to expand, Tenant shall occupy the full floor upon expansion. Regardless of the expansion rights, Tenant shall expand onto both third and fourth floors by January 1, 2001 and take occupancy of the entire 13465 Midway Building. Landlord and Tenant shall confirm in writing the lease commencement date for the third and fourth floors if other than January 1, 2001. Tenant shall maintain all its then current space at 4099 and 4101 McEwen, however, subject to the termination rights of this Amendment. Tenant shall have early access rights for construction and occupancy in the Midway Building beginning August 1, 2000. 2. BASIC LEASE PROVISION NO. 9 "EXPIRATION DATE". The Lease Term for the 190,677 rentable square feet area shall remain unchanged with an expiration date of February 17, 2003. 3. BASIC LEASE PROVISION NO. 3 "BASIC RENT". Effective October 1, 2000, the monthly Rental Payment shall adjust as follows:
S.F. DATES: - ---- ------ CURRENT MONTHLY BASIC RENT FOR 4099 & 4101 BUILDINGS 124,388 October 1, 2000 thru January 31, 2002 $193,430.00 February 1, 2002 thru February 17, 2003 $198,058.00 INCREMENTAL MONTHLY BASIC RENT FOR THE 13465 MIDWAY BUILDING 14,139 October 1, 2000 through February 17, 2003 $23,565.00 1st floor based upon $20 psf
1 17,455 October 1, 2000 through February 17, 2003 $29,091.67 2nd floor based upon $20 psf 17,384 Upon occupancy through February 17, 2003 $28,973.33 3rd floor based upon $20 psf 17,311 upon occupancy through February 17, 2003 $28,851.67 4th floor based upon $20 psf ---------- TOTAL INCREMENTAL MONTHLY BASIC RENT FOR THE 13465 MIDWAY BUILDING $110,481.67 (UPON FULL OCCUPANCY)

4. BASIC LEASE PROVISIONS NO. 4 "TENANT'S PRO RATE SHARE". Effective February 1, 2000, Tenant's proportionate share of the 4099 McEwen Building shall be unchanged at 46.16% for all purposes under this Lease. Tenant's proportionate share of the 4101 McEwen Building shall be amended to 54.09% for all purposes under this Lease. Notwithstanding, "Tenant's Pro Rata Share", at the option of Tenant, shall be amended subsequently pursuant to the Reduction Options set forth in this amendment. Effective October 1, 2000, Tenant's proportionate share of the 13465 Midway Building shall be 47.66% for all purposes under this Lease. Tenant's proportionate share of 13465 Midway Building shall be adjusted at the time of expansion. Notwithstanding, "Tenant's Pro Rata Share", as of January 1, 2001 will be 100%. 5. BASIC LEASE PROVISION NO. 5 & 6 "OPERATING EXPENSE STOP". Effective October 1, 2000, Expense Stop for the 13465 Midway Building shall be set at an amount equal to the sum of the actual grossed up operating expenses for 2000, expressed as a function of 66,289 rentable square feet for the 13465 Midway Building. 6. BASIC LEASE PROVISION NO. 11 "TENANT'S BROKER". Tenant represents and warrants that it has dealt with no Broker or Agent in connection with the execution of this Lease Amendment and Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs arising from a breach of such warranty including without limitation attorney's fees in connection therewith. 7. REDUCTION OPTION: During the period of October 1, 2000 to and including January 31, 2001 and by serving written notice to the Landlord, Tenant shall have the right to terminate the lease on any of the following suites (see chart below) and the rent and lease obligations shall be adjusted accordingly. If such notice is received within the period stipulated herein, the Base Rent and Tenant's Pro Rata Share shall be adjusted downward based on the rate per square foot of such space at that time and shall become effective 30 days after Tenant's notice to Landlord and Tenant's vacating such suite(s). Additionally, an amendment shall be submitted to Tenant, which addresses the economic terms of the Lease affected in the vacating of the suite(s) and the termination of same. Failure of Tenant to submit notice within the period shall be deemed an acceptance by Tenant of such space for the remainder of the Lease Term.
BUILDING SUITE RSF ANNUAL BASIC RENT/SF MONTHLY BASIC RENT -------- ----- --- -------------------- ------------------ 4099 405 2,123 $18.25 $3228.73 4099 620 5,983 $17.25 $8600.56 4099 660 1,775 $20.00 $2958.33 4101 100 3,843 $20.00 $6405.11 4101 270 3,663 $19.00 $5799.00
8. EXHIBIT "D". Work Letter Plans Agreed Upon/Finish Allowance, paragraph 2.1, shall be amended as follows: (1) Landlord shall provide an allowance up to Two Hundred Twelve Thousand Five Hundred Dollars ($212,500) for the 13465 Midway Building (The "Finish Allowance"); (2) Tenant shall be responsible for the balance of the costs for the leasehold improvements, as well as the management of the design and construction of the leasehold improvement, subject to landlord's approval of the Approved Plans; and (3) Landlord's "Construction Management Fee" of five (5%) of the construction Contract Sum shall be deleted. 2 9. FORCE AND BINDING EFFECT; GOVERNING LAW. Except as modified hereby and by the Amendments to Lease Agreement, all other terms and conditions of the Lease shall remain in full force and effect and this Amendment shall continue to be binding upon Landlord and Tenant and their respective successors and assigns. The Lease and this Amendment shall be governed by Texas law. 10. RENEWAL OPTION. This expansion space (13465 Midway) shall be subject to the same renewal option terms as specified in the Lease. Tenant shall, however, have the right to renew the leased space in each building independently from the other buildings (e.g., Tenant shall have the right to renew the 13465 Midway Building without renewing the spaces within the 4099 McEwen Building and/or 4101 McEwen Building). 11. SIGNAGE. Tenant shall have the right to place a company sign on the 13465 Midway Building and the 4101 McEwen Building, subject to the current signage criteria used for signage on the 4101 McEwen Building. Tenant agrees to rescind its signage rights for the 4099 McEwen Building in return for the signage right herein stated. 12. RIGHT TO TRENCH BETWEEN 4101 MCEWEN AND 13465 MIDWAY BUILDINGS. Landlord shall grant Tenant (at Tenant's sole cost) the right to trench between the two buildings for telecommunication/data purposes. Tenant agrees to perform such work in a professional manner, observing all required permits. Landlord maintains the right to approve all work. Tenant will be required to repair such work to its original condition. 13. DELIVERY OF THE 13465 MIDWAY BUILDING. The Midway Building shall be delivered to Tenant free of prior tenancy, debris, and/or personal property (except for those furniture and fixtures as which have been purchased by Tenant from the prior tenant). If the Midway Building is not delivered by August 1, 2000, Tenant shall be credited one month free rent for every month (or prorata thereto) that Tenant is delayed full and complete access into the Midway Building. 14. EXISTING LEASEHOLD IMPROVEMENTS AND FIXTURES. All existing leasehold improvements and fixtures shall remain in or around the 13465 Midway Building, including, but not limited to the UPS, one generator, security system, and all existing infrastructure systems in the data center, etc. 15. RIGHT OF FIRST REFUSAL: Notwithstanding herein to the contrary, Tenant shall, subject to prior rights within the 4100 Alpha Building and the 4100 McEwen Building in The Centre complex, have a continuous Right of First Refusal to lease any available space or contiguous spaces in excess of four thousand (4000) square feet in the 4100 Alpha Building or the 4100 McEwen Building during the term of this Lease. Tenant shall respond in writing to Landlord within five (5) business days after receipt of Landlord's written notice of any prospective lease in the 4100 Alpha Building or the 4100 McEwen Building. Absent of any response from Tenant or if Tenant decides not to exercise such right for the prospective lease, Landlord shall be free to lease such space to any other party. 3 Executed on this 31st day of July 2000. LANDLORD: DALTEX CENTRE LP, a Delaware limited partnership, successor in interest to Blue Lake Partners, Ltd. BY: DALTEX CENTRE GP, INC. BY: /s/ RON CHERRY -------------------------------- Name: Ron Cherry Title: Vice President BY: /s/ YVON TESSIER -------------------------------- Name: Yvon Tessier Title: President TENANT: NETWORK ASSOCIATES, INC. (A DELAWARE CORPORATION) BY: /s/ PRABHAT K. GOYAL -------------------------------- Name: Prabhat K. Goyal Title: CFO 4 EXHIBIT "A" (SEE ATTACHED FLOOR PLANS) [GRAPHIC] 5 EX-10.44 19 f76817ex10-44.txt EXHIBIT 10.44 EXHIBIT 10.44 AMENDMENT NO. 12 TO LEASE AGREEMENT This Amendment No. 12 to Lease Agreement ("Twelfth Amendment") is made and entered into this 24th day of January, 2001, by and between DALTEX CENTRE LP, a Delaware limited partnership ("Landlord"), and NETWORK ASSOCIATES, INC., a Delaware corporation, ("Tenant"). WHEREAS, the predecessors of Landlord and Tenant entered into that certain Standard Office Lease Agreement ("Lease"), dated November 14, 1996, as amended on March 17, 1997, November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998, November 20, 1998, March 18, 1999, June 3, 1999, October 7, 1999, March 25, 2000, and July 31, 2000, covering, in the aggregate as of January 1, 2001, approximately 190,677 rentable square feet of space ("Premises") in buildings (the "Buildings") located at (i) 4099 McEwen, (ii) 4101 McEwen, and (iii) 13465 Midway Road ("13465 Midway"), in Farmers Branch, Texas 75244; and WHEREAS, on July 31, 2000, Tenant and Landlord entered into that certain Lease Amendment whereby Tenant expanded its Premises into the Building commonly known as "13465 Midway", and pursuant to Section 14 of such Lease Amendment, part of the equipment which Tenant leased thereunder included two existing emergency back-up generators (the "Generators") located in an enclosure outside of the Building at 13465 Midway, and as a consequence thereof, Tenant now desires to clarify its rights and duties with regard to the Generators and the portion of the Premises wherein such Generators are located; and NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and other good and valuable consideration, Landlord and Tenant hereby further amend the Lease, as follows: 1. GENERATORS; MODIFICATION OF ENCLOSURE WALLS As part of Tenant's expansion into 13465 Midway, Tenant acquired from the previous tenant of such leased space two emergency back-up generators located in a separate exterior enclosure/structure (the "Generator Enclosure") located adjacent to the Building commonly known as 13465 Midway. As part of Tenant's construction of the leasehold improvements to 13465 Midway, Tenant will (i) install one additional Generator in the Generator Enclosure, and (ii) construct certain modifications (the "Modifications") to the existing enclosure walls to the Generator Enclosure wherein the original Generators were located in order to accommodate the new, additional Generator. The Modifications to be made by Tenant to the Generator Enclosure shall conform to the plans and specifications therefor attached hereto as Exhibit B, which plans and specifications have been approved by Landlord. In constructing the Modifications, Tenant must comply with all governmental laws, rules and regulations applicable thereto. Landlord's approval of the plans and specifications for the Modifications shall not be construed as any indication that such plans and specifications comply with applicable laws, such compliance requirement being solely the responsibility of Tenant. The Generators (which shall be defined to include all associated -1- equipment, including fuel tanks and piping, wiring and circuit breaker panels) will be located only in the locations specified in the attached Exhibit A, and none of such Generators shall be relocated from such locations without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld or delayed. At all times during the term of the Lease, Tenant shall be regarded as the owner of the Generators. 2. MAINTENANCE OF GENERATORS AND GENERATOR ENCLOSURE Throughout the Lease Term, Tenant will responsible for maintaining and repairing the Generators and Landlord will be responsible for maintaining and repairing the walls and exterior structural elements of the Generator Enclosure, and that portion of the Generator Enclosure where the Generators are located in the same manner as specified in Section 6.1 of the Lease. Landlord shall have no obligation whatsoever to maintain, repair or replace any portion of the Generators. Tenant shall not be responsible for or obligated to maintain, repair or replace that certain generator (and associated equipment) located within the Generator Enclosure, which generator is owned and operated by another tenant in The Centre office complex. In the event that Tenant shall elect to replace any of the Generators, Tenant shall be solely responsible for the cost and obligation to do so. Any alterations to the Generator Enclosure must be first approved by Landlord. 3. INSURANCE In addition to the insurance required to be maintained by Tenant under Section 7.201 of the Lease, Tenant shall also be required to obtain and maintain, throughout the Lease Term, environmental insurance on the Generators (including that portion of the Generator Enclosure where the Generators are located) in such amounts and specific types of coverage and endorsements as Landlord shall reasonably specify and require. In that regard, Tenant will name Landlord and the manager of 13465 Midway as additional insureds under such environmental insurance coverage, and Tenant will provide to Landlord a certificate of insurance, in form and substance acceptable to Landlord, indicating such coverage and additional insured endorsement for Landlord and the property manager of 13465 Midway. 4. GENERATOR ENCLOSURE PART OF COMMON AREAS Hereafter all elements of the Generator Enclosure, and that portion of the Generator Enclosure where the Generators are located are part of the Common Areas for all purposes under the Lease; and therefore, all duties and obligations of the Landlord and the Tenant under the Lease applicable to the Common Areas will hereafter be likewise applicable to such Generator Enclosure. 5. GENERATORS ACCEPTED "AS-IS" Tenant hereby accepts the Generators and that portion of the Premises in which the Generator Enclosure is located in its "as-is" condition, except for latent defects, and no improvements or alterations to the Generators shall be required by Landlord. -2- 6. RATIFICATION Except as amended hereby and by the previous amendments to the Lease, the Lease shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have caused this Twelfth Amendment to be executed on the date first written hereinabove. TENANT: LANDLORD: NETWORK ASSOCIATES, INC., DALTEX CENTRE LP, a Delaware corporation a Delaware limited partnership By: /s/ WALLACE HONG By: Daltex Centre (GP) LLC, ------------------------------ a Delaware limited liability company, Name: Wallace Hong general partner Title: Vice President Corp Real Estate By: /s/ RON CHERRY ----------------------------- Name: Ron Cherry Title: V.P. By: /s/ JEAN FRANCOIS FOURNIER ----------------------------- Name: Jean Francois Fournier Title: V.P. -3- EXHIBIT A LOCATIONS OF GENERATORS [GRAPHIC] -4- EX-10.45 20 f76817ex10-45.txt EXHIBIT 10.45 EXHIBIT 10.45 LEASE AMENDMENT NO. 13 This Lease Amendment #13 is made and entered into this 31st day of May, 2001 by and between DALTEX CENTRE LP, a Delaware limited partnership ("Landlord"), and Network Associates, Inc., a Delaware Corporation (Tenant). WHEREAS, the predecessors of Landlord and Tenant entered into that certain Standard Office Lease Agreement dated November 14, 1996 (the "Lease"), as amended March 17, 1997, November 24, 1997, March 27, 1998, June 4, 1998, July 21, 1998, November 20, 1998, March 18, 1999, June 3, 1999, October 7, 1999, March 25, 2000, July 31, 2000, January 24, 2001, and January 31, 2001 covering, in the aggregate as of May 1, 2001, approximately 186,779 rentable square feet of space ("Premises") in buildings ("the "Buildings") located at (i) 4099 McEwen, (ii) 4101 McEwen, and (iii) 13465 Midway Road in Farmers Branch, Texas 75244; and WHEREAS, Tenant had the right to install an exterior signage for the 4099 McEwen Building pursuant to the terms of the original Lease. Such signage rights were rescinded under Provision 12 of the Lease Amendment dated July 31, 2000. Landlord and Tenant now wish to reinstate such right to install exterior signage at the 4099 McEwen Building. NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, and other good and valuable consideration, Landlord and Tenant hereby further amend the Lease, as follows: 1. Tenant shall have the right pursuant to terms of the Lease to install exterior signage on the 4099 McEwen Building. Except as amended hereby and by the previous amendments to the Lease, the Lease shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have caused this Thirteenth Amendment to be executed on the date first written hereinabove. LANDLORD: DALTEX CENTRE LP, a Delaware limited partnership, BY: DALTEX CENTRE (GP) LLC, GENERAL PARTNER By: /s/ RON CHERRY --------------------------- Name: Ron Cherry Title: Vice President By: /s/ JEAN FRANCOIS FOURNIER --------------------------- Name: Jean Francois Fournier Title: Vice President TENANT: NETWORK ASSOCIATES, INC. DBA NETWORK ASSOCIATES, INC. (A DELAWARE CORPORATION) By: /s/ STEPHEN C. RICHARDS ------------------------------ Name: Stephen C. Richards Title: CFO EX-12.1 21 f76817ex12-1.txt EXHIBIT 12.1 EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------------- ---------------------- 1996 1997 1998 1999 2000 2001 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes, minority interest and extraordinary item ............ $ 65,419 $ 82,813 $ 138,167 $(130,998) $ (97,751) $(104,581) --------- --------- --------- --------- --------- --------- Fixed charges: Interest expense and amortization of debt issuance costs................... $ -- $ -- $ 14,908 $ 17,769 $ 18,606 $ 17,087 Interest portions of leases............. 2,900 4,133 3,600 5,033 6,133 5,301 --------- --------- --------- --------- --------- --------- Total fixed charges (B)....................... $ 2,900 $ 4,133 $ 18,508 $ 22,802 $ 24,739 $ 22,388 ========= ========= ========= ========= ========= ========= Income (loss) before income taxes, minorities interest and extraordinary item plus fixed charges (A)...................... $ 68,319 $ 86,946 $ 156,675 $(108,196) $ (73,012) $ (82,193) --------- --------- --------- --------- --------- --------- Ratio of earnings to fixed charges (A/B)...... 23.6x 21.0x 8.5x --x(1) --x(1) --x(1)
(1) During the nine months ended September 30, 2001 and the fiscal years ended December 31, 2000 and 1999, there was a deficiency of earnings to cover fixed charges of approximately $104.6 million, $97.8 million and $131 million, respectively. -----END PRIVACY-ENHANCED MESSAGE-----


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2001

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


Delaware		77-0316593
(State of incorporation)		(IRS Employer Identification Number)



Item Number		Page

PART I: FINANCIAL INFORMATION
Item 1.	*Financial Statements*
	Condensed Consolidated Balance Sheets: September 30, 2001 and December 31, 2000	2
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss): Three months and nine months ended September 30, 2001 and 2000	3
	Condensed Consolidated Statements of Cash Flows: Nine months ended September 30, 2001 and 2000	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*	16
Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*	28
PART II: OTHER INFORMATION
Item 1.	*Legal Proceedings*	46
Item 2.	*Changes in Securities*	46
Item 3.	*Defaults in Securities*	46
Item 4:	*Submission of Matters to a Vote of Security Holders*	46
Item 5:	*Other Information*	46
Item 6.	*Exhibits and Reports on Form 8-K*	46
SIGNATURES		47
EXHIBIT INDEX		48


			September 30,			December 31,
			2001			2000

ASSETS
Current assets:
	Cash and cash equivalents		$	640,255		$	275,539
	Short-term marketable securities			67,369			85,721
	Accounts receivable, net			124,316			122,315
	Prepaid expenses, income taxes and other current assets			34,239			50,346
	Deferred taxes			136,049			86,771

		Total current assets		1,002,228			620,692
Long-term marketable securities				249,225			332,893
Fixed assets, net				67,944			75,499
Deferred taxes				97,718			113,489
Intangibles and other assets				215,455			242,275

		Total assets	$	1,632,570		$	1,384,848

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	24,906		$	46,816
	Accrued liabilities			265,480			225,317
	Deferred revenue			209,747			151,566

		Total current liabilities		500,133			423,699
Deferred taxes				5,850			7,971
Deferred revenue, less current portion				32,639			26,592
Convertible debt				690,636			395,969
Other long-term debt and liabilities				858			899

		Total liabilities		1,230,116			855,130
Commitments and contingencies (Note 9)
Minority interest				11,849			11,067
Common stock, $0.01 par value; Authorized: 300,000,000; Issued: 139,328,528 shares at September 30, 2001 and December 31, 2000; Outstanding: 138,455,083 shares at September 30, 2001 and 138,089,775 shares at December 31, 2000				1,393			1,381
Treasury stock, at cost: 873,445 shares at September 30, 2001 and 1,238,753 shares at December 31, 2000				(20,873	)		(23,186	)
Additional paid-in capital				691,761			685,423
Cumulative other comprehensive loss				(30,352	)		(31,266	)
Accumulated deficit				(251,324	)		(113,701	)

		Total stockholders’ equity		390,605			518,651

		Total liabilities, minority interest, and stockholders’ equity	$	1,632,570		$	1,384,848



				Three Months Ended					Nine Months Ended
				September 30,					September 30,

				2001			2000		2001			2000

Net revenue:
	Product			$	138,660		$	187,213	$	381,624		$	532,104
	Services and support				70,382			51,524		193,671			154,761

			Total net revenue		209,042			238,737		575,295			686,865

Cost of net revenue:
	Product				28,304			29,518		77,185			82,521
	Services and support				13,080			9,480		36,642			26,795

			Total cost of net revenue		41,384			38,998		113,827			109,316

Operating costs and expenses:
	Research and development(1)				33,882			45,893		108,741			130,453
	Marketing and sales(2)				104,928			104,953		321,965			301,376
	General and administrative(3)				22,210			21,730		79,432			64,581
	Amortization of intangibles				15,479			16,443		47,996			45,805

			Total operating cost and expenses		176,499			189,019		558,134			542,215

			Income (loss) from operations		(8,841	)		10,720		(96,666	)		35,334
Interest and other income and expense, net					1,693			5,736		11,223			16,305
Gain on sale of investments, net					—			—		—			40,373
Write-down of strategic and other investments					(1,000	)		—		(19,138	)		—

		Income (loss) before provision for income tax, minority interest and extraordinary item			(8,148	)		16,456		(104,581	)		92,012
Provision for income taxes (income tax benefit)					4,028			13,427		(7,144	)		50,895

		Income (loss) before minority interest and extraordinary item			(12,176	)		3,029		(97,437	)		41,117
Minority interest in loss (income) of consolidated subsidiaries					(152	)		1,050		569			3,386

		Income (loss) before extraordinary item			(12,328	)		4,079		(96,868	)		44,503
Extraordinary item — gain on redemption of debt (net of $718 tax)					1,077			—		1,077			—

		Net income (loss)		$	(11,251	)	$	4,079	$	(95,791	)	$	44,503

Other comprehensive income, net					537			11,624		913			7,739

Comprehensive income (loss)				$	(10,714	)	$	15,703	$	(94,878	)	$	52,242

Basic net income (loss) per share:
	Income (loss) before extraordinary item			$	(0.09	)	$	0.03	$	(0.71	)	$	0.32
	Extraordinary item, gain on redemption of debt, net of taxes				0.01			—		0.01			—

Net income (loss)				$	(0.08	)	$	0.03	$	(0.70	)	$	0.32

Shares used in per share calculation — basic					137,750			137,482		137,256			138,144

Diluted net income (loss) per share:
	Income (loss) before extraordinary item			$	(0.09	)	$	0.03	$	(0.71	)	$	0.31
	Extraordinary item, gain on redemption of debt, net of taxes				0.01			—		0.01			—

Net income (loss)				$	(0.08	)	$	0.03	$	(0.70	)	$	0.31

Shares used in per share calculation — diluted					137,750			140,989		137,256			142,454


		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
	Item 1. Legal Proceedings:
	Item 2. Changes in Securities:
	Item 3. Defaults in Securities:
	Item 4. Submission of Matters to a Vote of Security Holders:
	Item 5. Other Information:
	Item 6. Exhibits and Reports on Form 8-K:
SIGNATURES
EXHIBIT 10.28
EXHIBIT 10.29
EXHIBIT 10.30
EXHIBIT 10.31
EXHIBIT 10.32
EXHIBIT 10.33
EXHIBIT 10.34
EXHIBIT 10.35
EXHIBIT 10.36
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 10.39
EXHIBIT 10.40
EXHIBIT 10.41
EXHIBIT 10.42
EXHIBIT 10.43
EXHIBIT 10.44
EXHIBIT 10.45
EXHIBIT 12.1



			Three Months						Nine Months
			Ended						Ended
			September 30,						September 30,

			2001			2000			2001			2000

Net revenue:
	Product			66.3	%		78.4	%		66.3	%		77.5	%
	Services and support			33.7			21.6			33.7			22.5

		Total net revenue		100.0			100.0			100.0			100.0
Cost of net revenue:
	Product			13.5			12.3			13.4			12.0
	Services and support			6.3			4.0			6.4			3.9

		Total cost of net revenue		19.8			16.3			19.8			15.9
Operating costs and expenses:
	Research and development			16.2			19.2			18.9			19.0
	Marketing and sales			50.2			44.0			56.0			43.9
	General and administrative			10.6			9.1			13.8			9.4
	Amortization of intangibles			7.4			6.9			8.3			6.6

		Total operating costs and expenses		84.4			79.2			97.0			78.9
		Income (loss) from operations		(4.2	)		4.5			(16.8	)		5.2
Interest and other income and expense, net				0.8			2.4			2.0			2.3
Gain on sale of investments, net				—			—			—			5.9
Write-down of strategic and other investments				(0.5	)		—			(3.3	)		—

		Income (loss) before provision for income taxes, minority interest and extraordinary item		(3.9	)		6.9			(18.1	)		13.4
Provision for income taxes (income tax benefit)				1.9			5.6			(1.2	)		7.4

		Income (loss) before minority interest and extraordinary item		(5.8	)		1.3			(16.9	)		6.0
Minority interest in loss (income) of consolidated subsidiaries				(0.1	)		0.4			0.1			0.5

		Income (loss) before extraordinary item		(5.9	)		1.7			(16.8	)		6.5
Extraordinary item				0.5			—			0.2			—

		Net income (loss)		(5.4	)%		1.7	%		(16.6	)%		6.5	%


Exhibit
No.			Exhibit Title

	2.1	—	Agreement and Plan of Reorganization, dated October 13, 1997, among McAfee Associates, Inc., Mystery Acquisition Corp. and Network General Corporation, as amended by the First Amendment dated as of October 22, 1997.(1)
	2.2	—	Combination Agreement dated August 16, 1996 among the Registrant, FSA Combination Corp., FSA Corporation and Daniel Freedman.(2)
	2.3	—	Stock Exchange Agreement dated January 13, 1997 among the Registrant, FSA Combination Corp., Kabushiki Kaisha Jade and the shareholders of Jade.(3)
	2.4	—	Agreement and Plan of Reorganization dated December 1, 1997 between the Registrant, Helix Software Company and DNA Acquisition Corp.(4)
	2.5	—	Agreement and Plan of Reorganization dated December 1, 1997 between the Registrant, PGP and PG Acquisition Corp.(5)
	2.6	—	Agreement and Plan of Reorganization dated February 22, 1998, between the Registrant, TIS and Thor Acquisition Corp.(6)
	2.7	—	Agreement and Plan of Reorganization by and among the Registrant, Magic Solutions International, Inc., Merlin Acquisition Corp. and Igal Lichtman dated March 2, 1998. Amendment Agreement by and among the Registrant, Magic Solutions International, Inc., Merlin Acquisition Corp., and Igal Lichtman dated March 24, 1998. Second Amendment Agreement by and among the Registrant, Magic Solutions International, Inc., Merlin Acquisition Corp., and Igal Lichtman dated April 1, 1998.(7)
	2.8	—	Stock Purchase Agreement, dated as of February 26, 1998, by and between FSA Combination Corp., and Brenda Joyce Cook.(8)
	2.9	—	Share Purchase Agreement, dated as of March 30, 1998, among FSA Combination Corp., and Irina Karlsson and Jarmo Rouvinen.(8)
	2.10	—	Stock Purchase Agreement, dated as of May 10, 1998, among FSA Combination Corp., and Secure Networks, Inc.(8)
	2.11	—	Transaction Agreement, dated June 9, 1998, by and between the Registrant and Dr. Solomon’s Group Plc.(16)
	2.12	—	Agreement and Plan of Merger, dated July 28, 1998, by and between the Registrant and CyberMedia, Inc.(17)
	3.1	—	Second Restated Certificate of Incorporation of the Registrant, as amended on December 1, 1997.(6)
	3.2	—	Restated Bylaws of the Registrant.(23)
	3.3	—	Certificate of Designation of Series A Preferred Stock of the Registrant.(9)
	3.4	—	Certificate of Designation of Series B Participating Preferred Stock of the Registrant.(18)
	4.1	—	Indenture dated as of February 13, 1998 between the Registrant and State Street Bank and Trust Company of California, N.A., as Trustee.(10)
	4.2	—	Resale Registration Rights Agreement, dated as of August 17, 2001, by and between the Registrant and Lehman Brothers, Inc.(24)
	4.3	—	Indenture dated as of August 17, 2001 between the Registrant and State Street Bank and Trust Company of California.(24)
	10.1	—	Lease Assignment dated November 17, 1997 for facility at 3965 Freedom Circle, Santa Clara, California by and between Informix Corporation and McAfee Associates, Inc.(4)
	10.2	—	Consent to Assignment Agreement dated December 19, 1997 by and among Birk S. McCandless, LLC, Guaranty Federal Bank, F.S.B., Informix Corporation and the Registrant.(4)


	*Stock Option Plans*


	*Warrants*


	*General*


	*Securities Cases*