-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FxdALAti+Vyvlc7Opr4KciB1iCcx26OM9WBssgoF3e+nAfw68e+/sDRg4tkSScqI KYWUks5AP7Re9ojCt3HM2w== 0000891618-98-002632.txt : 19980527 0000891618-98-002632.hdr.sgml : 19980527 ACCESSION NUMBER: 0000891618-98-002632 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980526 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK ASSOCIATES INC CENTRAL INDEX KEY: 0000890801 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770316593 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-53601 FILM NUMBER: 98631610 BUSINESS ADDRESS: STREET 1: 2805 BOWERS AVE CITY: SANTA CLARA STATE: CA ZIP: 95051 BUSINESS PHONE: 4089883832 FORMER COMPANY: FORMER CONFORMED NAME: MCAFEE ASSOCIATES INC DATE OF NAME CHANGE: 19930328 S-3 1 FORM S-3 1 As filed with the Securities and Exchange Commission on May 26, 1998 Registration No. 333-___________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- NETWORKS ASSOCIATES, INC. (FORMERLY MCAFEE ASSOCIATES, INC.) (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------------- DELAWARE 77-0316593 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 3965 FREEDOM CIRCLE SANTA CLARA, CALIFORNIA 95054 (408) 988-3832 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------------- WILLIAM L. LARSON CHIEF EXECUTIVE OFFICER NETWORKS ASSOCIATES, INC. 3965 FREEDOM CIRCLE SANTA CLARA, CALIFORNIA 95054 (408) 988-3832 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------------- Copies to: JEFFREY D. SAPER, ESQ. KURT J. BERNEY, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CA 94304 ---------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are offered pursuant to dividend or interest reinvestment plans, check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2 CALCULATION OF REGISTRATION FEE
===================================================================================================== PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION BE REGISTERED REGISTERED PER SECURITY (1) PRICE (1) FEE - ----------------------------------------------------------------------------------------------------- Common Stock, $0.01 par value 595,675 $64.095 $38,179,789.13 $11,569.62 =====================================================================================================
(1) The price of $64.095 per share, which was the average of the high and low prices of the Registrant's Common Stock on the Nasdaq National Market on May 22, 1998, is set forth solely for the purposes of calculating the registration fee in accordance with Rule 457(c) of the Securities Act of 1933, as amended. ================================================================================ 3 THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 26, 1998 595,675 SHARES NETWORKS ASSOCIATES, INC. COMMON STOCK ----------------------------- This Prospectus relates to the public offering, which is not being underwritten, of 595,675 shares (the "Shares") of Common Stock, $0.01 par value (the "Common Stock") of Networks Associates, Inc. (the "Company"). The Shares are outstanding shares of Company Common Stock that may be sold from time to time by or on behalf of certain stockholders of the Company or by pledges, donees, transferees or other successors in interest that receive such Shares as a gift, distribution or other non-sale related transfer (the "Selling Stockholders"). The Selling Stockholders acquired the Shares in private transactions in which the Company acquired Syscon (Proprietary) Limited, a corporation duly organized and existing under the laws of South Africa ("Syscon"), Nordic Lantools Oy, a corporation duly organized and existing under the laws of Finland ("Nordic Oy") and Secure Networks, Inc., a corporation duly organized and existing under the laws of Alberta, Canada ("Secure"). The Shares may be offered by the Selling Stockholders from time to time in transactions on the Nasdaq National Market, in privately negotiated transactions, or by a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Stockholders may effect such transactions by selling the Shares to or through broker-dealers and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal or both (which compensation to a particular broker-dealer might be in excess of customary commissions). See "Selling Stockholders" and "Plan of Distribution." The Company will not receive any of the proceeds from the sale of the Shares by the Selling Stockholders. The Company has agreed to bear certain expenses in connection with the registration and sale of the Shares being offered by the Selling Stockholders. In addition, the Company has agreed to indemnify the Selling Stockholders against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 1 4 On May 22, 1998, the closing bid price of the Company's Common Stock on the Nasdaq National Market was $63.31 per share. The Common Stock is traded under the Nasdaq symbol "NETA." ----------------------------- The Selling Stockholders and any broker-dealers or agents that participate with the Selling Stockholders in the distribution of the Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and any profit on the resale of the Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. ----------------------------- SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED HEREBY. ----------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------------- The date of this Prospectus is May 26, 1998 2 5 TRADEMARKS This Prospectus contains trademarks of the Company, including CyberCop, McAfee, McAfee Total Service Desk, McAfee Total Virus Defense, NetTools, PGP, PGP Total Network Security, Sniffer and Sniffer Total Network Visibility. This Prospectus may contain trademarks of others. ----------------------------- MCAFEE ASSOCIATES, INC./NETWORK GENERAL CORPORATION MERGER On December 1, 1997, McAfee Associates, Inc. ("McAfee") and Network General Corporation ("Network General") consummated a strategic business combination (the "Network General Merger") through the merger of a wholly-owned subsidiary of McAfee with and into Network General. The Network General Merger was accounted for as a pooling of interests. In connection with the Network General Merger, McAfee changed its name to "Networks Associates, Inc." and has since conducted business using the name "Network Associates, Inc.," marketing products using, among other names, Network Associates, McAfee and Network General. ----------------------------- AVAILABLE INFORMATION The Company is, and Network General was prior to the Network General Merger, subject to the informational requirements of the Exchange Act, and in accordance therewith files or filed, as the case may be, reports, proxy statements and other information with the Securities & Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed with the Commission by the Company and Network General can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 500 West Madison Street, Room 1400, Chicago, Illinois 60661 and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, Washington, D.C. 20549, at prescribed rates, or on the World Wide Web at http://www.sec.gov. Copies of other materials concerning the Company can be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. ----------------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company (formerly McAfee Associates, Inc.) with the Commission (File No. 000-20558) pursuant to the Exchange Act are incorporated by reference in this Prospectus: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1997; 2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; 3. The Company's Current Reports on Form 8-K filed on April 29, 1998, April 3, 1998, March 25, 1998, February 25, February 12, 1998, February 10, 1998, December 11, 1997, November 24, 1997 and March 14, 1997; and 4. The description of the Company's Common Stock contained in its Registration Statement on Form 8-A filed on August 21, 1992, including any amendments or reports filed for the purpose of updating such description. 3 6 All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus but prior to the termination of the offering to which this Prospectus relates shall be deemed to be incorporated by reference in this Prospectus and to be part hereof from the date of filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, in its unmodified form, to constitute a part of this Prospectus. Upon written or oral request, the Company will provide without charge to each person to whom a copy of this Prospectus is delivered a copy of any of the documents incorporated by reference herein (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests for such documents should be submitted to Prabhat K. Goyal, Secretary, at the principal executive offices of the Company in writing at Network Associates, Inc., 3965 Freedom Circle, Santa Clara, California 95054 or by telephone at (408) 988-3832. ----------------------------- FORWARD-LOOKING STATEMENTS This Prospectus, including the documents incorporated by reference herein, contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus or incorporated by reference herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document or incorporated by reference herein are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in "Risk Factors" and elsewhere in this Prospectus. ----------------------------- 4 7 THE COMPANY The Company is a leading developer and provider of network security and management software products. The Company has historically derived a significant majority of its revenues from the licensing of its flagship McAfee anti-virus products and Sniffer network fault and performance management products. The Company is currently focusing its efforts on broadening its revenue base by providing network security and management solutions to enterprise customers, targeting in particular the Windows NT/Intel platform. In furtherance of this strategy, the Company recently organized its products into four product suites - -- McAfee Total Virus Defense and PGP Total Network Security (together comprising "Net Tools Secure") and Sniffer Total Network Visibility and McAfee Total Service Desk (together comprising "Net Tools Manager"). These four product suites together form an integrated solution called "Net Tools". The following table depicts the Company's product suites:
NET TOOLS - --------------------------------------------------------------------------------------------------- NET TOOLS SECURE NET TOOLS MANAGER - --------------------------------------------------------------------------------------------------- McAfee Total Virus PGP Total Network Sniffer Total Network McAfee Total Service Defense Security Desk - ---------------------------------------------------------------------------------------------------
Net Tools Secure is designed to protect the enterprise from viruses, hackers, thefts, lost data and threats to data security at all points of entry. McAfee Total Virus Defense is a multi-tiered approach to virus protection covering the client, server and Internet gateway; and PGP Total Network Security combines security products with desktop encryption software and key management tools. Net Tools Manager is a network management and service desk solution designed to make computer networks more efficient and users more productive. Sniffer Total Network Visibility is a comprehensive set of products and services for network fault and performance management (also known as analysis and monitoring); and McAfee Total Service Desk is designed to integrate robust help desk applications with asset management software. The Company also provides product support, education and consulting services. Many of the Company's network security and management products, including its industry-leading network security products for anti-virus protection and Sniffer software-based fault and performance solutions for managing computer networks, are also available as stand-alone products or as part of smaller product suites. The Company is also a leader in electronic software distribution, which is the principal means by which it markets its products and one of the principal ways it distributes its software products to its customers. The Company generally utilizes a two-year subscription model for licensing its non-Sniffer products to corporate clients and is in the process of developing a two-year subscription model for licensing its Sniffer products as well. The Company is a Delaware corporation incorporated in August 1992. The Company's principal executive offices are located at 3956 Freedom Circle, Santa Clara, California 95054. Its telephone number at that address is (408) 988-3832. 5 8 RECENT DEVELOPMENTS Recent Acquisitions On May 15, 1998, the Company acquired Secure Networks, Inc. ("Secure"). The aggregate consideration payable in the acquisition was 567,000 shares of Company Common Stock in a transaction accounted for as a pooling of interests. Secure is a developer and licensor of network security auditing software based in Canada. On April 28, 1998, the Company acquired Trusted Information Systems, Inc. ("TIS"), a publicly held provider of comprehensive security solutions for the protection of computer networks, including global Internet-based systems, internal networks and individual workstations and laptops, as well as firewall and intrusion detection products. In the acquisition, a wholly owned subsidiary of the Company merged with and into TIS; TIS became a wholly owned subsidiary of the Company; each outstanding share of TIS Common Stock converted into the right to receive 0.323 of a share of Company Common Stock. The TIS acquisition broadened the Company's suite of network security products. The TIS acquisition was qualified as a pooling of interests for financial reporting purposes in accordance with generally accepted accounting principles. On April 1, 1998, the Company acquired Magic Solutions International, Inc. ("Magic Solutions"), a privately held provider of internal help desk and asset management solutions. In the acquisition, a wholly owned subsidiary of the Company merged with and into Magic Solutions; Magic Solutions became a wholly owned subsidiary of the Company; and the existing Magic Solutions stock and option holders received approximately $110,000,000 in cash. The Magic Solutions acquisition broadened the Company's suite of help desk product offerings. The Magic Solutions acquisition is accounted for as a purchase and the Company currently expects to incur during the second quarter of 1998 a charge to earnings related to purchased in-process research and development of approximately $90 million. Each of the Magic Solutions acquisition and the TIS acquisition are subject to a number of risks, including the difficulties of assimilating the two company's sales forces, product offerings, marketing activities, research and development efforts and technologies. These difficulties may be compounded in light of the integration activities surrounding multiple acquisitions. On March 30, 1998, the Company acquired (subject to a right of repurchase) a percentage interest in Nordic Lantools AB ("Nordic AB"). The aggregate consideration payable in the acquisition was 3,063 shares of Company Common Stock. Nordic AB is a distributor of software products based in Sweden. On February 27, 1998, the Company acquired 100% of the issued share capital of Nordic Lantools Oy ("Nordic Oy"). The aggregate consideration payable in the acquisition was 27,445 shares of Company Common Stock in a transaction accounted for as a pooling of interests. Nordic Oy is a distributor of software products based in Finland. On February 26, 1998, the Company acquired 100% of the issued share capital of Syscon (Proprietary) Limited ("Syscon"). The aggregate consideration payable in the acquisition was 1,230 shares of Company Common Stock in a transaction accounted for as a pooling of interests. Syscon is a distributor of software products and is based in South Africa. Common Stock Split. On April 30, 1998, the Company's Board of Directors announced a 3-for-2 Common Stock Split (the "3-for-2 Stock Split"). The 3-for-2 Stock Split will be effected through a stock dividend pursuant to which stockholders of record as of the close of business on May 12, 1998, will be entitled to receive as a 6 9 dividend one share of Company Common Stock for every two shares of Company Common Stock owned by them (with cash being paid in lieu of fractional shares after aggregating all shares owned by such stockholder). Unless otherwise indicated, references herein to numbers of shares do not give effect to the 3-for-2 Stock Split and the related stock dividend which is expected to be paid on or about May 29, 1998. Convertible Debentures. On February 13, 1998, the Company completed a private placement of zero coupon convertible subordinated debentures due in 2018 (the "Debentures"). The debentures, with an aggregate face amount at maturity of $885.5 million, generated net proceeds to the Company of approximately $346.3 million. The initial price to the public for the debentures was $391.06 per $1,000 of face amount at maturity, which equates to a yield to maturity over the term of the bonds of 4.75% (on a semi-annual bond equivalent basis). The debentures are convertible into Common Stock at the rate of 8.538 shares per $1,000 of face amount at maturity, which equates to an initial conversion price of $45.80 per share. The Debentures are subordinated in right of payment to all existing and future Senior Indebtedness (as defined) and effectively subordinated in right of payment to all indebtedness and other liabilities of the Company's subsidiaries. The Debentures may be redeemed for cash at the option of the Company beginning on February 13, 2003. At the option of the holder, the Company will purchase the Debentures on February 13, 2003 and February 13, 2013 at purchase prices (to be paid in cash or Common Stock or any combination thereof, at the election of the Company and subject to certain conditions) equal to the initial issue price plus accrued original issue discount to such dates. The Debentures may also be redeemed at the option of the holder if there is a Fundamental Change (as defined) at a price equal to the issue price plus accrued original issue discount to the date of redemption, subject to adjustment. RISK FACTORS This Prospectus, including the documents incorporated by reference herein, contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus or incorporated by reference herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document or incorporated by reference herein are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in "Risk Factors" and elsewhere in this Prospectus. Variability of Quarterly Operating Results. The Company's results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and the Company's future results of operations could fluctuate significantly from quarter to quarter and from year to year. Causes of such fluctuations may include the volume and timing of new orders and renewals, distributor inventory levels and return rates, Company inventory levels, the introduction of new products, product upgrades or updates by the Company or its competitors, changes in product mix, changes in product prices and pricing models, seasonality, trends in the computer industry, general economic conditions (such as the recent economic turbulence in Asia), extraordinary events such as acquisitions or litigation and the occurrence of unexpected events. The operating results of many software companies reflect seasonal trends, and the Company's business, financial condition and results of operations may be affected by such trends in the future. Such trends may include higher net revenue in the fourth quarter as many customers complete annual budgetary cycles, and lower net revenue in the summer months when many businesses experience lower sales, particularly in the European market. Although the Company has experienced significant growth in net revenue and net income (before acquisition and other related costs) in absolute terms, the Company's growth rate has slowed in recent periods. The Company 7 10 has experienced increased price competition for its products and the Company expects competition to increase in the near-term, which may result in reduced average selling prices for the Company's products. Due to these and other factors (such as a maturing anti-virus market and an increasingly higher base from which to grow), the Company's historic revenue growth rate is difficult to sustain or increase. To the extent these trends continue, the Company's results of operations could be materially adversely affected. Renewals have historically accounted for a significant portion of the Company's net revenue; however, there can be no assurance that the Company will be able to sustain historic renewal rates for its products in the future. Risks related to the Company's recent change in business strategies could also cause fluctuations in operating results and could make comparisons with historic operating results and balances difficult or not meaningful. See "-- Risks Related to Certain Business Strategies." The timing and amount of the Company's revenues are subject to a number of factors that make estimating operating results prior to the end of a quarter uncertain. The Company does not expect to maintain a significant level of backlog and, as a result, product revenues in any quarter are dependent on contracts entered into or orders booked and shipped in that quarter. During 1997, the Company generally experienced a trend toward higher order receipts toward the end of the last month of a quarter, resulting in a higher percentage of revenue shipments during the last month of a quarter than in 1996, which makes predicting revenues more difficult. The timing of closing larger orders increases the risks of quarter-to-quarter fluctuation. To the extent that the Company is successful in licensing larger product suites under the Net Tools umbrella (particularly to large enterprise and national accounts), the size of its orders and the length of its sales cycle are likely to increase. If orders forecasted for a specific customer for a particular quarter are not realized or revenues are not otherwise recognized in that quarter, the Company's operating results for that quarter could be materially adversely affected. See " -- Potentially Longer Sales and Implementation Cycles for Certain Products." The trading price of the Company's Common Stock has historically been subject to wide fluctuations, with factors such as earnings announcements and litigation developments contributing to this volatility. Failure to achieve periodic revenue, earnings and other operating and financial results as forecasted or anticipated by brokerage firms, industry analysts or investors could result in an immediate and adverse effect on the market price of the Company's Common Stock. The Company may not discover, or be able to confirm, revenue or earnings shortfalls until the end of a quarter, which could result in an immediate and adverse effect on the price of the Company's Common Stock. Risk of Inclusion of Network Management and Security Functionality in Hardware and Other Software. In the future, vendors of hardware and of operating system software or other software (such as firewall or electronic mail software) may continue to enhance their products or bundle separate products to include functionality that currently is provided primarily by network security and management software. Such enhancements may be achieved through the addition of functionality to operating system software or other software or the bundling of network security and management software with operating system software or other products. For example, Cisco Systems, Inc. ("Cisco") recently incorporated a firewall in certain of its hardware products and Microsoft Corporation ("Microsoft") introduced limited anti-virus functionality into its MS-DOS versions in 1993. The widespread inclusion of the functionality of the Company's products as standard features of computer hardware or of operating system software or other software could render the Company's products obsolete and unmarketable, particularly if the quality of such functionality were comparable to that of the Company's products. Furthermore, even if the network security and/or management functionality provided as standard features by hardware providers or operating systems or other software is more limited than that of the Company's products, there can be no assurance that a significant number of customers would not elect to accept such functionality in lieu of purchasing additional software. If the Company were unable to develop new network security and management products to further enhance operating systems or other software and to replace successfully any obsolete products, the Company's business, financial condition and results of operations would be materially adversely affected. 8 11 Risks Associated with Recent Acquisitions. In addition to risks described under "-- Risks Associated with Acquisitions Generally," the Company faces significant risks associated with its recent combination with Network General and other recent acquisitions (including the acquisitions of PGP, Helix, Magic Solutions and TIS). There can be no assurance that the Company will realize the desired benefits of these transactions. In order to successfully integrate these companies, the Company must, among other things, continue to attract and retain key management and other personnel; integrate, both from an engineering and a sales and marketing perspective, the acquired products (including Network General's Sniffer and CyberCop products, PGP's encryption products, Helix's utilities products, Magic Solution's help desk products and TIS's firewall products) into its suite of product offerings; integrate and develop a cohesive focused direct and indirect sales force for its product offerings; consolidate duplicate facilities; and develop name recognition for its new name. The diversion of the attention of management from the day-to-day operations of the Company, or difficulties encountered in the integration process, could have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Need to Develop Enterprise and National Accounts Sales Force and Security Products Sales Force; Risks Related to Direct Sales Force" and "-- Use of Indirect Sales Channels; Need to Develop Indirect Sales Channel for Sniffer and PGP Security Products." During 1997, the Company incurred significant non-recurring charges associated with the Network General combination and the acquisitions of PGP and Helix. During the second quarter of 1998, the Company expects to incur additional non-recurring charges associated with the acquisitions of Magic Solutions and TIS. There can be no assurance that the Company will not incur additional material charges in subsequent quarters to reflect additional costs associated with these transactions and with respect to its name change and the marketing of its products under the "Network Associates" name. Risks Related to Certain Business Strategies. The Company has historically derived a significant majority of its revenues from the licensing of its flagship anti-virus products and Sniffer products. See "-- Dependence on Revenue from Flagship Anti-Virus and Sniffer Products." The Company is currently focusing its efforts on broadening its revenue base by providing network security and management solutions to enterprise customers, targeting in particular the Windows NT/Intel platform. In furtherance of this strategy, the Company recently organized its products into four product suites -- McAfee Total Virus Defense, PGP Total Network Security, and Sniffer Total Network Visibility and McAfee Total Virus Defense. These four product suites together form an integrated solution called "Net Tools" which utilizes a new pricing model. There can be no assurance that potential customers will respond favorably to the modified pricing structure and the lack of a favorable response could materially adversely affect the Company's operating results. Although the Company will continue to offer perpetual licenses with annual support and maintenance contracts for its Sniffer products, it is currently developing a subscription licensing model for those products. In addition, in an effort to increase total Sniffer unit sales the Company intends to develop software only versions of certain of its Sniffer products -- meaning that the Company would no longer sell the hardware components contained in these Sniffer products. There can be no assurance that the Company can produce a software only Sniffer product on a timely basis or at all, that customers will not continue to require that the Company provide the associated hardware platform and components, that total unit licenses of Sniffer products will increase over previous levels or that customers will react favorably to the subscription pricing model for Sniffer products. To the extent that customers do license Sniffer products on a two-year subscription basis or license significant amounts of software only Sniffer products, the Company's operating results and financial condition would likely be affected. In the case of subscription licenses, the Company would, among other things, expect an increase in deferred revenues related to the service portion of the two-year Sniffer license that would be capitalized on the Company's balance sheet. In the initial year of the license, the corresponding revenue would be lower than if the license were perpetual. In the case of the software only Sniffer product, for any individual license, the Company would expect lower total revenues and a higher overall gross 9 12 margin related to the transaction, as the Company would not be selling the corresponding hardware component. Currently, the hardware component has a lower gross margin than the total product gross margin. The Company has been acquiring (and is continuing to investigate the acquisition of) existing independent agents and distributors of its products in certain strategic markets or has been converting these independent agents into resellers who must purchase Company products from Company approved distributors. These actions may require, among other things, that the Company provide the technical support to customers that was previously provided by such agents and distributors. There can be no assurance that the Company can provide such support as effectively or on a timely basis or at all, that the Company will operate any acquired distributor or agent as successfully as the previous operators, that the acquisition of any distributor or agent or the conversion of any agent into a reseller will result in the desired increased foreign revenues or that the Company is able to identify and retain suitable distributors in any market in which it converts an independent agent. See " -- Risks Associated with Acquisitions Generally" and " -- Risks Related to International Revenue and Activities." As part of the Net Tools concept, the Company is in the process of designing a centralized console from which the various component suites can be operated, administered and maintained utilizing a common look and feel. The Company faces significant engineering challenges related to these efforts. In addition, the Company faces significant engineering and other challenges related to the integration of its various security products (such as its recently acquired PGP encryption products and Network General CyberCop product) into a marketable suite of products and the development of a software only Sniffer product. Success of the Company's Net Tools suite strategy will also depend, in part, upon successful development and coordination of the Company's sales force; on successful development of a national accounts sales force and an effective indirect sales channel for the Company's Sniffer and PGP security products; and on the development and expansion of an effective professional services organization. See " -- Risks Associated with Recent Transactions," " -- Risks Associated with Acquisitions Generally," " -- Need to Develop Enterprise and National Accounts Sales Force and Security Products Sales Force; Risks Related to Direct Sales Force," " -- Use of Indirect Sales Channels; Need to Develop Indirect Sales Channel for Sniffer and PGP Security Products" and " -- Need to Expand and Develop An Effective Professional Services Organization." The foregoing factors, individually or in the aggregate, could materially adversely affect the Company's operating results and could make comparison of historic operating results and balances difficult or not meaningful. Risks Associated with Acquisitions Generally. The software industry has experienced and is expected to continue to experience a significant amount of consolidation. In addition, it is expected that the Company will grow internally and through strategic acquisitions in order, among other things, to expand the breadth and depth of its product suites and to build its professional services organization. The Company continually evaluates potential acquisitions of complementary businesses, products and technologies. In addition to the combination with Network General in December 1997, the Company has consummated a series of significant acquisitions since 1994, including the acquisition of Magic Solutions in April 1998, the acquisitions of PGP and Helix in December 1997, Cinco Networks, Inc. in August 1997, 3DV Technology, Inc. in March 1997, FSA Corporation of Canada in August 1996, Vycor Corporation in February 1996, Saber Software Corporation, Inc. in August 1995 and ProTools, Inc. in January 1994. In addition, since 1995 the Company has acquired a number of its international distributors, including distributors in Australia, Brazil, Japan, Sweden, South Africa and The Netherlands and is currently investigating acquisitions of additional foreign distributors. Past acquisitions have consisted of, and future acquisitions will likely include, acquisitions of businesses, interests in businesses and assets of businesses. Any acquisition, depending on its size, could result in the use of a significant portion of the Company's available cash or, if such acquisition is made utilizing the Company's securities, could result in significant dilution to the Company's stockholders, and could result in the incurrence of significant acquisition related charges to earnings. 10 13 Acquisitions by the Company may result in the incurrence or the assumption of liabilities, including liabilities that are unknown or not fully known at the time of acquisition, which could have a material adverse effect on the Company. Furthermore, there can be no assurance that any products acquired in connection with any such acquisition will gain acceptance in the Company's markets or that the Company will obtain the anticipated or desired benefits of such transactions. Achieving the anticipated benefits of an acquisition will depend, in part, upon whether the integration of the acquired business, products or technology is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. Moreover, successful acquisitions in the high technology industry may be more difficult to accomplish than in other industries. Combining a merged or acquired company requires, among other things, integration of product offerings and coordination of sales and marketing and research and development efforts. There can be no assurance that such an integration can be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining two different corporate cultures. The integration of operations following an acquisition requires the dedication of management resources that may distract attention from the day-to-day business, and may disrupt key research and development, marketing or sales efforts. The inability of management to successfully integrate any acquisition could have a material adverse effect on the business, operating results and financial condition of the Company. In addition, as commonly occurs, during the pre-acquisition and integration phases of technology company acquisitions, aggressive competitors may undertake initiatives to attract customers and to recruit key employees through various incentives. Rapid Technological Change; Risks Associated with Product Development. The network security and management market is highly fragmented and is characterized by ongoing technological developments, evolving industry standards and rapid changes in customer requirements. The Company's success depends upon its ability to offer a broad range of network security and management software products, to continue to enhance existing products, to develop and introduce in a timely manner new products that take advantage of technological advances, and to respond promptly to new customer requirements. While the Company believes that it offers one of the broadest product lines in the network management and security market, this market is continuing to evolve and customer requirements are continuing to change. As the market evolves and competitive pressures increase, the Company believes that it will need to further expand its product offerings. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, enhancements to its existing products or new products, or that such enhancements or new products will adequately address the changing needs of the marketplace. In addition, from time to time, the Company or its competitors may announce new products with new or additional capabilities or technologies. Such announcements of new products could have the potential to replace, or shorten the life cycles of, the Company's existing products and to cause customers to defer or cancel purchases of the Company's existing products. The Company has in the past experienced delays in software development, and there can be no assurance that the Company will not experience delays in connection with its current or future product development activities. Complex software products such as those offered by the Company may contain undetected errors or version compatibility issues, particularly when first introduced or when new versions are released, resulting in loss of or delay in market acceptance. For example, the Company experienced compatibility issues in connection with its recent NetShield upgrade, and the Company's anti-virus software products have in the past falsely detected viruses that did not actually exist. See " -- Risk of False Detection of Viruses." Delays and difficulties associated with new 11 14 product introductions, performance or enhancements could have a material adverse effect on the Company's business, financial condition and results of operation. The Company's development efforts are impacted by the adoption or evolution of industry standards related to its products and the environments in which they operate. For example, no uniform industry standard has developed in the market for encryption security products. As industry standards are adopted or evolve, the Company may be required to modify existing products or develop and support new versions of existing products. In addition, to the extent that no industry standard develops, the Company's products and those of its competitors may be incompatible if they use competing standards, which could prevent or significantly delay overall development of the market for a particular product or products. The failure of the Company's products to comply, or delays in compliance, with existing or evolving industry standards could have a material adverse effect on the Company's business, financial condition and results of operation. The Company's long-term success will depend on its ability on a timely and cost-effective basis to develop upgrades and updates to its existing product offerings, to modify and enhance acquired products, and to introduce new products which meet the needs of current and potential customers. Future upgrades and updates may, among other things, include additional functionality, respond to user problems or address issues of compatibility with changing operating systems and environments. The Company believes that the ability to provide these upgrades and updates to users frequently and at a low cost is a key to success. For example, the proliferation of new and changing viruses makes it imperative to update anti-virus products frequently in order for the products to avoid obsolescence. Failure to release such upgrades and updates on a timely basis could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will be successful in these efforts. In addition, future changes in Windows 95, Windows NT, NetWare or other popular operating systems may result in compatibility problems with the Company's products. Further, delays in the introduction of future versions of operating systems or lack of market acceptance of future versions of operating systems would result in a delay or a reduction in the demand for the Company's future products and product versions which are designed to operate with such future versions of operating systems. The Company's failure to introduce in a timely manner new products that are compatible with operating systems and environments preferred by desktop computer users would have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Revenue from Flagship Anti-Virus and Sniffer Products. In recent years, the Company has derived a substantial majority of its net revenue from its flagship McAfee anti-virus software products and Sniffer network fault and performance management products. These products are expected to continue to account for a significant portion of the Company's net revenue for the foreseeable future. Because of this concentration of revenue, a decline in demand for, or in the prices of, these anti-virus and network management products as a result of competition, technological change, a change in the Company's pricing model for such products, the inclusion of anti-virus or network management and analysis functionality in system hardware or operating system software or other software or otherwise, or a maturation in the respective markets for these products could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Emergence of Network Management and Network Security Markets. The markets for the Company's network management and network security products are evolving, and their growth depends upon broader market acceptance of network management and network security software, including help desk software. Although the number of LAN-attached personal computers ("PCs") has increased dramatically, the network management and network security markets continue to be emerging markets and there can be no assurance that such markets will continue to develop or that further market development will be rapid enough to benefit the Company significantly. In addition, there are a number of potential approaches to network management and 12 15 network security, including the incorporation of management and security tools into network operating systems. Therefore, even if network management and network security tools gain broader market acceptance, there can be no assurance that the Company's products will be chosen by organizations which acquire network management and network security tools. Furthermore, to the extent that either the network management or network security market does continue to develop, the Company expects that competition will increase. See "-- Competition" and "-- Risk of Inclusion of Network Security and Management Functionality in Hardware and Other Software." Competition. The markets for the Company's products are intensely competitive and the Company expects competition to increase in the near-term. The Company believes that the principal competitive factors affecting the markets for its products include performance, functionality, quality, customer support, breadth of product line, frequency of upgrades and updates, integration of products, manageability of products, brand name recognition, company reputation and price. Certain of the criteria upon which the performance and quality of the Company's anti-virus software products compete include the number and types of viruses detected, the speed at which the products run and ease of use. Certain of the Company's competitors have been in the network management market longer than the Company, and other competitors, such as Symantec Corporation ("Symantec"), Intel Corporation ("Intel"), Seagate Technology Inc. ("Seagate") and Hewlett-Packard Company ("HP"), are larger and have greater name recognition than the Company. The Company will also need to develop name recognition for its new name, "Network Associates." In addition, certain larger competitors such as Intel, Microsoft and Novell Inc. ("Novell") have established relationships with hardware vendors related to their other product lines. These relationships may provide them with a competitive advantage in penetrating the OEM market with their network security and management products. As is the case in many segments of the software industry, the Company has been encountering, and expects to further encounter, increasing competition. This increased competition could reduce average selling prices and, therefore, profit margins. Competitive pressures could result not only in sustained price reductions but also in a decline in sales volume, which events would materially adversely affect the Company's business, financial condition and results of operations. In addition, competitive pressures may make it difficult for the Company to maintain or exceed its growth rate. Although there is a trend toward consolidation in the network security and management market, the market is currently highly fragmented with products offered by many vendors. The Company's principal competitor is the Peter Norton Group of Symantec in the network security market and Intel's LanDesk in the network management market. The Company's other competitors include Computer Associates/Cheyenne Software, IBM, Seagate, the Dr. Solomon Group and Trend Micro, Inc., as well as numerous smaller companies and shareware authors that may in the future develop into stronger competitors or be consolidated into larger competitors. In the encryption portion of the security market, the Company's principal competitors are Security Dynamics Technologies, Inc., Cylink Corporation, Entrust Technologies and VeriSign, Inc. The Company's principal competitors in the help desk market are Remedy Corporation, Software Artistry (recently acquired by Tivoli Systems/IBM) and Magic Solutions, Inc. The Company's principal competitor in the software-based network fault and performance management market is HP, with other competitors including Azure Technologies Incorporated, Concord Communications, DeskTalk Systems, Kaspia Systems, Shomiti Systems, Inc. and Wandel & Goltermann, Inc. The Company also faces competition in the security market from Cisco, Security Dynamics Technologies, Inc., Checkpoint Software and other vendors in the encryption/firewall market. In addition, the Company faces competition from large and established software companies such as Microsoft, Intel, Novell and HP which offer network management products as enhancements to their network operating systems. As the network management market develops, the Company may face increased competition from these large companies, as well as other companies seeking to enter the market. The trend toward enterprise-wide network management and security solutions may result in a consolidation of the network management and security market around a smaller number of vendors who are able to provide the necessary software and support capabilities. In addition, to the extent that the Company is successful in developing its Net Tools suite of products designed around a centralized management and administration console for the 13 16 Windows NT platform, the Company will likely compete with large computer systems management companies such as Tivoli Systems (TME) and Computer Associates (Unicenter). There can be no assurance that the Company will continue to compete effectively against existing and potential competitors, many of whom have substantially greater financial, technical, marketing and support resources and name recognition than the Company. In addition, there can be no assurance that software vendors who currently use traditional distribution methods will not in the future decide to compete more directly with the Company by utilizing electronic software distribution. The competitive environment for anti-virus software internationally is similar to that in North America, although local competitors in specific foreign markets present stronger competition and shareware authors control a more significant portion of the European market. The international market for network management software has developed more slowly than the North American market, although larger competitors such as Intel and Symantec have begun to penetrate European markets. Asian markets have lagged significantly behind North America and Europe in their adoption of networking technology. There can be no assurance that the Company will be able to compete successfully in international markets. Need to Develop Enterprise and National Accounts Sales Force and Security Products Sales Force; Risks Related to Direct Sales Force. In connection with its recent acquisitions and as part of its evolving strategy of offering product suites under the Net Tools umbrella, the Company has recently reorganized its direct sales force into three tiers. The first tier focuses on the sale of the full product suite under the Net Tools umbrella to enterprise and national account customers. The second tier consists of four separate sales groups focused on the sale of the individual product suites (i.e., McAfee Total Virus Defense; PGP Total Network Security; Sniffer Total Network Visibility; or McAfee Total Service Desk) to the departmental level. The third tier consists of four separate outbound corporate telesales forces who actively market the Company's individual product suites to customers with less than 1,000 nodes. The Company historically has not had a large enterprise or national accounts sales force and only recently developed a direct sales group focused on these larger accounts. In addition, the Company has not historically had a separate sales force focused on the sale of its suite of security products (many of which were only recently acquired and are currently being engineered into a common suite). To succeed in the direct sales channel for the enterprise and national accounts market and for the sale of the separate security product suite, the Company will be required to build a significant direct sales organization and will be required to attract and retain qualified personnel, which personnel will require training about, and knowledge of, product attributes for the Company's suite of products. There can be no assurance that the Company will be successful in building the necessary sales organization or in attracting, retaining or training these individuals. Historically, the Company has sold its products at the departmental level. To succeed in the enterprise and national accounts market will require, among other things, establishing relationships and contacts with senior technology officers at these accounts. There can be no assurance that the Company or its sales force will be successful in these efforts. The Company's sales organization structure may result in multiple customer contacts by different Company sales representatives (particularly in circumstances where the customer has multiple facilities and offices), a lack of coordination between the Company's various sales organizations and a lack of focus by the individual sales representatives on their designated customers or products. The occurrence of these events could lead to customer confusion, disputes in the sales force and lost revenue opportunities which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, while the development of a direct sales channel reduces the Company's dependence on resellers and distributors, it may lead to conflicts for the same customers and further customer confusion, pressure by current and prospective customers for price reductions on products and, consequently, in reductions in the Company's gross margin and operating profit. Use of Indirect Sales Channels; Need to Develop Indirect Sales Channel for Sniffer and PGP Security Products. The Company markets a significant portion of its products to end-users through distributors, resellers 14 17 and VARs. The Company's distributors sell other products that are complementary to, or compete with, those of the Company. While the Company encourages its distributors to focus on its products through market and support programs, there can be no assurance that these distributors will not give greater priority to products of other suppliers, including competitors. The Company does not have an extensive indirect sales channel for its Network Sniffer products or its PGP security products. To succeed in the indirect sales channel, the Company will be required to build a more extensive network of distributors, resellers and VARs who will support and market these products. These indirect channel participants will require significant training about, and knowledge of, product attributes for these products and the related product suites. There can be no assurance that the Company can successfully establish such an indirect channel on a timely basis or at all or that such a channel, once established, can be maintained. The Company's agreements with its distributors provide for a right of return. This right of return may be triggered by a number of events, including returns to distributors by end users, inaccurate estimates of end user demand by distributors, increased purchases by distributors in response to sales incentives or transitions to new products or versions of products. As a result of this right of return, revenue recognized by the Company upon sales to distributors is subject to a reserve for returns. Returns could exceed reserves as a result of distributors holding excessive Company product inventory. There can be no assurance that current or future reserves established by the Company will be adequate. Need to Expand and Develop An Effective Professional Services Organization; Risks Related to Third-Party Professional Services. As the Company's products and computer networks become more complex, customers will increasingly require greater professional assistance in the design, installation, configuration and implementation of their networks and acquired products. To date, the Company has relied on its limited professional services capabilities and increasingly on outside professional service providers (including its distributors, resellers and system integrators). There can be no assurance that third party service providers can or will continue to be willing to provide adequate levels (both in terms of time and quality) of professional services. Moreover, reliance on these third parties reduces the Company's control over the provision of support services for its products and places a greater burden on these third parties, which, in turn, could delay the Company's recognition of product revenue, could harm the Company's relationships or reputation with such third parties or the end users of its products and could result in decreased future sales of, or prices for, its products. To more effectively service its customer's evolving needs, the Company intends to significantly expand and develop its worldwide professional service organization. There can be no assurance that the Company will be successful in its efforts to expand and develop an effective professional services organization. This will require that the Company hire and train additional service professional who must be continually trained and educated to ensure that they possess sufficient technical skills and product knowledge. In particular, the market for qualified professionals is intensely competitive, making hiring and retention difficult. The Company expects significant competition in this market from existing providers of professional services and future entrants. The Company must also properly price its services to attract customers, while maintaining sufficient margins for its services. The Company expects that it will have lower profit margins on its service revenues. The failure to develop an effective professional services organization could have a material adverse effect on the Company's business, financial condition and results of operations. Reliance on Microsoft Technology. Although the Company intends to support other operating systems, the Company's mission is to be the leading supplier of network security and management products for Windows NT/Intel based networks. Sales of the Company's products would be materially and adversely affected by market developments which are adverse to the Windows operating environments, including the failure of users and 15 18 application developers to accept Windows NT. In addition, the Company's ability to develop products using the Windows operating environments is substantially dependent on its ability to gain timely access to, and to develop expertise in, current and future developments by Microsoft, of which there can be no assurance. Risks Associated with Failure to Manage Growth. The Company's growth internally and through its numerous acquisitions has placed, and any further expansion would continue to place, a significant strain on its limited personnel, management and other resources. In the future, the Company's ability to manage any growth, particularly with the anticipated expansion of the Company's international business and growth in indirect channel business, will require it to attract, train, motivate and manage new employees successfully, to effectively integrate new employees into its operations and to continue to improve its operational, financial, management and information systems and controls. The failure to effectively manage any further growth could have a material adverse effect on the Company's business, financial condition and results of operations. Proprietary Technology and Rights. The Company's success is heavily dependent upon proprietary software technology. The Company relies on a combination of contractual rights, trademarks, trade secrets and copyrights to establish and protect proprietary rights in its software. There can be no assurance these protections will be adequate or that competitors will not independently develop technologies or products that are substantially equivalent or superior to the Company's products. The Company does not typically obtain signed license agreements from its corporate, government and institutional customers who license products directly from it. The Company includes an electronic version of a "shrink-wrap" license in all of its electronically distributed software and a printed license in the box for its products distributed through traditional distribution channels in order to protect its copyrights and trade secrets in those products. Since none of these licenses are signed by the licensee, many authorities believe that such licenses may not be enforceable under the laws of many states and foreign jurisdictions. In addition, the laws of some foreign countries either do not protect proprietary rights or offer only limited protection for those rights. There can be no assurance that the steps taken by the Company to protect its proprietary software technology will be adequate to deter misappropriation of this technology. For example, the Company is aware that a substantial number of users of its anti-virus products have not paid any registration or license fees to the Company. Changing legal interpretations of liability for unauthorized use of the Company's software, or lessened sensitivity by corporate, government or institutional users to avoiding copyright infringement, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's principal assets are its intellectual property, and the Company competes in an increasingly competitive market. There has been substantial litigation regarding intellectual property rights of technology companies. The Company has in the past been, and currently is, subject to litigation related to its intellectual property (including a pending unfair trade practice case and a patent infringement case involving Symantec and Trend Micro Inc., respectively). There can be no assurance that there will be no developments arising out of such pending litigation or any other litigation to which the Company is or may become party which could have a material adverse effect on the Company's business, financial condition and results of operation. In addition, as the Company may acquire a portion of software included in its products from third parties, its exposure to infringement actions may increase because it must rely upon such third parties as to the origin and ownership of any software being acquired. Similarly, exposure to infringement claims exists and will increase to the extent that the Company employs or hires additional software engineers previously employed by competitors, notwithstanding measures taken by them to prevent usage by such software engineers of intellectual property used or developed by them while employed by a competitor. In the future, litigation may be necessary to enforce and protect trade secrets and other intellectual property rights owned by the Company. The Company may also be 16 19 subject to litigation to defend it against claimed infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Any such litigation could be costly and cause diversion of management's attention, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any one of which could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, there can be no assurance that any necessary licenses will be available on reasonable terms, or at all. Proprietary Technology and Rights; Litigation. The Company's success is heavily dependent upon proprietary software technology. The Company relies on a combination of contractual rights, trademarks, trade secrets and copyrights to establish and protect proprietary rights in its software. There can be no assurance these protections will be adequate or that competitors will not independently develop technologies or products that are substantially equivalent or superior to the Company's products. Network Associates has changed its legal name to "Networks Associates, Inc." and has begun conducting business as "Network Associates." Two companies, (Network Associates, Inc. in Kansas ("NAI-Kansas"); and Network Associates, Inc. in Oregon ("NAI-Oregon")) and Ronald L. Meyers ("Myers"), a California resident doing business as The Network Associates, have made unresolved claims (including various trademark claims) or demands with respect to Network Associates' use of the name Network Associates. On March 26, 1998, Networks Associates commenced declaratory judgement action in the United States District Court, Northern District of California, against all three of the above-cited claimants. Network Associates seeks a declaration that its use of the NETWORK ASSOCIATES title does not violate the federal, state or common law rights of any of the defendants. Defendants NAI-Oregon and NAI-Kansas have since been granted extensions of time in which to respond to the Complaint; defendant Myers has not yet been served. On April 24, 1997, Network Associates was served by Symantec with a suit filed in the United States District Court, Northern District of California, San Jose Division, alleging copyright infringement and unfair competition by Network Associates. Symantec alleges that Network Associates' computer software program called "PC Medic" copied portions of Symantec's computer software program entitled "CrashGuard." Symantec's complaint sought injunctive relief and unspecified money damages. On July 20, 1997, Symantec sought leave to amend its complaint to include additional allegations of copyright infringement and trade secret misappropriation pertaining to Network Associates' "VirusScan" product. Symantec sought injunctive relief and unspecified money damages. On October 6, 1997, the Court issued an order granting Symantec's motion to amend its complaint and enjoining Network Associates from shipping any product containing either an approximately 30-line routine found in Crash Guard or an approximately 100-line routine found in a Symantec DLL. The Court's order expressly stated that "the court is not enjoining the sale or distribution of [McAfee's] current product." On December 19, 1997, the Court denied Symantec's motion to enjoin sale or distribution of Network Associates' current PC Medic product. On April 1, 1998, Symantec filed an amended complaint including additional allegations of trade secret misappropriation, unfair competition, interference with economic advantage and contractual relations and violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), in connection with the alleged use by Network Associates employees of proprietary Symantec customer information. On April 10, 1998, Network Associates moved to dismiss the RICO claims. Symantec also filed a motion for a preliminary injunction relating to these new allegations which is scheduled for hearing on June 5, 1998. Trial is currently set for September 1998. On May 13, 1997, Trend Micro, Inc. ("Trend") filed suit in United States District Court for the Northern District of California against both Network Associates and Symantec. Trend alleges that Network Associates' "WebShield" and "GroupShield" products infringe a Trend patent which issued on April 22, 1997. Trend's complaint seeks injunctive relief and unspecified money damages. On June 6, 1997, Network Associates filed its answer denying any infringement. Network Associates also filed counterclaims against Trend alleging unfair 17 20 competition, false advertising, trade libel, and interference with prospective economic advantage. On September 19, 1997, Symantec filed a motion to sever Trend's action against Network Associates from its action against Symantec. Network Associates did not oppose Symantec's motion to sever, other than to recommend a joint hearing on patent claim interpretation. On December 19, 1997, the Court granted Symantec's motion to sever and adopted Network Associates' recommendation regarding a joint hearing on patent claim interpretation. As a result of the Court's decision, Trend's actions against Network Associates and Symantec will proceed separately. The Court has set the date for the joint patent claim interpretation hearing for September 1998. Thirty days after the joint patent claim interpretation hearing, the Court has indicated it will set further dates for discovery and trial. On May 6, 1997, RSA Data Security, Inc. ("RSA") filed a lawsuit against PGP, a wholly owned subsidiary of Network Associates since December 9, 1997, in San Mateo County Superior Court. RSA seeks a declaration from the court that certain paragraphs of a license agreement between PGP and Public Key Partners (the "License Agreement") have been terminated and certain other paragraphs have survived RSA's purported termination of the License Agreement. RSA, which purports to act on behalf of Public Key Partners, also seeks an accounting of PGP's sales of products subject to the License Agreement. PGP denies that RSA has the authority to act on behalf of Public Key Partners, and denies that the License Agreement has been breached or terminated in whole or in part. On May 22, 1997, PGP filed a motion to compel arbitration of the action pursuant to an arbitration clause in the License Agreement. PGP's motion was granted on October 9, 1997. The Court stayed the state court proceedings and ordered the action to arbitration. The arbitration proceedings are in the preliminary stages. On October 14, 1997, RSA filed a patent infringement lawsuit against PGP in the United States District Court for the Northern District of California. RSA alleges PGP has infringed one of the patents which was licensed to PGP under the License Agreement. On November 4, 1997, PGP moved to stay the federal action, or, in the alternative, compel it to arbitration. On December 23, 1997, RSA filed a motion to amend its complaint to include Network Associates as defendant. On March 2, 1998, the court granted PGP's motion to stay the federal patent action. On April 15, 1998, RSA filed a patent infringement lawsuit against Network Associates in the United States District Court for the Northern District of California, alleging that Network Associates has infringed the same patent as in the earlier lawsuit against PGP. Counsel for RSA has orally indicated that RSA will stipulate to stay this lawsuit on the same basis as the prior lawsuit against PGP. The Court has scheduled an initial status conference in both cases for May 11, 1998. A settlement conference has been scheduled for May 28, 1998. A further status conference is scheduled for September 14, 1998, at which time RSA may ask the court to lift the stay if the cases have not been arbitrated or settled by that time. On May 13, 1998, RSA filed a copyright infringement suit in the United States District Court of Northern California enjoining Network Associates from using certain RSA software. A preliminary injunction hearing is scheduled for June 18, 1998. On September 15, 1997, Network Associates was named as a defendant in a patent infringement action filed by Hilgraeve Corporation ("Hilgraeve") in the United States District Court, Eastern District of Michigan. Hilgraeve alleges that Network Associates' VirusScan product infringes a Hilgraeve patent which was issued on June 7, 1994. Hilgraeve's action seeks injunctive relief and unspecified money damages. The case is in discovery. Discovery is presently scheduled to be completed by September 15, 1998, although Network Associates intends to move for an extension of the discovery schedule. There is a status conference scheduled for September 22, 1998. No trial date has been set. The Company does not typically obtain signed license agreements from its corporate, government and institutional customers who license products directly from it. The Company includes an electronic version of a "shrink-wrap" license in all of its electronically distributed software and a printed license in the box for its products 18 21 distributed through traditional distribution channels in order to protect its copyrights and trade secrets in those products. Since none of these licenses are signed by the licensee, many authorities believe that such licenses may not be enforceable under the laws of many states and foreign jurisdictions. In addition, the laws of some foreign countries either do not protect proprietary rights or offer only limited protection for those rights. There can be no assurance that the steps taken by the Company to protect its proprietary software technology will be adequate to deter misappropriation of this technology. For example, the Company is aware that a substantial number of users of its anti-virus products have not paid any registration or license fees to the Company. Changing legal interpretations of liability for unauthorized use of the Company's software, or lessened sensitivity by corporate, government or institutional users to avoiding copyright infringement, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's principal assets are its intellectual property, and the Company competes in an increasingly competitive market. There has been substantial litigation regarding intellectual property rights of technology companies. The Company has in the past been, and currently is, subject to litigation related to its intellectual property. There can be no assurance that there will be no developments arising out of such pending litigation or any other litigation to which the Company is or may become party which could have a material adverse effect on the Company's business, financial condition and results of operation. In addition, as the Company may acquire a portion of software included in its products from third parties, its exposure to infringement actions may increase because it must rely upon such third parties as to the origin and ownership of any software being acquired. Similarly, exposure to infringement claims exists and will increase to the extent that the Company employs or hires additional software engineers previously employed by competitors, notwithstanding measures taken by them to prevent usage by such software engineers of intellectual property used or developed by them while employed by a competitor. In the future, litigation may be necessary to enforce and protect trade secrets and other intellectual property rights owned by the Company. The Company may also be subject to litigation to defend it against claimed infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Any such litigation could be costly and cause diversion of management's attention, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any one of which could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, there can be no assurance that any necessary licenses will be available on reasonable terms, or at all. Risks Related to International Revenue and Activities. In 1997, 1996 and 1995, net revenue from international licenses represented approximately 28%, 24% and 25%, respectively, of the Company's net revenue. Historically, the Company has relied primarily upon independent agents and distributors to market its products internationally. The Company expects that international revenues will continue to account for a significant percentage of net revenue. The Company also expects that a significant portion of such international revenue will be denominated in local currencies. To reduce the impact of foreign currency fluctuations, the Company uses non-leveraged forward currency contracts. However, there can be no assurance that the Company's future results of operations will not be adversely affected by such fluctuations or by costs associated with currency risk management strategies. Other risks inherent in international revenue generally include the impact of longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, seasonality due to the slowdown in European business activity during the third quarter, tariffs and other trade barriers, uncertainties relative to regional economic circumstance (such as the current economic turbulence in 19 22 Asia), political instability in emerging markets and difficulties in staffing and managing foreign operations. There can be no assurance that these factors will not have a material adverse effect on the Company's future international license revenue. Further, in countries with a high incidence of software piracy, the Company may experience a higher rate of piracy of its products. There are a number of additional risks related to the export of the Company's PGP security products. See "-- Risks Relating to Cryptography Technology." In addition, a portion of the Company's international revenue is expected to continue to be generated through independent agents. Since these agents will not be employees of the Company and will not be required to offer the Company's products exclusively, there can be no assurance that they will continue to market the Company's products. Also, the Company is likely to have limited control over its agents, limited access to the names of the customers to whom the agents sell its products and limited knowledge of the information provided by, or representations made by, these agents to its customers. Risk of Sabotage. Given the Company's high profile in the anti-virus software market, the Company has been a target of computer "hackers" who have created viruses to sabotage its products. While to date these viruses have been discovered quickly and their dissemination has been limited, there can be no assurance that similar viruses will not be created in the future, that they will not cause damage to users' computer systems and that demand for the Company's software products will not suffer as a result. In addition, since the Company does not control diskette duplication by distributors or its independent agents, there can be no assurance that diskettes containing the Company's software will not be infected. Risk of False Detection of Viruses. The Company's anti-virus software products have in the past and may at times in the future falsely detect viruses that do not actually exist. Such "false alarms," while typical in the industry, may impair the perceived reliability of the Company's products and may therefore adversely impact market acceptance of the Company's products. In addition, the Company has in the past been subject to litigation claiming damages related to a false alarm, and there can be no assurance that similar claims will not be made in the future. Risks Relating to Cryptography Technology. Certain of the Company's PGP network security products, technology and associated assistance are subject to export restrictions administered by the U.S. Department of State and the U.S. Department of Commerce, which permit the export of encryption products only with the required level of export license. In addition, these U.S. export laws prohibit the export of encryption products to a number of countries deemed hostile by the U.S. government. U.S. export regulations regarding the export of encryption technology require either a transactional export license or the granting of Department of Commerce Commodity jurisdiction. As result of this regulatory regime, foreign competitors facing less stringent controls on their products may be able to compete more effectively than the Company in the global market. While the Company has obtained approval from the Department of Commerce to export to certain end users, there can be no assurance that the U.S. government will approve pending or future export license requests. Further, there can be no assurance that the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, will not be revised from time to time. Failure to obtain the required licenses or the costs of compliance could have a material adverse effect on the Company's international revenues. The Company's PGP network security products are dependent on the use of public key cryptography technology, which depends in part on the application of certain mathematical principles known as "factoring." The security afforded by public key cryptography technology is predicated on the assumption that the factoring of the 20 23 composite of large prime numbers is difficult. Should an easy factoring method be developed, then the security afforded by encryption products utilizing public key cryptography technology would be reduced or eliminated. Furthermore, any significant advance in techniques for attacking cryptographic systems could also render some or all of the Company's existing products and services obsolete or unmarketable. There can be no assurance that such developments will not occur. Moreover, even if no breakthroughs in factoring or other methods of attacking cryptographic systems are made, factoring problems can theoretically be solved by computer systems significantly faster and more powerful than those presently available. If such improved techniques for attacking cryptographic systems are ever developed, it could have a material adverse effect on the Company's business, operating results and financial condition. Product Liability. The Company's anti-virus and network management software products are used to protect and manage computer systems and networks that may be critical to organizations and, as a result, the sale and support of these products by the Company may entail the risk of product liability and related claims. The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in these license agreements may not be effective under the laws of certain jurisdictions, particularly in circumstances involving unsigned licenses. A product liability claim brought against the Company could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence upon Key Personnel. The success of the Company will depend to a significant extent upon a number of key technical and management employees. While employees are required to sign standard agreements concerning confidentiality and ownership of inventions, Company employees are generally not otherwise subject to employment agreements or to noncompetition covenants. The loss of the services of any key employees could have a material adverse effect on the Company's business, financial condition and results of operations. The Company does not maintain life insurance policies on its key employees. The ability of the Company to achieve its revenue and operating performance objectives will depend in large part on its ability to attract and retain technically qualified and highly skilled sales, consulting, technical, marketing and management personnel. Competition for such personnel is intense and is expected to remain so for the foreseeable future. There can be no assurance the Company will be successful in retaining its existing key personnel and in attracting and retaining the personnel it requires, and failure of the Company to retain and grow its key employee population could adversely affect the Company's business and operating results. In early April 1998, Messrs. Leslie Denend, David Carson and John Stringer resigned from their positions as executive officers of the Company. Mr. Denend will remain a director of the Company. Additions of new and departures of existing personnel, particularly in key positions, can be disruptive and can result in departures of existing personnel, which could have a material adverse effect upon the Company's business, operating results and financial condition. Customer Purchase Decisions; Potentially Longer Sales and Implementation Cycles for Certain Products Suites. The products offered by the Company may be considered to be capital purchases by certain customers or prospective customers. Capital purchases are often considered discretionary and, therefore, are canceled or delayed if the customer experiences a downturn in its business or prospects or as a result of economic conditions in general. Any such cancellation or delay could adversely affect the Company's results of operations. In addition, as the Company proceeds with its strategy of selling product suites under the Net Tools umbrella (particularly to larger enterprise and national accounts), its sales cycle is likely to lengthen. Such sales may involve a lengthy education process and a significant technical evaluation and commitment of capital and other resources and may be subject to the risk of delays associated with customers' internal budget and other procedures for approving large capital expenditures, deploying new technologies within their networks and testing and accepting new technologies that 21 24 affect key operations. Because of the potentially lengthy sales cycle and the potentially large size of such orders, if orders forecasted for a specific customer for a particular quarter are not realized or revenues are not otherwise recognized in that quarter, the Company's operating results for that quarter could be materially adversely affected. See "-- Variability of Quarterly Operating Results" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Year 2000 Compliance. Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such "Year 2000" requirements. Although the Company believes that its products and systems are Year 2000 compliant, the Company utilizes third-party equipment and software that may not be Year 2000 compliant. Failure of such third-party equipment or software to operate properly with regard to the Year 2000 and thereafter could require the Company to incur unanticipated expenses to remedy any problems, which could have a material adverse effect on the Company's business, operating results and financial condition. The business, operating results and financial condition of the Company's customers could be adversely affected to the extent that they utilize third-party software products which are not Year 2000 compliant. Furthermore, the purchasing patterns of customers or potential customers may be affected by Year 2000 issues as companies expend significant resources to correct their current systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase products and services such as those offered by the Company, which could have a material adverse effect on the Company's business, operating results and financial condition. Supplier Dependence; Third Party Manufacturing. Certain of the Company's products contain critical components supplied by a single or a limited number of third parties. The Company has been required to purchase and inventory certain of the computer platforms around which it designs its network fault and performance management products to ensure an available supply of the product for its customers. Any significant shortage of these platforms or other components or the failure of the third party supplier to maintain or enhance these products could lead to cancellations of customer orders or delays in placement of orders which could materially adversely affect the Company's results of operations. If the Company's purchase of such components or platforms exceeds demand, the Company could incur losses or other charges in disposing of excess inventory, which could also materially adversely affect the Company's results of operations. The Company's manufacturing operations consist primarily of final assembly, testing and quality control of materials, components, subassemblies and systems for its Sniffer based products. The Company intends to outsource these manufacturing operations in 1998. There can be no assurance that the Company will be able to qualify and secure on commercially acceptable terms satisfactory third party manufacturers on a timely basis or at all. In addition, reliance on third party manufacturers will involve a number of risks, including the lack of direct control over the manufacturing process, the absence or unavailability of adequate capacity and reduced control over delivery schedules, quality control and costs. In the event that, once initially secured, the Company's third party manufacturers are unable or unwilling to continue to manufacture the Sniffer based products in required volumes, on a cost effective basis, in a timely manner or at all, the Company will have to secure additional manufacturing capacity. Even if such additional capacity is available at commercially acceptable terms, the qualification process could be lengthy and could create delay in product shipments. TIS Related Risks. There are certain other risks associated with the business of TIS which are described in the Registration Statement on Form S-3 filed with the Commission in connection with the pending TIS acquisition. 22 25 These additional risks are incorporated by reference herein and include risks related to TIS's security products and risks of doing business with the U.S. government. Effect of Certain Provisional Anti-Takeover Effects of Certificate of Incorporation, Bylaws and Delaware Law. The board of directors of the Company has the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote of action by its stockholders. The rights of the holders of Company Common Stock is subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock. Further, certain provisions of Delaware law and the Company's Certificate of Incorporation and Bylaws, such as a classified board, could delay or make a more difficult a merger, tender offer or proxy contest involving the Company. While such provisions are intended to enable the Company's Board to maximize stockholder value, they may have the effect of discouraging takeovers which could be in the best interest of certain stockholders. There is no assurance that such provisions will not have an adverse effect on the market value of the Company's Common Stock. SELLING STOCKHOLDERS The following table lists the Selling Stockholders, the number of shares of the Company's Common Stock which each owned or had the right to acquire as of May 15, 1998. Because the Selling Stockholders may offer all or some of the Shares which they hold pursuant to the offering contemplated by this Prospectus, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the Shares, no estimate can be given as to the amount of Shares that will be held by the Selling Stockholders after completion of this offering. The Shares are being registered to permit public secondary trading of the Shares, and the Selling Stockholders may offer the Shares for resale from time to time. See "Plan of Distribution." The Shares being offered by the Selling Stockholders were acquired from the Company in connection with the Company's acquisition of (i) 100% of the issued share capital of Syscon (the "Syscon Acquisition"), (ii) 100% of the issued share capital of Nordic Oy (the "Nordic Oy Acquisition"), and (iii) 100% of the issued share capital of Secure (the "Secure Acquisition"). The Syscon Acquisition was accomplished pursuant to the terms of a Stock Purchase Agreement, dated as of February 26, 1998, whereby the Company acquired all of the issued and outstanding share capital of Syscon in exchange for 1,230 shares of Company Common Stock. The Nordic Oy Acquisition was accomplished pursuant to the terms of a Share Purchase Agreement, dated February 27, 1998, whereby the Company acquired all of the issued and outstanding share capital of Nordic Oy in exchange for an aggregate of 27,445 shares of Company Common Stock. The Secure Acquisition was accomplished pursuant to the terms of a Share Purchase Agreement, dated May 7, 1998, whereby the Company acquired all of the issued and outstanding share capital of Secure in exchange for 567,000 shares of Company Common Stock. The Company has filed with the Commission, under the Act, a Registration Statement on Form S-3, of which this Prospectus forms a part, with respect to the resale of the Shares from time to time on the Nasdaq National Market or in privately-negotiated transactions. The Company has agreed to use reasonable efforts to keep such Registration Statement effective for 180 days from the date of effectiveness of the Registration Statement on Form S-3, of which this Prospectus forms a part, subject to certain restrictions, or, if earlier, until the distribution contemplated in this Prospectus has been completed. 23 26 The Shares offered by this Prospectus may be offered from time to time by the Selling Stockholders named below:
Number of Shares of Common Stock Beneficially Owned Name of Selling Stockholder Prior to the Offering Percentage of Outstanding Shares - ------------------------------------------------------------------------------------------------------------ Brenda Joyce Crook 1,230 * Irina Karlsson 15,644 * Jarmo Rouvinen 11,801 * Arthur Wong 9,185 * Arthur Wong, Michael Tam and 105,916 * Jason Chin as Trustees for the Wong Family 1998 Trust Michael Tam 4,082 * Michael Tam, Arthur Wong and 46,664 * Christopher Bailey as Trustees for the Tam Family 1998 Trust Kam Chun Tam 5,160 * Kam Chun Tam, Michael Tam 59,252 * and Mu Zhen Hu as Trustees for the Kam Chun Tam Family 1998 Trust Christopher Bailey 9,185 * Christopher Bailey, Michael Tam 105,916 * and Christopher Keim as Trustees for the Bailey Family 1998 Trust Alfred Huger 7,314 * Alfred Huger, John Boletta and 84,029 * Oliver Friedrichs as Trustees for the Huger Family 1998 Trust Oliver Friedrichs 3,856 * Oliver Friedrichs, Alfred Huger 44,340 * and Arthur Wong as Trustees for the Friedrichs Family 1998 Trust Jonathan Wilkins 10,149 * Thomas Ptacek 10,149 * Timothy Newsham 5,103 * PRL Resources Inc. 56,700 *
- ---------- * Less than 1% 24 27 PLAN OF DISTRIBUTION All or a portion of the Shares offered hereby by the Selling Stockholders may be delivered and/or sold from time to time in transactions on the Nasdaq National Market, in privately negotiated transactions, or by a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. After the effectiveness of the Registration Statement of which this Prospectus is a part, the Selling Stockholders may make short sales of the Company's Common Stock and may use the Shares to cover the resulting short positions. The Selling Stockholders may effect such transactions by selling the Shares to or through broker-dealers and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders or the purchasers of the Shares for whom such broker-dealers may act as agent or to whom they sell as principal or both (which compensation to a particular broker-dealer might be in excess of customary commissions). There is no assurance that any of the Selling Stockholders will sell any or all of the Shares offered by them. Any Selling Stockholder and any broker-dealers that participate in the distribution may under certain circumstances be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by such broker-dealers and any profits realized on the resale of Shares may be deemed to be underwriting discounts and commissions under the Securities Act. Each Selling Stockholder may agree to indemnify such broker-dealers against certain liabilities, including liabilities under the Securities Act. In addition, the Company has agreed to indemnify in certain circumstances certain Selling Stockholders against certain liabilities, including liabilities arising under the Securities Act and Exchange Act. Certain Selling Stockholders have agreed to indemnify in certain circumstances the Company and certain related persons against certain liabilities, including liabilities arising under the Securities Act and Exchange Act. Any broker-dealer participating in such transactions as agent may receive commissions from a Selling Stockholder (and, if it acts as agent for the purchase of such Shares, from such purchaser). Broker-dealers may agree with such Selling Stockholder to sell a specified number of Shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for such Selling Stockholder, to purchase as principal any unsold Shares. Broker-dealers who acquire Shares as principal may thereafter resell such Shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) on the Nasdaq National Market, in privately negotiated transactions, or by a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such Shares commissions computed as described above. Each Selling Stockholder will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M, which provisions may limit the time of bids for and purchases of shares of the Company's Common Stock by such Selling Stockholder. Each Selling Stockholder will pay all commissions and other expenses associated with the sale of the Shares by such Selling Stockholder. The Shares offered hereby are being registered pursuant to contractual obligations of the Company, and the Company has agreed to bear certain expenses in connection with the registration and sale of the Shares being offered by every such Selling Stockholder. The Company has not made any underwriting arrangements with respect to the sale of Shares offered hereby. 25 28 USE OF PROCEEDS The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholders. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Second Restated Certificate of Incorporation, as amended, limits, to the maximum extent permitted by Delaware law, the personal liability of directors for monetary damages for breach of their fiduciary duties as a director. The Company's Restated Bylaws provide that the Company shall indemnify its officers and directors and may indemnify its employees and other agents to the fullest extent permitted by Delaware law. The Company has entered into indemnification agreements with its officers and directors containing provisions which are in some respects broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnification agreements require the Company, among other things to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance, if available on reasonable terms. The Company believes that these agreements are necessary to attract and retain qualified persons as directors and officers. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent made a party to an action by reason of that fact that he or she was a director, officer, employee or agent of the corporation or was serving at the request of the corporation against expenses actually and reasonably incurred by him or her in connection with such action if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and with respect to any criminal action, had no reasonable cause to believe his or her conduct was unlawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL MATTERS The legality of the securities offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. 26 29 EXPERTS The consolidated balance sheets of the Company as of December incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1997, have been audited by Coopers & Lybrand L.L.P., independent certified public accountants, and are incorporated herein by reference in reliance upon the report of Coopers & Lybrand L.L.P., given on the authority of such firm as experts in accounting and auditing. NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS. 27 30 TABLE OF CONTENTS
Page ---- Trademarks 3 McAfee Associates, Inc./Network General 3 Corporation Merger Available Information 3 Information Incorporated by Reference 3 Forward-Looking Statements 4 The Company 5 Risk Factors 7 Selling Stockholders 23 Plan of Distribution 25 Use of Proceeds 26 Indemnification of Directors and Officers 26 Legal Matters 26 Experts 27
595,675 SHARES NETWORKS ASSOCIATES, INC. Common Stock ------------------ May 26, 1998 ------------------- 28 31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The fees and expenses incurred by the Company in connection with the offering are payable by the Company and, other than filing fees, are estimated as follows: Securities and Exchange Commission Registration Fee .......... $11,569.62 NASDAQ Filing Fee ............................................ $11,913.50 Legal Fees and Expenses ...................................... $ 8,500 Accounting Fees .............................................. $ 2,000 Miscellaneous ................................................ $ 4,000 Total ................................................... $37,983.12
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the Delaware General Corporation law ("DGCL") empowers a Delaware corporation to indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed legal action, suit or proceedings, whether civil, criminal, administrative or investigative (other than action by or in the right of such corporation), by reason of the fact that such person was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interest, and, for criminal proceedings, had no reasonable cause to believe his conduct was illegal. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation in the performance of his duty. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director actually and reasonably incurred. In accordance with the DGCL, the Company's Second Restated Certificate of Incorporation, as amended (the "Certificate"), contains a provision to limit the personal liability of the directors of the Registrant for violations of their fiduciary duty. This provision eliminates each director's liability to the Registrant or its stockholders for monetary damages except (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which a director derived an improper personal benefit. The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach of their fiduciary duty of care, including any such actions involving gross negligence. II-1 32 Article Sixth of the Company's Certificate and Article VIII, Section 1 of the Company's Restated Bylaws provide for indemnification of the officers and directors of the Registrant to the fullest extent permitted by applicable law. The Registrant has entered into indemnification agreements with each director and executive officer which provide indemnification to such directors and executive officers under certain circumstances for acts or omissions which may not be covered by directors' and officers' liability insurance. ITEM 16. EXHIBITS. The following exhibits are filed with this Registration Statement:
Exhibit Number Description - ------- ----------- 2.1 Stock Purchase Agreement, dated as of February 26, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Brenda Joyce Crook. 2.2 Share Purchase Agreement, dated as of March 30, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Irina Karlsson and Jarmo Rouvinen. 2.3 Stock Purchase Agreement, dated as of May 7, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Secure Networks, Inc. a corporation duly organized and existing under the laws of Alberta, Canada. 3.1 Second Restated Certificate of Incorporation of Networks Associates, Inc., as amended on December 1, 1997, incorporated by reference to the Registrant's Registration Statement on Form S-4, filed with the Commission on March 25, 1998. 3.2 Restated Bylaws of Networks Associates, Inc., incorporated by reference to the Registrant's Registration Statement on Form S-4, filed with the Commission on March 25, 1998. 3.3 Certificate of Designation of Series A Preferred Stock of Networks Associates, Inc., incorporated by reference to Exhibit 3.3 of the Registrant's Form 10-Q for the Quarter ended September 30, 1996. 4.1 Registration Rights Agreement, dated as of August 30, 1996, by and among Networks Associates, Inc., FSA Combination Corp. and FSA Corporation, incorporated by reference to the Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 24, 1996. 4.2 Registration Rights Agreement, dated January 13, 1997 by and between Networks Associates, Inc. and the shareholders of Jade, incorporated by reference to the Registrant's Report on Form 8-K, as filed with the Securities and Exchange Commission on March 14, 1997.
II-2 33 4.3 Registration Rights Agreement, dated as of February 28, 1997, by and between Networks Associates, Inc. and shareholders of Schuijers, incorporated by reference to the Registrant's Report on Form 10-K, for the year ended December 31, 1996. 4.4 Registration Rights Agreement, dated as of December 1, 1997, by and between Networks Associates, Inc. and shareholders of Helix Software Company, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on February 12, 1998. 4.5 Registration Rights Agreement, dated December 9, 1997 between the Registrant and certain of the shareholders of PGP, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on February 12, 1998. 4.6 Registration Rights Agreement, dated as of February 13, 1998, by and between Networks Associates, Inc. and Morgan Stanley & Co. Incorporated, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on May 6, 1998. 4.7 Indenture dated as of February 13, 1998 between Networks Associates, Inc. and State Street Bank and Trust Company of California, N.A., as Trustee, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on May 6, 1998. 4.8 Registration Rights Agreement, dated February 26, 1998, by and between Networks Associates, Inc., a Delaware corporation, and Brenda Joyce Crook. 4.9 Registration Rights Agreement, dated March 30, 1998, by and between Networks Associates, Inc., a Delaware corporation, Irina Karlsson and Jarmo Rouvinen. 4.10 Registration Rights Agreement, dated May 8, 1998, by and between Networks Associates, Inc., a Delaware corporation, and the stockholders of Secure Networks, Inc., a corporation duly organized and existing under the laws of Alberta, Canada. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1 Change of Control Agreement, dated May 12, 1998, by and between the Registrant and Zachary Nelson, incorporated by reference to the Registrant's Quarterly Report on Form 10-Q, filed with the Commission on May 15, 1998. 21.1 Subsidiaries of Networks Associates, Inc., incorporated by reference to the Registrant's Registration Statement of Form S-3, filed with the Commission on February 12, 1998. 23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (included on pg. II-6 of this Registration Statement under the caption "Signatures").
II-3 34 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act; (ii)to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that (i) and (ii) do not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by (i) and (ii) is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against liabilities (other than the payment of the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 35 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 36 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Clara, State of California on this 26th day of May, 1998. NETWORKS ASSOCIATES, INC. By: /s/ William L. Larson ------------------------------------- William L. Larson President and Chief Executive Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William L. Larson, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendment to this Registration Statement on Form S-3, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on May 26, 1998.
Signature Title --------- ----- William L. Larson Chief Executive Officer and Chairman ---------------- William L. Larson Prabhat K. Goyal Chief Financial Officer, Vice President Finance and ---------------- Administration, Secretary and Treasurer Prabhat K. Goyal Virginia Gemmell Director ---------------- Virginia Gemmell Harry J. Saal Director ---------------- Harry J. Saal Edwin L. Harper Director ---------------- Edwin L. Harper
II-6 37 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 2.1 Stock Purchase Agreement, dated as of February 26, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Brenda Joyce Crook. 2.2 Share Purchase Agreement, dated as of March 30, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Irina Karlsson and Jarmo Rouvinen. 2.3 Stock Purchase Agreement, dated as of May 8, 1998, among FSA Combination Corp., a Delaware corporation and wholly-owned subsidiary of Networks Associates, Inc., a Delaware corporation, and Secure Networks, Inc. a corporation duly organized and existing under the laws of Alberta, Canada. 3.1 Second Restated Certificate of Incorporation of Networks Associates, Inc., as amended on December 1, 1997, incorporated by reference to the Registrant's Registration Statement on Form S-4, filed with the Commission on March 25, 1998. 3.2 Restated Bylaws of Networks Associates, Inc., incorporated by reference to the Registrant's Registration Statement on Form S-4, filed with the Commission on March 25, 1998. 3.3 Certificate of Designation of Series A Preferred Stock of Networks Associates, Inc., incorporated by reference to Exhibit 3.3 of the Registrant's Form 10-Q for the Quarter ended September 30, 1996. 4.1 Registration Rights Agreement, dated as of August 30, 1996, by and among Networks Associates, Inc., FSA Combination Corp. and FSA Corporation, incorporated by reference to the Registrant's Report on Form 8-K as filed with the Securities and Exchange Commission on September 24, 1996. 4.2 Registration Rights Agreement, dated January 13, 1997 by and between Networks Associates, Inc. and the shareholders of Jade, incorporated by reference to the Registrant's Report on Form 8-K, as filed with the Securities and Exchange Commission on March 14, 1997. 4.3 Registration Rights Agreement, dated as of February 28, 1997, by and between Networks Associates, Inc. and shareholders of Schuijers, incorporated by reference to the Registrant's Report on Form 10-K, for the year ended December 31, 1996. 4.4 Registration Rights Agreement, dated as of December 1, 1997, by and between Networks Associates, Inc. and shareholders of Helix Software Company, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on February 12, 1998. 4.5 Registration Rights Agreement, dated December 9, 1997 between the Registrant and certain of the shareholders of PGP, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on February 12, 1998.
II-7 38 4.6 Registration Rights Agreement, dated as of February 13, 1998, by and between Networks Associates, Inc. and Morgan Stanley & Co. Incorporated, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on May 6, 1998. 4.7 Indenture dated as of February 13, 1998 between Networks Associates, Inc. and State Street Bank and Trust Company of California, N.A., as Trustee, incorporated by reference to the Registrant's Registration Statement on Form S-3, filed with the Commission on May 6, 1998. 4.8 Registration Rights Agreement, dated February 26, 1998, by and between Networks Associates, Inc., a Delaware corporation, and Brenda Joyce Crook. 4.9 Registration Rights Agreement, dated March 30, 1998, by and between Networks Associates, Inc., a Delaware corporation, Irina Karlsson and Jarmo Rouvinen. 4.10 Registration Rights Agreement, dated May 8, 1998, by and between Networks Associates, Inc., a Delaware corporation, and the stockholders of Secure Networks, Inc., a corporation duly organized and existing under the laws of Alberta, Canada. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1 Change of Control Agreement, dated May 12, 1998, by and between the Registrant and Zachary Nelson, incorporated by reference to the Registrant's Quarterly Report on Form 10-Q, filed with the Commission on May 15, 1998. 21.1 Subsidiaries of Networks Associates, Inc., incorporated by reference to the Registrant's Registration Statement of Form S-3, filed with the Commission on February 12, 1998. 23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1). 23.2 Consent of Coopers & Lybrand L.L.P. 24.1 Power of Attorney (included on pg. II-6 of this Registration Statement under the caption "Signatures").
II-8 EX-2.1 2 STOCK PURCHASE AGREEMENT DATED FEBRUARY 26, 1998 1 Exhibit 2.1 STOCK PURCHASE AGREEMENT This Agreement is entered into as of February 26, 1998, by and among Networks Associates, Inc., dba Network Associates, Inc. ("NAI"), a Delaware corporation; FSA Combination Corporation, (the "BUYER"), a Delaware Corporation and Brenda Joyce Crook, ID number 551121 0154 184 ("SELLER"). NAI, the Buyer and the Seller are referred to collectively herein as the "PARTIES." A. The Seller owns all of the entire issued share capital of the Company Syscon (Proprietary) Limited (as defined below). B. This Agreement contemplates a transaction in which the Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all of the entire issued share capital stock of the Company in exchange for the Purchase Price (as set forth herein). The Parties agree that a specified portion of the Purchase Price paid and the Buyer shall be placed in escrow, the release of which shall be contingent on certain events and conditions. It is the intent of the Parties that this be a tax-free transaction accounted for as a pooling of interest transaction under U.S. GAAP. The Parties agree as follows: 1. DEFINITIONS "ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated under the Securities Act. "AFFILIATE" shall mean with respect to any Person, (a) any other Person at the time directly or indirectly, controlling, controlled by or under direct or indirect common control with such Person, (b) any Person of which such person at the time owns or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of the capital stock or beneficial interest, (c) any other Person which at the time owns, or has the right to acquire, directly or indirectly, twenty percent (20%) or more of any class of capital stock or beneficial interest of such Person, (d) any executive officer or director of such 2 Page 2 person, (e) with respect to any partnership, joint venture or similar entity, any general partner thereof and (f) any individual's immediate family or family trust. "CODE" means the U.S. Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" means any information concerning the businesses and affairs of the Company that is not already generally available to the public. "EMPLOYEE BENEFIT PLAN" means any (a) deferred compensation or retirement plan or arrangement, (b) defined contribution retirement plan or arrangement, (c) defined benefit retirement plan or arrangement which, or (d) material fringe benefit or other retirement, bonus, or incentive plan or program. "FINANCIAL STATEMENTS" means the unaudited financial statements of the Company for the 6 (six) months' ended 31 December 1997 which are attached to this Agreement and initialled by the parties. "ESCROW AMOUNT" means ten percent (10%) of the Purchase Consideration paid pursuant to Section 2.5. "GAAP (US)" means United States generally accepted accounting principles as in effect from time to time. "KNOWLEDGE" means actual knowledge after due investigation. "LIABILITY" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "LOSS" means claims, losses, deficits, damages, costs, liabilities and expenses incurred by the Buyer, the Company or any of the Subsidiaries including, without limitation, settlement costs and any reasonable legal, accounting and other expenses for investigation or defending any actions or threatened actions. "MATERIAL ADVERSE CHANGE" means a change adverse to the relevant Party resulting in a Loss of greater than US$5,000, with respect to the Company, which could result in them not being solvent. 3 Page 3 "MOST RECENT BALANCE SHEET" means the balance sheet contained within the Most Recent Financial Statements. "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PERSON" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, limited liability company, an unincorporated organization, or a governmental entity (or any department or agency thereof). "SECURITIES ACT" means the United States federal Securities Act of 1933, as amended. "SECURITIES EXCHANGE ACT" means the United States federal Securities Exchange Act of 1934, as amended. "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Texas not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SUBSIDIARY" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "SOUTH AFRICA GAAP" means South Africa generally accepted accounting principles as in effect from time to time. "COMPANY" means Syscon (Proprietary) Limited, a company duly organized and existing under the laws of South Africa, with its principal office in Sandown and having the corporate identity number ("Registration Number") 84/05463/07. 4 Page 4 "COMPANY SHARE" means any of the shares of the Capital Stock of the Company, each having a par value of R1,00. "TAX" means any state, regional, local, or foreign tax, Value Added Tax, Regional Service Levies, Secondary Tax on Companies, donations tax, customs duties or other taxes or levies whatsoever, social security fees or similar fees or taxes, including any interest, penalty, or addition thereto, whether disputed or not. "TAX RETURN" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 2. PURCHASE AND SALE OF COMPANY SHARES 2.1. Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer, the entire issued share capital of the company ("COMPANY SHARES") for the consideration specified below in this Article 2 (the "PURCHASE"). 2.2. Consideration. The Buyer agrees to deliver to the Seller at the Closing as consideration for the Company Shares an amount of R400,000,00 in cash (the "PURCHASE CONSIDERATION"). 2.3. The Closing. The closing of the transactions contemplated by this Agreement (the "CLOSING") took place at the offices of Edward, Nathan, & Friedland Inc., at 4th Floor, The Forum, 2 Maude Street, Sandown, Sandton, 2196 on 26 February 1998 (the "CLOSING DATE"). 2.4. Deliveries at the Closing. At the Closing the Seller delivered to the Buyer stock certificates representing all of her Company Shares, endorsed in blank and the share ledger of the Company and the Buyer delivered to the Seller the consideration specified in Section 2.1 above. 2.5. Escrow Deposit. At the Closing, from the Purchase Consideration otherwise payable pursuant to this Article 2, Buyer deposited the Escrow 5 Page 5 Amount into an escrow account pursuant to an escrow agreement(the "ESCROW AGREEMENT"). 2.6. Upon the satisfaction of all conditions and deliveries of the Closing all rights and benefits of the Company shares shall be vested in NAI. 3. WARRANTIES CONCERNING THE TRANSACTION 3.1. Warranties of the Seller. The Seller warrants to the Buyer that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and were correct and complete as of the Closing Date with respect to herself. 3.1.1. Authorization of Transaction. The Seller has full authority to execute this Agreement and to perform her obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Seller. The seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any statute, act, regulation, order or other restriction of any government or court to which any Seller is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any Seller is a party or by which he is bound or to which any of his assets is subject. 3.1.2. Shares. Seller holds of record and owns beneficially 100% (one hundred percent) of Company Shares, free of any restrictions on transfer, Taxes, Security Interests, options, warrants, purchase rights, contracts, and demands. The Seller is not a party to any contract or commitment that could require any Seller to sell, transfer, or otherwise dispose of any capital stock of the Company (other than this Agreement). The Seller is not a party to any voting trust, proxy or other agreement or 6 Page 6 understanding with respect to the voting of any capital stock of the Company. 3.1.3. Warranties of the Buyer and NAI. Each of the Buyer and NAI jointly and severally warrants to the Seller that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and were correct and complete as of the Closing Date. 3.1.4. Organization of the Buyer and NAI. The Buyer and NAI are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction of their incorporation. 3.1.5. Authorization of Transaction. This Buyer and NAI have full authority (including full corporate authority) to execute and deliver this Agreement and to perform their obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer and NAI. The Buyer or NAI need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement, other than filings required pursuant to the Securities Act and Securities Exchange Act. 3.1.6. Noncontravention. Neither the execution of this Agreement, nor the consummation of the transactions contemplated hereby, will violate any constitution, stature, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer or NAI are subject or any provision of their charter or bylaws. 4. WARRANTIES CONCERNING THE COMPANY 4.1. The Seller warrants to the Buyer that the statements contained in this Article 4 are correct and complete as of the date of this Agreement and were correct and complete as of the Closing Date, namely - 4.1.1. the Company will be regularly incorporated as a private company with limited liability according to the laws of the Republic of South Africa; 4.1.2. the Seller will be entitled and able to give free and unencumbered title of the Company Shares to the Buyer; 4.1.3. no person will have any right (including any option or right of first refusal) to acquire any of the Company Shares or to subscribe for, take up or acquire any of the unissued shares in the capital of the Company, present or future; 4.1.4. the Seller will be the sole registered and beneficial owner of the Company Shares and will be reflected in the register of members of the Company as the sole owner thereof; 7 Page 7 4.1.5 true and full copies of all the material contracts of the Company have been furnished by the Seller to the Buyer in the course of the due diligence investigation conducted by the Buyer and correctly reflect any amendments which have been agreed to in respect thereof and will be of full force and effect according to their terms and the Company will have complied in all respects with its obligations under all such contracts; 4.1.6. the Company's books and records will have been properly maintained according to law and will accurately reflect, in accordance with generally accepted and sound accounting principles and standards, all of the transactions entered into by the Company or to which it is a party; 4.1.7. the Company will have complied with all legislation, enactments, proclamations, ordinances, by-laws and regulations which affect it and, in particular, it will have complied with all the provisions of the legislation affecting, regulating or providing for income or other tax or duties and the employment of labour and also the provisions of the South African Companies Act, 1973; 4.1.8. save as is disclosed in the Financial Statements, neither the Company nor the assets of the Company will be subject to any hire purchase agreement, lease, pledge, mortgage, lien, notarial bond, hire purchase agreement, agreement which entails a future commitment for the company, encumbrance or the like; 4.1.9. the Company will have no liabilities, whether contingently or otherwise, and whether as surety, co-principal debtor, guarantor or indemnitor, other than those disclosed in the Financial Statements; 4.1.10. the Company is not engaged in any litigation, income tax appeals, arbitration or criminal proceedings (other than proceedings for the collection of debts from trade debtors in the ordinary course of business) nor is the Seller aware of any facts, matters or circumstances which may give rise to any such litigation, income tax appeals, arbitration or criminal proceedings; 4.1.11. all amounts owing by the Company in respect of income tax for periods ended before the effective date and all amounts of income tax for which the Company is or will become liable in respect of its income up to that date will have been paid or are fully provided for in the Financial Statements; 4.1.12. the Financial Statements fairly present the state of affairs of the Company and its business as at 31 December 1997 and the results of the Company for the period ended on that date 8 Page 8 and were prepared in accordance with generally accepted and sound accounting principles and the provisions of the South African Companies Act, 1973 and any other relevant legislation and the same accounting methods and bases as were hitherto used in the preparation of the audited annual Financial Statements of the Company were employed in preparing the Financial Statements; 4.1.13. the Seller has disclosed to the Purchaser all facts and circumstances material to this transaction and which would be material or would be reasonably likely to be material to a purchaser of the Company shares and the purchase price payable in respect thereof. 5. PRE-CLOSING COVENANTS The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing Date namely - 5.1. General. Each of the Parties will use his or its best good faith efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement and documents ancillary thereto. 5.2. Notices and Consents. The Seller will cause the Company to give any notices to third parties, and will cause the Company to use its best efforts to obtain any third party consents, that the Buyer may request. 5.3. Operation of Business. The Seller will not cause or permit the Company to engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Seller will not cause or permit any of the Company to (i) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem or otherwise acquire any of its capital stock, (ii) take any action that would unreasonably jeopardize the treatment of the transactions contemplated hereby as a pooling of interests. 5.4. Preservation of Business. The Seller will cause the Company to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. 5.5. Full Access. Subject to applicable confidentiality undertakings by the Buyer, the Seller will permit, and the Seller will cause the Company to permit, representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Company, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to the Company. 9 Page 9 5.6. Notice to Developments. The Seller will give prompt written notice to the Buyer of any adverse development causing a breach of any of the representations and warranties in Article 3 above. Each Party will give prompt written notice to the others of any adverse development causing a breach of any of his or its own representations and warranties in Article 3 above. No disclosure by any Party pursuant to this Section 5.6., however, shall be deemed to amend or supplement or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 5.7. Exclusivity. Until the fulfillment of the condition precedent or termination of this Agreement in accordance with its terms, none of the Seller will (and the Seller will not cause or permit the Company to) (i) solicit, initiate, or encourage the submission of any offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of the Company or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Seller will not vote her Company Shares in favor of any such acquisition. The Seller will notify the Buyer immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. 6. POST-CLOSING COVENANTS The Parties agree as follows with respect to the period following the Closing Date. 6.1. General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting party (unless the requesting Party is entitled to indemnification therefor under Article 7 below). The Seller acknowledge and agree that from and after the Closing the Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to the Company and its Subsidiary. 6.2. Litigation Support. In the event and for so long as any party actively is contesting or defending against any claim or legal action in connection with (i) any transaction contemplated under this Agreement or (ii) any event (or failure to act) on or prior to the Closing Date involving the Company, each of the other Parties will cooperate with him or it and his or its counsel in the contest or defence, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defence, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Article B below). 10 Page 10 6.3. Transition. The Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of any of the Company from maintaining the same business relationships with the Company after the Closing as it maintained with the Company prior to the Closing. The Seller will refer all customer inquiries relating to the businesses of the Company to the Buyer from and after the Closing. 7. REMEDIES FOR BREACHES OF THIS AGREEMENT 7.1. Provisions for Benefit of the Buyer. Subject to the following provisions of this Article, the Seller shall be liable and shall indemnify and hold the Buyer harmless from and against all Losses arising out of misrepresentation, breach of warranty or failure to perform a covenant or any other breach of this Agreement on the part of the Seller, provided that the liability of the seller in respect of all losses of the Buyer so arising or so sustained shall under no circumstances exceed the amount of the Purchase Price and the Buyer's claim against the Seller shall accordingly be limited to the Purchase Price. 7.2. Compensation for Losses. Compensation for Losses shall be first paid out of the Escrow Fund as more specifically provided for in the Escrow Agreement, and shall at the discretion of the Buyer be paid to the Buyer, the Company insofar as the Company is affected by the misrepresentation, breach of warranty or covenant. Without prejudice to any right granted to the parties herein, compensation for Losses, as defined, shall be considered a reduction of the Purchase Price. 7.3. Notification. in the event that the Buyer shall demand indemnification hereunder, the Buyer shall notify the Seller without undue delay, but the Buyer's failure to do so shall in no event preclude the Buyer from receiving indemnification from the Seller hereunder. 7.4. Other Indemnification Provisions. Seller will make no claim for indemnification against the Company by reason of the fact that he was a director, officer, employee, or agent of any such entity or was serving at the request of any such entity as a partner, director, employee, or agent of another entity with respect to any action, suit, proceeding, complaint, claim, or demand brought by the Buyer against such Seller (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise). 8. TAX MATTERS The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: 8.1. Cooperation on Tax Matters. Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding 11 Page 11 with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer and Seller shall further, upon request, provide the other party with all information that either party may be required to report. 8.2 Certain Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be paid by Buyer when due, and Buyer will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees. 9. BREACH If any party breaches any material provision or term of this Agreement (other than those which contain their own remedies or limit the remedies in the event of a breach thereof) and fails to remedy such breach within 14 (fourteen) days of receipt of written notice requiring it to do so (or if it is not reasonably possible to remedy the breach within 14 (fourteen) days, within such further period as may be reasonable in the circumstances), then the aggrieved party shall be entitled without notice, in addition to any other remedy available to it at law or under this agreement, including obtaining an interdict, to cancel this agreement or to claim specific performance of any obligation whether or not the due date for performance has arrived, in either event without prejudice to the aggrieved party's right to claim damages. 10. MISCELLANEOUS 10.1 Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its best efforts to advise the other Parties prior to making the disclosure). 10.2 Entire Agreement. This agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. 12 Page 12 10.3. Succession and Assignment's Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Seller; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person any right, benefit or remedy under or by reason of this Agreement. 10.4. Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to the Seller: Brenda Joyce Crook 19 Concourse Crescent, Lonehill Sandton, South Africa Telephone: +27 11 7051472 Telecopier: +27 11 4651069 With a Copy to: Workmans Attention: Michael Silbar Telephone: +27 11 488 0000 Telecopier: +27 11 464 3100 If to the Buyer or NAI: Network Associates, Inc. 2805 Bowers Avenue Santa Clara, California 95051 Attention: Richard Hornstein Telephone: (408) 346-3063 Telecopier: (408) 346-3038 With a Copy to: Edward Nathan & Friedland, Inc. P.O. Box 783347 Sandton 2146 The Forum: 4th Floor 2 Maude Street 13 Page 13 Sandown, Sandton 2196 Attention: Michael Katz Telephone: + 27-11-269-7899 Telecopier: + 27-11-269-7600 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 10.5. Amendments and Waivers. No amendment of any provision of this Agreement is valid unless it is in writing and signed by the Buyer and the Seller. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 10.6. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 10.7. Expenses. Each of the Parties and the Company, will bear his or her or its own costs and expenses (including legal fees, accounting costs and expenses) incurred in connection with this Agreement and the transactions contemplated hereby, except that any expenses incurred for the use of the Seller' professional advisers at the request of Buyer shall be reimbursed to Seller by Buyer. The Seller agrees that the Company has not borne or will not bear any of the Seller' costs and expenses (including any of their legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. 10.8. Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, the principle of interpretation "contra stipulatorem" shall not apply. Any reference to any national, provincial, federal, regional, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any warranty, or covenant contained herein in any 14 Page 14 respect, the fact that there exists another warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first warranty, or covenant. 11. MISCELLANEOUS 11.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of South Africa. 11.2 Arbitration. 11.2.1 Save in respect of those provisions of the Agreement which provide for their own remedies which would be incompatible with arbitration, a dispute which arises in regard to - (a) the interpretation of; or (b) the carrying into effect of; or (c) any of the parties' rights and obligations arising from; or (d) the termination or purported termination of or arising from the termination of; or (e) the rectification or proposed rectification of, this Agreement, or out of or pursuant to this Agreement shall be submitted to and decided by arbitration. 11.2.2 That arbitration shall be held at Johannesburg with only the parties and their legal representatives present thereat. 11.2.3 It is the intention of the parties that the arbitration shall, where possible, be held and concluded in 21 (twenty one) working days after it has been demanded. The parties shall use their best endeavours to procure the expeditions completion of the arbitration. 11.2.4 The arbitration shall be subject to the arbitration legislation for the time being in force in South Africa. 11.2.5 The arbitrator shall be an impartial practising attorney of not less than 10 (ten) years standing appointed by the parties or, failing agreement by the parties within 3 (three) days after the arbitration as been demanded, at the request of either of the parties shall be nominated by the President for the time being of the Law Society of the Transvaal for its successor in Gautengl. If that person falls or refuses to make the nomination, either party may approach the High Court of South Africa to make such 15 Page 15 an appointment. To the extent necessary, the court is expressly empowered to do so. 11.2.6. The parties shall keep the evidence in the arbitration proceedings and any order made by any arbitrator confidential. 11.2.7. The arbitrator shall be obliged to give his award in writing fully supported by reasons. 11.2.8. The provisions of this clause are severable from the rest of this Agreement and shall remain in effect even if this Agreement is terminated for any reason. 11.2.9. The arbitrator shall have the power to give default judgment if any party fails to make submissions on due date and/or fails to appear at the arbitration. 11.3 Confidentiality and Publicity Any information obtained by any party to this Agreement in terms of or arising from or pursuant to the implementation of this Agreement shall be treated as confidential by the parties and shall not be divulged or permitted to be divulged to any person not being a party to this Agreement, without the prior written consent of the other parties, save that -- 11.3.1. any information which is required to be furnished by law or by existing contract or by any stock exchange on which the shares of any party to this Agreement are listed may be so furnished; 11.3.2. any party shall be entitled (after consultation with the other parties so as to avoid embarrassment or prejudice to the extent possible) to make such information available to its shareholders as may be necessary to enable such shareholders to consider the value and prospects of their shareholdings; 11.3.3. no party shall be precluded from divulging any information to any person who is negotiating with such party for the acquisition of an interest in such party, provided that the person to whom any disclosure is made in the aforesaid circumstances shall first have undertaken in writing not to divulge such information to any other person and to use it only for the purpose of evaluating the business; 11.3.4. no party shall be precluded from using or divulging such information in order to pursue any legal remedy available to it. 11.4 Release from guarantees The Buyer shall use its best endeavours to procure the release of the Seller from any liability which the Seller may have beyond the Closing 16 Page 16 Date under those guarantees, suretyships or indemnities which have been given by the Seller, if any, for the Company's obligations. 11.5. Jurisdiction The parties hereby consent to the exclusive jurisdiction of the High Court of the Republic of South Africa (Witwatersrand Local Division) in respect of any action arising from or out of or pursuant to this Agreement and the undertakings given herein. The Parties have executed this Agreement on as of the date first above written. FSA Combination Corp. DMESSERSCHMIDT By: /s/ Diana Bridgid Messerschmidt ----------------------------------- Its: Legal Adviser (Under Power of ----------------------------------- Attorney) Network Associates, Inc. DMESSERSCHMIDT By: /s/ Diana Bridgid Messerschmidt ----------------------------------- Its: Legal Adviser (Under Power of ----------------------------------- Attorney) Seller /s/ B J Crook ----------------------- Brenda Joyce Crook EX-2.2 3 SHARE PURCHASE AGREEMENT DATED MARCH 30, 1998 1 EXHIBIT 2.2 SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT, entered into on this 27 day of February, 1998, by and among Irina Karlsson, a Finnish national residing in Vantaa and Jarmo Rouvinen, a Finnish national residing Helsinki (the "Sellers") and FSA Combination Corp., a corporation organized and existing under the laws of Delaware, United States of America (the "Purchaser"). The Purchaser is a one hundred per cent (100%) subsidiary of Network Associates, Inc. ("NAI"), a corporation organized and existing under the laws of Delaware, United States of America. WITNESSETH: WHEREAS, the Sellers in the aggregate own one hundred per cent (100%) of the issued and outstanding shares in Nordic Lan Tools Oy, a Finnish company engaged in the business of the import and sale of EDP-hardware and software as well as the consulting, training and programming related to EDP, having its registered office in Vantaa, Finland (the "Company"); WHEREAS, the Purchaser is willing to acquire all of the issued and outstanding shares in the Company and the Sellers are willing to sell and transfer such shares to the Purchaser subject to the terms and conditions hereinafter set forth. 2 2 NOW, THEREFORE, the Parties hereby agree as follows: 1. DEFINITIONS As used in this Agreement, unless expressly otherwise stated or evident in the context, the following terms shall have the following meanings, the singular (where appropriate) shall include the plural and vice versa and references to Schedules and Sections shall mean Schedules and Sections of this Agreement: 1.1 "ACCOUNTS" shall mean the statutory audited profit and loss statement and balance sheet of the Company including the notes thereto as at the Accounts Date, together with the accompanying manage- ment's report as well as the auditors' statutory report, attached hereto as SCHEDULE 1.1. 1.2 "ACCOUNTS DATE" shall mean 31 December 1997. 1.3 "AGREEMENT" shall mean this Share Purchase Agreement and the Schedules hereto. 1.4 "ACCOUNTING Shall mean the accounting principles in accordance PRINCIPLES" with applicable Finnish laws and generally applied Finnish accounting standards, as consistently applied by the Company. 1.5 "BUSINESS" shall mean the business of import and sale of EDP-hardware and software as well as consulting, training and programming related to EDP as presently carried out by the Company, including the assets and rights of whatever nature, relating to such business. 3 3 1.6 "CLOSING" shall mean the consummation of the transaction as contemplated in Section 5. 1.7 "CLOSING DATE" shall mean 27 February, 1998 or such later date as specified in Section 5.1. 1.8 "COMPANY" shall mean Nordic Lan Tools Oy, a Finnish com- pany entered in the Trade Register under No. 536.650. 1.9 "DISCLOSURE LETTER" shall mean the Disclosure Letter of even date herewith referred to in Section 6. 1.10 "NET ASSET VALUE" shall mean the difference in the aggregate value of the assets and the liabilities of the Company calculated on the basis of the Accounts and determined as provided in Section 3.3. 1.11 "ORDINARY COURSE OF shall mean the ordinary course of business of the BUSINESS" Company consistent with past customer and business practices and always in accordance with good and sound business practice. 1.12 "PARTY" shall mean the Purchaser or the Seller, as the context may require, and "PARTIES" shall be construed accordingly. 1.13 "PURCHASE PRICE" shall mean the aggregate purchase price of the Shares in accordance with Section 3. 1.14 "PURCHASER" shall have the meaning as set out in the introductory paragraph hereof. 4 4 1.15. "PURCHASER'S shall mean CPA Lars Blomqvist of Coopers & ACCOUNTANTS Lybrand Oy. 1.16 "RELATED shall mean the agreements referred to in Section AGREEMENTS" 9.1. 1.17 "SELLERS" shall have the meaning as set out in the introductory paragraph hereof. Ms. Irina Karlsson is the owner of fifty-seven per cent (57%) and Mr. Jarmo, Rouvinen of forty-three per cent (43%) of the issued and outstanding shares of the Company. 1.18 "SHARES" shall mean the shares to be transferred by the Sellers to the Purchaser as contemplated herein, representing all of the issued and outstanding shares of the Company, each such share with a nominal value of FIM 100. 1.19 "SHARE TRANSFER shall mean the agreement referred to in Section AGREEMENT" 5.4(d). 1.20 "TAXES" shall mean all income tax, value added tax and any other taxes and similar charges (including, in particular, social security charges) imposed by any authority, including all penalties and interest. 2. OBJECT OF THE TRANSACTION Upon the terms and subject to the conditions set forth herein, and in reliance upon the representations, warranties, assurances and undertakings made herein by each Party to the other Party, the Sellers hereby agree to sell and the Purchaser hereby agrees to purchase Company as represented by the Shares as of the Closing Date. 5 5 3. PURCHASE AND SALE OF COMPANY SHARES 3.1 PURCHASE PRICE (a) The purchase price for the Shares (the "Purchase Price", subject to Section 3.2, shall be US dollars one million eight hundred thousand (USD 1,800,000). (b) The Purchase Price shall be paid at the Closing by the delivery to the Sellers of the number identified in 3.1.(c) below of shares of common stock of Network Associates, Inc. ("NAI-Shares"). The NAI-Shares shall be allocated among the Sellers as follows: Irina Karlsson: fifty-seven per cent (57%) of the NAI-Shares. Jarmo Rouvinen: forty-three per cent (43%) of the NAI-Shares. (c) For the purpose of calculating the number (rounded in aggregate to the nearest whole share) of the Purchaser's shares constituting the NAI Shares as defined in Section 3.1.(b) above, the Parties agree to divide the Purchase Price by the average closing bid price of an NAI-share as quoted on the NASDAQ for a day ending on the 2nd to last day prior to the Closing. (d) At the Closing, from the NAI-Shares otherwise deliverable pursuant to this Section 3.1, Purchaser shall deposit a number of shares corresponding to 10% of the Purchase Price calculated as stated in 3.1.(c) above into escrow pursuant to the escrow agreement ("Escrow Agreement") substantially in the form attached hereto as SCHEDULE 3.1.(d). (e) The Purchaser has informed the Sellers of the tradeability of the NAI-Shares as provided for in SCHEDULE 3.1(e). 6 6 3.2 NET ASSET VALUE The Purchase Price shall be adjusted on a dollar to dollar basis to the extent the Net Asset Value calculated as provided in Section 3.3. is less than five hundred thousand US Dollars (USD 500,000). 3.3. ACCOUNTS AND DETERMINATION OF NET ASSET VALUE (a) As promptly as practicable after the signing of this Agreement and no later than 20 days following the Closing Date, the Sellers shall prepare and deliver to the Purchaser and the Purchaser's Accountants calculation of the Net Asset Value. (b) The Purchaser's Accountants shall verify the Accounts and the Net Asset Value and shall for such purpose have access to all the records and book-keeping material relating to the Company to the extent required for the purposes of such verification. The Purchaser may dispute the Accounts and/or the Net Asset Value by notifying the Sellers in writing of the amount(s) in dispute and the basis for such dispute within thirty (30) days from the receipt of the Accounts. (c) The Purchaser and the Sellers shall in good faith endeavour to resolve any dispute under Section 3.3 (c) above within thirty (30) days from the date of receipt by the Sellers of the Purchaser's written notice of dispute, failing which the matter shall be resolved according to Section 10.9 hereunder. (d) Any adjustment of the Purchase Price based on a shortfall of the Net Asset Value shall carry interest at the rate of ten per cent (10%) p.a. from the Closing Date until the date of actual payment. 7 7 4. TRANSFER OF TITLE The full and unrestricted ownership and title to the Shares shall pass from the Sellers to the Purchaser at the Closing on the Closing Date simultaneously with the fulfillment and completion of the Closing procedures set forth in Section 5. 5. CLOSING 5.1 THE CLOSING The Closing shall take place on the Closing Date starting at 15.00 p.m. at the offices of Messrs Roschier-Holmberg & Waselius, Keskuskatu 7 A, Helsinki. 5.2 PURCHASER'S CONDITIONS PRECEDENT The obligation of the Purchaser to close hereunder shall be subject to the fulfillment, on or before the Closing Date, of each of the following conditions (to the extent not waived by the Purchaser) and all of which that require documentation shall be in form and substance satisfactory to the Purchaser and its counsel in their reasonable judgement: (a) New Information The Purchaser shall not have become aware of any new information between the date hereof and the Closing Date which in the Purchaser's reasonable judgement would have a material adverse effect on the Company or the Business. (b) Warranties True and Sellers' Certificate The representations, warranties and assurances given by the Sellers in Section 6. shall be true and correct on and as of the Closing Date with the same effect as though such representation, warranties and assurances had been made on 8 8 and as of such date and Sellers shall have delivered to the Purchaser a certificate, dated at the Closing Date, to such effect. (c) Board of Directors The present members of the Board of Directors of the Company shall, to the extent required by the Purchaser, as of the Closing Date have been substituted with new members appointed by the Purchaser. (d) Authority Approvals The Purchaser, the Sellers or the Company, as the case may be, shall have obtained all necessary authorizations, approvals and consents from all relevant authorities in Finland, the United States, the European Union or elsewhere, as the case may be, required for the lawful and valid consummation of the transactions contemplated hereunder. (e) Board Approval The consummation of the transactions contemplated hereby shall have been approved by the Board of Directors of the Purchaser. (f) Corporate Action All corporate action necessary for the lawful and valid consummation of the transactions contemplated hereby shall have been duly taken by the Company and shall be in full force and effect. (g) Related Agreements The Purchaser, the Sellers and, as appropriate, the Company and/or any other relevant party shall have entered into the Related Agreements and all the conditions precedent for the entry into force of such agreements shall have been fulfilled. 9 9 (h) The Company shall have been released from all guarantees and other undertakings referred to in Section 9.3. (i) The Purchaser and NAI believe that, based on consultation with its independent accountants and in the light of the financial due diligence performed in the Company, that the transactions contemplated in this Agreement and the Related Agreements can be accounted for as a pooling of interests pursuant to US GAAP. 5.3 SELLERS' CONDITIONS PRECEDENT The obligation of the Sellers to close hereunder shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions (to the extent not waived by the Sellers) and all of which that require documentation shall be in form and substance satisfactory to the Sellers and their legal counsel in their reasonable judgement: (a) Warranties True The representations, warranties and assurances given by the Purchaser in Section 7. shall be true and correct on and as of the Closing Date with the same effect as though such representations, warranties and assurances had been made on and as of such date. (b) Corporate Action All corporate action necessary for the lawful and valid consummation by the transactions contemplated hereby shall have been duly taken by the Purchaser and shall be in full force and effect. 10 10 (c) Authority Approvals The Purchaser, the Sellers or the Company, as the case may be, shall have obtained all necessary authorizations, approvals and consents from all relevant authorities in Finland, the United States, the European Union or elsewhere, as the case may be, required for the lawful and valid consummation of the transactions contemplated hereunder. (d) Related Agreements The Purchaser, the Sellers and, as appropriate, the Company and/or any other relevant party shall have entered into the Related Agreements and all the conditions precedent for the entry into force of such agreements shall have been fulfilled. 5.4 DELIVERIES AT CLOSING At the Closing (a) the Sellers shall sell, transfer and convey to the Purchaser the Shares and release and deliver to the Purchaser the share certificates corresponding to the Shares duly endorsed in blank in a manner provided for in SCHEDULE 5.4(a), as well as all other documents, if any, required for the valid and effective transfer and registration of the title to the Shares in the name of the Purchaser; (b) the Sellers shall convey to the Purchaser the share and shareholders' registers of the Company; (c) the Purchaser shall deliver to each of the Sellers the consideration as referred to in Section 3.1(b), less any reduction to the Purchase Price pursuant to Section 3.2, to the extent known as of the Closing Date in a manner provided for in SCHEDULE 5.4(a); 11 11 (d) the Parties shall execute the Share Transfer Agreement effecting the transfer of the Shares, in the form set forth in SCHEDULE 5.4(d) (e) any other document, condition, amount or matter herein called for to be produced, delivered, released, paid or fulfilled at the Closing as a condition precedent shall be so produced, delivered, released, paid and fulfilled. 5.5 BEST EFFORTS TO CLOSE The Parties shall use their respective best efforts to cause all necessary action to be taken in order to have all the conditions precedent for the Closing to be fulfilled as promptly as practicable and to have all deliveries made timely and properly as provided in Section 5.4. 6. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF THE SELLERS The Sellers acknowledge that the Purchaser is entering into this Agreement in reliance on the representations, warranties and assurances (the "Warranties") hereby given by the Sellers to the Purchaser being true and correct both on the date hereof and on the Closing Date and consequently the Sellers hereby represent, warrant and assure that the statements set out in this Section 6. are true and correct both on the date hereof and at the Closing. The liability of the Sellers under, and the rights and remedies of the Purchaser in respect of, the Warranties shall not be affected by any knowledge of the Purchaser as a result of the Purchaser's examination of the Company or otherwise, but only the facts, matters, occurrences or events disclosed by the Sellers in the Disclosure Letter attached hereto as SCHEDULE 6. shall constitute exceptions to the Warranties for which the Sellers are not liable. Accordingly, the Sellers shall not be deemed to be in breach of the Warranties only to the extent a fact, matter, occurrence or event has been specifically disclosed to the Purchaser in the Disclosure Letter. 12 12 6.1 ORGANIZATION, GOOD STANDING The Company is a corporation duly organized, validly existing and in good standing under the laws of Finland, and has full power to carry on the Business as now being conducted. 6.2 RECORDS AND DOCUMENTATION (a) True, complete and current copies of the Articles of Association and registration certificates of the Company are attached hereto as SCHEDULE 6.2 (a). (b) All corporate documentation of the Company, including, without limitation, share registers, minutes of the board of directors' meetings and shareholders' meetings, exists and is safely kept, correct, complete and up-to-date. (c) The Company has filed its annual reports with the relevant authorities, as required and the information set forth therein is true, accurate and complete. (d) The books and records relating to the purchase of materials and supplies, manufacture or processing of products or services, sales of products and services, dealings with customers, invoices, customer lists, inventories, supplier lists, personnel records and taxes of the Company are accurate and have been maintained consistent with good business practices and are in the possession of the Company. 6.3 TITLE AND AUTHORITY TO TRANSFER THE SHARES; CAPITALIZATION (a) The Sellers own all the shares of the Company and have full power, capacity and authority to sell and transfer the Shares and to perform all other undertakings set forth in this Agreement and the Related Agreements. The Shares are freely transferable to the Purchaser and are free 13 13 and clear of all restrictions on the ability to vote the Shares. The Shares are not subject to claims, options, liens, charges and other encumbrances of any kind. (b) The execution of this Agreement and the Related Agreements and the consummation of the transaction contemplated herein and the fulfillment of the terms hereof, will not result in a breach of any judgement, decree or order of any court or governmental body, any applicable law or the Articles of Association of the Company or any contract binding on the Sellers or the Company. (c) The Shares have been duly authorized, legally and validly issued and are fully paid. There are no outstanding obligations, warrants, options, depository receipts, subscriptions, pre-emptive rights, contracts or agreements to which the Sellers or the Company are bound, providing for the issuance of any additional shares of the Company. (d) The Company does not own any interest, directly or indirectly, in any corporation, partnership or other legal entity and does not have any, branch office. 6.4 THE ACCOUNTS The Accounts are complete and correct in all respects and truly and correctly reflect the results of operation, the financial condition, the assets and liabilities of the Company as at the Accounts Date and have been prepared in conformity with the Accounting Principles. In particular, the Accounts include provision in full for all liabilities which the Company has or may incur in the future deriving from any event, act or occurrence before the Accounts Date or the Closing Date, as the case may be (including, without limitation, any liabilities for vacation salaries and premiums, taxes, pension, retirement or similar obligations); they do not overstate 14 14 the value of any assets; and they include provision for all warranty claims and for bad and doubtful debts. 6.5 ASSETS AND PROPERTIES (a) The Company has exclusive title to the assets recorded in the Accounts except for such assets which have been sold at ordinary market terms in the Ordinary Course of Business after the Accounts Date. None of the assets are subject to any liens, mortgages, charges or other encumbrances, except as noted in the Accounts. (b) The Company owns or leases, and will following the consummation of the transactions contemplated herein continue to own and lease all the assets and rights, including intellectual property, and produces all services required to conduct the Business as currently conducted on a stand alone basis and without the necessity to acquire additional assets or services not provided in this Agreement or the Related Agreements at additional cost. (c) All the stock and inventory of the Company including work in progress, are within specifications and of merchantable quality. In addition to what will be properly accrued and accounted for in the Closing Accounts, there are no obsolete or slow moving inventories. (d) The present use of the building used by the Company is not restricted by any material restriction or condition and conform to, fire and safety regulations, to the requirements of the relevant local authorities and to all statutes governing the property or use thereof. All requisite permissions have been obtained and are valid and subsisting for all developments or alterations to or other works on or in relation to any of the properties and all conditions or restrictions imposed in or by any such permissions have been complied with and nothing further remains to be done thereunder. 15 15 There is no material physical defect in any part of the properties or any structure thereon and all structures thereon are in good and substantial repair and condition and fit for the purpose for which they are currently used having regard to their age and normal wear and tear. 6.6 INTELLECTUAL PROPERTY (a) The Company owns all intellectual property (the "Intellectual Property") necessary to manufacture the products presently manufactured and produce the services presently produced, and to distribute and sell such products and services in any country where business presently is conducted. (b) The Intellectual Property comprises all such rights necessary to permit the operation of the Business as now being conducted. None of the Intellectual Property is subject to any outstanding order, judgement, lien, encumbrance or attachment. There are no pending or threatened proceedings, litigation or other adverse claims affecting any part of the Intellectual Property, and no person or entity is infringing the Company's rights to the Intellectual Property. (c) There is no claim of infringement, violation or breach by the Company of any domestic or foreign patents, trademarks, copyrights or other intellectual property rights owned or controlled by others (collectively "Others' Intellectual Property"). There is no basis upon which a claim can successfully be asserted against the Company for infringement, violation or breach of any part of Others' Intellectual Property. (d) No employee of the Company is employed in violation of any non-disclosure or non-competition agreement. 16 16 6.7 ACCOUNTS RECEIVABLE All of the receivables of the Company are good and fully collectible within ninety (90) days from the date when they become due and payable at the recorded amounts together with interest thereon. 6.8 PRICING OF CONTRACTS All the tenders and contracts binding on the Company have been priced as required by good and sound business practice and allowing for a reasonable profit. 6.9 COMPLIANCE (a) All authorizations and approvals necessary for the due conduct of the Business have been duly obtained and are in full force and effect, and the entry into and the consummation of this Agreement will not cause any termination, revocation, suspension or modification thereof, nor has there been any violation of any such authorizations or approvals of any terms thereof. (b) The Company has been and is in full compliance with all laws and regulations applicable to it, including terms and condition set in any authorizations and approvals, and with the requirements of all applicable agencies and authorities, and the Company has obtained all applicable authorizations and approvals which are required under all of such laws. 6.10 INSURANCE Attached hereto as SCHEDULE 6.10 are true and complete copies of all the insurance policies, currently in effect in respect of the Business and the Assets (the "Insurance Policies"). The Insurance Policies of the Company provide the types and amounts of insurance coverage normal and customary for similar companies in Finland. 17 17 6.11 AGREEMENTS, CONTRACTS AND COMMITMENTS (a) The Company is not a party to, or bound by: (i) any option, joint venture, co-operation, license, agency, distribution, lease or any other material agreement other than those listed in SCHEDULE 6.11(a)(i), copies of which have been made available to the Purchaser; (ii) any consultancy agreement, contract, understanding or relationship with any officer, employee or individual or any such agreement, contract, understanding or relationship that contains any severance or termination pay liabilities or obligations; (iii) any agreement or contract outside the Ordinary Course of Business which involves the payment of cash or other property, an unperformed commitment, or goods or services; (iv) any power of attorney or any agency agreement or arrangement with any person pursuant to which such person is granted the authority to act for or on behalf of the Company; (v) any loan or credit arrangement or guarantee providing for the borrowing or potential borrowing by the Company (or the guarantee by the Company of any sum) other than those listed in SCHEDULE 6.11(a)(v). (b) All agreements or contracts to which the Company is a party are valid, binding and enforceable in accordance with their respective terms. The Company is not in default in any material respect in the performance of any of its obligations under any agreement or contract and no event has occurred which (whether with or without notice, lapse of time, or both) would constitute a default thereunder by the Company. The execution 18 18 and the delivery of this Agreement and the Related Agreements nor the consummation of the transactions contemplated hereby will not conflict with, result in breach of, constitute a default under or result in the acceleration of, terminate, modify or cancel or require any notice under any agreement or other arrangement to which the Company is bound to. 6.12 EMPLOYMENT AND PENSION AGREEMENTS (a) A true, complete and current list of all employments of the Company and the salaries, wages and fringe benefits paid or granted to the employees of the Company at the date hereof are set forth in SCHEDULE 6.12(a) and there have been no increases in salaries, wages and fringe benefits of such employees after the Accounts Date. (b) No employee has announced his or her termination of his or her position or employment with the Company. (c) Full provision has been made in the Accounts and will, in due course, be made in the Closing Accounts, for the full amount of all present and future liabilities in respect of employment or pension undertakings to be paid to current or former directors, officers or other employees of the Company. (d) The Company has not received notice, which notice remains current, of any claim that it has not complied with any employment, labour or related laws. (e) The Company has neither signed, nor is it liable under any policy of any life or alike personal insurances in excess of compulsory insurances, nor do any of the employees of the Company enjoy any other benefits in excess of benefits provided by mandatory law. (f) There are no pending or current and no threatened claims or labour litigation in respect of the Company. No negotiations are required to be 19 19 held by the Company with trade unions under collective bargaining agreements or otherwise as a result of the transaction contemplated by this Agreement and no information relating thereto is required to be conveyed to such trade unions under collective bargaining agreements or otherwise. 6.13 CLAIMS; LITIGATION The Company has not been served with any summons or notice to arbitrate and there are no actions, arbitrations or other legal proceedings pending or threatened against the Company or by the Company against any other person or entity. 6.14 ORDINARY COURSE OF BUSINESS (a) During the period from signature hereof and until the Closing the Sellers will ensure that the Company does not take any action or measure which is outside the Ordinary Course of Business, unless such action or measure is directly related to the transactions contemplated herein or has been approved in writing by the Purchaser. (b) There has not since the Accounts Date been (i) any deviation by the Company from the Ordinary Course of Business; (ii) any adverse change in the financial conditions, assets, liabilities or prospects of the Company; (iii) any adverse change in the relationship with the customers, suppliers or employees of the Company or with any authorities supervising the Company; 20 20 (iv) any destruction or loss of or damage to any property of the Company whether or not covered by insurance, (v) any additional debt or any additional current liability, except in the Ordinary Course of Business, incurred by the Company; (vi) any agreement or transaction for the sale or acquisition of any assets by the Company except in the Ordinary Course of Business, (vii) any change in the accounting systems, policies, principles or practices of the Company or any deviation from the Accounting Principles, (viii) any distribution by the Company of dividends or other distribution of any assets to its shareholder, (ix) any other action, contract or transaction by the Company that could have a material adverse effect on the assets or financial conditions of the Company. 6.15 TAX WARRANTIES (a) The Company has filed with the appropriate tax authorities all tax returns and reports in respect of any and all Taxes required to be filed with such tax authorities and provision in full has been made for any tax liability in the Accounts and will, in due course, be made in the Closing Accounts. (b) The Company has paid to the appropriate tax authorities all Taxes required to be paid to them. The Company is not in default in respect of nor will be liable for any Taxes for any year or part thereof of the Company's taxable years until the Closing Date. 21 21 (c) There are no tax audits currently pending or threatened against the Company. 6.16 PRODUCT WARRANTY AND LIABILITY No claims in respect of any product, manufactured or sold or any service delivered by the Company is unsettled or is subject to any dispute between the Company and any third party and no claims will be made by any third party with respect to any product manufactured or sold or service delivered before the Closing. 6.17 COMPETITION PRACTICES AND COMPETITION CLAUSES (a) The Company is not bound by any non-competition undertakings or other contractual restrictions, limitations or conditions on the type or scope of the Business. (b) There are no pending or threatened proceedings or investigations regarding unfair competition practices of the Company and all agreements, practices and alike are in accordance with all applicable competition laws and regulations and have been notified to the relevant competition authorities when so required. 6.18 LEGAL AND OTHER COSTS The Sellers shall bear their own fees and expenses in connection with the preparation for and completion of the transactions contemplated hereby, including but not limited to all fees and expenses of agents, brokers, advisers, representatives, counsels and accountants, and the Sellers shall not, directly or indirectly, charge the Company, or otherwise seek reimbursement from the Company, for said fees and expenses. The Company shall not be liable to pay any broker fees. 22 22 6.19 COMPUTER PROGRAMS The computer equipment and the computer software programs used by the Company are the unencumbered property of the Company and are fit and sufficient for the purpose for which they are being used and provide sufficient processing and storage capacity for the Business and the Company will following the Closing be able to continue the use of said computer equipment and software free from any restrictions and without incurring any additional costs. 6.20 NO UNDISCLOSED LIABILITIES There are and will be no liabilities of the Company, whether existing, future, contingent or otherwise, which relate to any fact, occurrence or event before the Closing and which will not be reflected in full in the Closing Accounts. 6.21 NATURE OF DISCLOSURE Neither the Warranties nor any certificates or documents furnished or to be furnished to the Purchaser by the Sellers or the Company, contain or will contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they are made, not misleading. There is no fact known to the Sellers which may now or in the future materially and adversely affect the Business or the operations of the Company as contemplated in the material heretofore disclosed by the Sellers to the Purchaser. 7. REPRESENTATIONS, WARRANTIES AND ASSURANCES OF THE PURCHASER The Purchaser hereby represents, warrants and assures (i) that it is duly organized, validly existing and in good standing; and 23 23 (ii) that all corporate action of the Purchaser required for the lawful and valid consummation of the transactions contemplated herein have been duly taken; and (iii) that the Purchaser has the authority to execute, deliver and perform this Agreement. 8. INDEMNITY 8.1 INDEMNITY BY THE SELLERS If the Sellers are in breach of any of the Warranties contained in Section 6. hereof or of any other provision contained herein, the Seller shall indemnify and hold the Purchaser harmless against all damage, loss, liability or expense (including, without limitation, reasonable expenses of investigation and attorneys' fees), all in accordance with the following provisions. (a) The amount for which the Purchaser is entitled to be indemnified hereunder shall be the full amount of the damage, loss, liability or expense suffered by the Company and/or the Purchaser as a result of the breach of the Warranties. (b) Any damage, loss, liability or expense for which the Purchaser is entitled to be indemnified hereunder shall be treated as a reduction of the Purchase Price and shall be settled primarily from the Purchase Price that remains in escrow and to the extent any such damage, loss, liability or expense cannot be satisfied out of such deposited part of the Purchase Price, the Sellers agree to reimburse the Purchaser in cash promptly on request. (c) To the extent that the Sellers are in breach of the Warranties contained in Section 6.7 hereof, the Sellers shall forthwith pay to or as directed by the Purchaser the amount of the respective receivable(s) together with interest thereon, against transfer of the relevant receivable(s) to the 24 24 Sellers. The Parties shall procure that the Company, before the assignment of the relevant receivable(s), shall endeavour to collect such receivables itself in accordance with the customary business practice of the Company. (d) Notwithstanding the above, the Purchaser shall not be entitled to damages unless the aggregate amount of its claims amounts to at least USD 25,000. In case said amount is exceeded, the Purchaser shall be indemnified for all damages, losses, liabilities and expenses including any amounts below USD 25,000. (e) Upon any payment by the Sellers pursuant to the provisions of this Section 8., it shall be subrogated to all rights to reimbursement or indemnification against third parties relating to the amount so paid. The Parties agree that they will take all such steps as may be necessary or appropriate to effect such subrogation. (f) Any payment to be made by the Sellers under this Section 8. will carry interest at ten per cent (10%) per annum from the Closing Date until the date of payment. 8.2 RIGHT TO SET-OFF The Purchaser and/or the Company shall have the right to set-off any claim they or any of them may have towards the Sellers under this Agreement or the Related Agreements against any claim the Sellers may have towards the Purchaser and/or the Company under the Related Agreements or any other agreements or arrangements. 25 25 9. ADDITIONAL AGREEMENTS 9.1 RELATED AGREEMENTS The Seller and the Purchaser agree to cause the following agreements (the "Related Agreements") to be entered into before and as a condition for Closing by the respective parties thereto: (a) Employment Agreement between the Company and Mr. Pasi Karlsson as set forth in SCHEDULE 9.1(a); (b) Employment Agreement between the Company and Mr. Jarmo Rouvinen as set forth in SCHEDULE 9.1(b); (c) Accredited Investor Questionnaire as set forth in SCHEDULE 9.1(c); (d) General Release as set forth in SCHEDULE 9.1(d); (e) Affiliate Agreement as set forth in SCHEDULE 9.1(e); (f) Investor Representation Certificate as set forth in SCHEDULE 9.1(f); (g) Registration Rights Agreement as set forth in SCHEDULE 9.1(g). 9.2 NON-COMPETITION AND SECRECY (a) The Sellers hereby undertake for a period of one (1) year from the Closing Date not, without the written consent of the Purchaser, to directly or indirectly engage in, assist or have any active interest in, own any assets or shares in or act as an agent or as an advisor or consultant to any person, corporation or business entity, which is or is about to become engaged in any business competing with the Business. In addition to the provisions contained in this non-competition clause, 26 26 (b) The Sellers hereby undertake at any time whether before or after the Closing Date not without the written consent of the Purchaser to divulge or use, whether directly or indirectly, for its own benefit or for the benefit of any person, corporation or business entity other than the Purchaser or the Company, as the case may be, any information or knowledge concerning the operations of the Company, not in the public domain or generally known. (c) In case of any breach of the non-competition obligation contained in Section 9.2 (a), which breach has not been remedied within sixty (60) days from the receipt of a written notice thereof, the Seller in breach agrees to pay to the Purchaser immediately at request by means of liquidated damages an amount of one million Finnish marks (FIM 1,000,000) or an amount corresponding to the aggregate sales of any products or services in violation of Section 9.2 (a), whichever is higher. Where the actual damages suffered by the Purchaser or the Company as a result of such breach are greater than the amount of liquidated damages, the Purchaser is entitled to receive compensation for the full amount of damages so suffered. 9.3 LIABILITIES TO RELATED PERSONS OR COMPANIES The Sellers shall cause any and all loans, guarantees or undertakings given by the Company to or in favour the Sellers and/or their family members or Nordic Lantools AB to be repaid or released, as the case may be, with effect from the Closing Date. 10. MISCELLANEOUS 10.1 NOTICES All notices, demands or other communication, which all shall be in the English language, to or upon the respective Parties hereto shall be deemed to have 27 27 been duly given or made when delivered by mail, telefax or cable to the Party in question as follows: If to the Purchaser: address: Network Associates, Inc. 2805 Bowers Avenue Santa Clara, California 95051 telefax: +1-408-653 3063 attention: Mr. Richard Hornstein with copy to: Roschier-Holmberg & Waselius address: Keskuskatu 7 A 00100 Helsinki telefax: +358-9-664 303 attention: Ms. Eva Nordman If to the Sellers: Ms. Irina Karlsson address: Prinssintie 8 as 1 01260 Vantaa Mr. Jarmo Rouvinen address: Rasintie 4B 00780 Helsinki with copy to: Asianajotoimisto Jyri Sarpaniemi address: Simonkatu 8 00100, Helsinki telefax: +358-9-502 5059 attention: Mr. Jyri Sarpaniemi 28 28 or at such other address as the respective Party hereto may hereafter specify in writing to the other Party. 10.2 SCHEDULES INCORPORATED Each Schedule to which reference is made herein and which is attached hereto shall be deemed to be incorporated in this Agreement by such reference. 10.3 HEADINGS The headings of this Agreement are for convenience of reference only and shall not in any way limit or affect the meaning or interpretation of the provisions of this Agreement. 10.4 ASSIGNMENT This Agreement and the rights and obligations specified herein shall be binding upon and inure to the benefit of the Parties hereto and shall not be assignable by either Party hereto except, in the case of the Purchaser, to any directly or indirectly owned subsidiary or to any other company belonging to the same group of companies provided, however, that the Purchaser shall remain liable for the payment of the Purchase Price as provided hereunder. 10.5 INTEGRATION This Agreement represents the entire understanding and agreement between the Parties with respect to the subject matter hereof and supersedes all prior negotiations, understandings and agreements relating to the subject matter hereof. 10.6 NO WAIVER Failure by any Party at any time or times to require performance of any provisions of this Agreement shall in no manner affect its right to enforce the same, 29 29 and the waiver by any Party of any breach of any provision of this Agreement shall not be construed to be a waiver by such Party of any succeeding breach of such provision or waiver by such Party of any breach of any other provision hereof. 10.7 STAMP DUTY The stamp duty levied on the purchase of the Shares shall be borne by the Purchaser. 10.8 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of Finland. 10.9 ARBITRATION Any dispute, controversy or claim arising out of or relating to this Agreement or the breach, termination or invalidity thereof shall be finally settled by arbitration in accordance with the Arbitration Rules of the Finnish Central Chamber of Commerce. The arbitration shall be held in Helsinki and the arbitration proceedings shall be conducted in the English language. The arbitral tribunal shall consist of one arbitrator. 10.10 AMENDMENTS Any amendments to this Agreement shall be in writing and shall have no effect before signed by the duly authorized representatives of both Parties. 10.11 PROVISIONS SEVERABLE If any part of this Agreement is held to be invalid or unenforceable such determination shall not invalidate any other provision of this Agreement; however, the Parties hereto shall attempt, through negotiations in good faith, to 30 30 replace any part of this Agreement so held to be invalid or unenforceable. The failure of the Parties to reach an agreement on a replacement provision shall not affect the validity of the remaining part of this Agreement. 10.12 PUBLICITY Save as required for the payment of stamp duty or otherwise by law, governmental decree, applicable stock exchange rules, any other applicable regulations or any official action, the contents of this Agreement, except for the transfer of the title to the Shares from the Seller to the Purchaser, shall remain secret indefinitely. All press releases and other public relations activities of the Parties with regard to the transfer of the Shares shall be mutually approved by the Purchaser and the Seller in advance. 10.13 SURVIVAL The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing indefinitely. 10.14 COUNTERPARTS OF THE AGREEMENT This Agreement has been executed in four (4) identical counterparts, one (1) for the Purchaser, two (2) for the Sellers and one (1) for the Company. IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written. /s/ IRINA KARLSSON /s/ JARMO ROUVINEN - ----------------------------------- ------------------------------------- Irina Karlsson Jarmo Rouvinen FSA Combination Corp. [SIG] - ------------------------------- EX-2.3 4 STOCK PURCHASE AGREEMENT DATED MAY 8, 1998 1 Exhibit 2.3 SECURE NETWORKS INC. SHARE PURCHASE AGREEMENT AMONG ARTHUR WONG, WONG FAMILY 1998 TRUST, MICHAEL TAM, TAM FAMILY 1998 TRUST, KAM CHUN TAM, KAM CHUN TAM FAMILY 1998 TRUST, CHRISTOPHER BAILEY, BAILEY FAMILY 1998 TRUST, ALFRED HUGER, HUGER FAMILY 1998 TRUST, OLIVER FRIEDRICHS, FRIEDRICHS FAMILY 1998 TRUST, JONATHAN WILKINS, THOMAS PTACEK, TIMOTHY NEWSHAM, PRL RESOURCES INC. (COLLECTIVELY, THE VENDORS) AND FSA COMBINATION CORPORATION (THE PURCHASER) AND SECURE NETWORKS INC. (THE CORPORATION) AND NETWORKS ASSOCIATES, INC. (THE PARENT) AND GREATER BAY TRUST COMPANY (THE ESCROW AGENT) MADE AS OF MAY 7,1998 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND PRINCIPLES OF INTERPRETATION 1.1 Definitions ........................................................... 3 1.2 Expanded Meanings ..................................................... 9 1.3 Amendment of Agreement ................................................10 1.4 Waiver ................................................................10 1.5 Applicable Law ........................................................10 1.6 Currency ..............................................................10 1.7 Headings and Table of Contents ........................................10 1.8 Severability ..........................................................10 1.9 Time of Essence .......................................................10 1.10 Knowledge .............................................................10 1.11 Schedules .............................................................10 ARTICLE 2 PURCHASE AND SALE OF PURCHASED SHARES 2.1 Purchase and Sale of Purchased Shares..................................11 2.2 Purchase Price.........................................................11 2.3 Payment of Purchase Price .............................................11 2.4 Escrow Arrangements....................................................12 2.5 Adjustments to Purchase Price. ........................................17 2.6 Section 116 Certificate................................................17 2.7 Break Fee..............................................................18 2.8 Vendors' Legal and Accounting Expenses.................................18 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE VENDORS, THE TRUSTEES AND THE CORPORATION 3.1 Basis of Representations...............................................18 3.2 Representations and Warranties Relating to the Individual Vendors......19 3.3 Representations and Warranties Relating to the Corporate Vendor........22 3.4 Representations and Warranties Relating to the Trusts..................23 3.5 Representations and Warranties Relating to the Corporation.............26 3.6 Non-Waiver.............................................................40 3.7 Nature and Survival of Representations and Warranties .................41 3.8 Limitation on Remedies for Breach of Vendors' and Corporation's Covenants, Representations and Warranties..............................41 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE PARENT 4.1 Basis of Representations...............................................41 4.2 Representations and Warranties of Purchaser............................42 4.3 Representations and Warranties of Parent...............................43 4.4 Non-Waiver.............................................................44 4.5 Nature and Survival of Representations and Warranties..................44 ARTICLE 5 COVENANTS OF THE VENDORS, THE CORPORATION, AND THE PURCHASER 5.1 Covenants of the Vendors...............................................45 5.2 Purchaser's and Parent's Covenants.....................................49 5.3 Articon Agreement......................................................50
3 ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS UNDER THIS AGREEMENT 6.1 Purchaser's Conditions......................................................50 6.2 Vendors' Conditions.........................................................52 6.3 Rights of Purchaser.........................................................54 6.4 Rights of Vendors...........................................................54 6.5 Rights of Termination.......................................................54 6.6 Reimbursement of Costs for Continuance......................................54 ARTICLE 7 EMPLOYMENT MATTERS 7.1 Employment Agreements.......................................................55 7.2 Other Employees.............................................................55 ARTICLE 8 CLOSING 8.1 Place of Closing............................................................55 8.2 Deliveries by Vendor........................................................55 8.3 Deliveries of Purchaser at Closing..........................................56 8.4 Closing Escrow..............................................................57 ARTICLE 9 SOLICITATION OF EMPLOYEES AND INJUNCTIVE RELIEF 9.1 Solicitation of Employees...................................................57 9.2 Injunctive Relief...........................................................57 ARTICLE 10 INDEMNIFICATION 10.1 Vendor Indemnification .....................................................57 10.2 Purchaser Indemnification...................................................58 10.3 Notice of Claim.............................................................58 10.4 Direct Claims...............................................................58 10.6 Limitation..................................................................59 ARTICLE 11 CONFIDENTIALITY AND NON-COMPETITION 11.1 Confidentiality ............................................................59 11.2 Non-Competition ............................................................59 11.3 Survival ...................................................................60 ARTICLE 12 GENERAL 12.1 Notices ....................................................................60 12.2 Arbitration Procedure ......................................................61 12.3 Audit and Inspection .......................................................62 12.4 Enurement ..................................................................62 12.5 Further Assurances .........................................................62 12.6 Expenses ...................................................................62 12.7 Counterparts ...............................................................63
4 SCHEDULES Schedule 1.1 - Financial Statements; Schedule 3.2(e) - Purchase Agreements; Schedule 3.4(g) - Trust Beneficiaries; Schedule 3.5(p) - Corporation Changes; Schedule 3.5(w) - Employee Information; Schedule 3.5(y) - Material Agreements, Other Contracts and Agreements; Schedule 3.5(aa) - Bank Accounts; Schedule 3.5(bb) - Directors and Officers; Schedule 3.5(ff)(i) - Intellectual Property; Schedule 3.5(ff)(iv) - I.P., Tools and Other I.P. Rights; Schedule 3.5(ff)(x) - Employee and Contractor Moral Rights Waivers; Schedule 3.5(ff)(xvii) - Sources Code Disclosure; Schedule 3.5(ff)(xix) - Wares and Services; Schedule 3.5(hh) - Non-Arm's Length Transactions; Schedule 3.5(mm) - Litigation and Related Matters; Schedule 5.1 (k) - General Release; Schedule 5.1 (m) - Affiliate Agreement; Schedule 5.1 (n)(i) - Registration Rights Agreement; Schedule 5.1 (n)(ii) - Investors Representation Certificate; Schedule 12.2 - Arbitration Procedure. 5 SHARE PURCHASE AGREEMENT THIS SHARE PURCHASE AGREEMENT is made as of the 7th day of May, 1998 among: ARTHUR WONG, an individual residing in the Province of Alberta ("WONG") and ARTHUR WONG AND MICHAEL TAM AND JASON CHIN, as trustees of the WONG FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "WONG TRUST") and MICHAEL TAM, an individual residing in the Province of Alberta ("M. TAM") and MICHAEL TAM AND ARTHUR WONG AND CHRISTOPHER BAILEY, as trustees of the TAM FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "M. TAM TRUST") and KAM CHUN TAM, an individual residing in the Province of Alberta ("K.C. TARN") and KAM CHUN TAM AND MICHAEL TAM AND MU ZHEN HU, as trustees of the KAM CHUN TAM FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "K. TAM TRUST") and CHRISTOPHER BAILEY, an individual residing in the Province of Alberta ("Bailey") and CHRISTOPHER BAILEY AND MICHAEL TAM AND CHRISTOPHER KEIM, as trustees of the BAILEY FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "BAILEY TRUST") and ALFRED HUGER, an individual residing in the Province of Alberta ("HUGER") and 6 Page 2 of 67 ALFRED HUGER and OLIVER FRIEDRICHS and JOHN BOLETTA, as trustees of the HUGER FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "HUGER TRUST") and OLIVER FRIEDRICHS, an individual residing in the Province of Alberta ("FRIEDRICHS") and OLIVER FRIEDRICHS and ALFRED HUGER and ARTHUR WONG, as trustees of the FRIEDRICHS FAMILY 1998 TRUST, established pursuant to a trust deed dated March 23, 1998, (the "FRIEDRICHS TRUST") and JONATHAN WILKINS, an individual residing in the Province of Alberta ("WILKINS") and THOMAS PTACEK, an individual residing in the State of Illinois ("PTACEK") and TIMOTHY NEWSHAM, an individual residing in the State of Hawaii ("NEWSHAM") and PRL RESOURCES INC., a body corporate incorporated under the laws of the Province of Alberta ("PRL") (collectively referred to herein as the "VENDORS") and FSA COMBINATION CORPORATION, a corporation incorporated under the laws of the State of Delaware (the "PURCHASER") and SECURE NETWORKS INC., a corporation incorporated under the laws of the Province of Alberta (the "CORPORATION") and NETWORKS ASSOCIATES, INC., a corporation incorporated under the laws of the State of Delaware (the "PARENT"). and 7 Page 3 of 67 GREATER BAY TRUST COMPANY, a trust company having offices in Palo Alto, California (the "ESCROW AGENT"). WHEREAS the Vendors are the owners of the Purchased Shares; AND WHEREAS the Vendors have agreed to sell and transfer, and the Purchaser has agreed to purchase, the Purchased Shares in exchange for common shares of the Parent upon the terms and conditions hereinafter set forth; AND WHEREAS a portion of the common shares of the Parent to be issued in connection with the purchase and sale contemplated by this Agreement are to be deposited into escrow with the Escrow Agent; AND WHEREAS for accounting purposes, it is intended that the purchase and sale contemplated by this Agreement be accounted for as a pooling of interests under United States generally accepted accounting principles and the Vendors and the Corporation have agreed to use their best efforts to cause the purchase and sale to be so accounted for; AND WHEREAS the Parent has joined in the execution of this Agreement for the purpose of making certain covenants, representations and warranties; NOW THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as set forth below. ARTICLE I DEFINITIONS AND PRINCIPLES OF INTERPRETATION 1.1 DEFINITIONS. In this Agreement, the following words and phrases shall have the meanings set out below and grammatical variations of such terms shall have corresponding meanings. "ABCA" means the Business Corporations Act (Alberta), as amended from time to time. "ACCOUNTS RECEIVABLE" means all accounts receivable of, and book debts and other debts due to, the Corporation that exist at the Effective Time. "AFFILIATE" shall have the meaning ascribed thereto in the ABCA. "AGREEMENT" means this share purchase agreement, as amended from time to time. "ARBITRATOR" shall have the meaning ascribed thereto in subsection 2(a) of Schedule 12.2. "ARTICON" shall have the meaning ascribed thereto in Section 5.3. "ARTICON AGREEMENT" shall have the meaning ascribed thereto in Section 5.3. "ASSETS" means all the property and assets owned by the Corporation. "ASSOCIATE" shall have the meaning ascribed thereto in the ABCA. 8 Page 4 of 67 "BALLISTA SOFTWARE" means the software program called "Ballista". "BANKING AGREEMENTS" means the agreements as set forth in Schedule 3.5(y), or as contemplated by such agreements. "BUSINESS" means the business currently and heretofore carried on by the Corporation, including without limitation, the business of providing security auditing software and computer security research and consulting, including, without limitation, the development, improvement and licensing of the Ballista Software, a network security scanner, and conducting in-depth research into the security of software systems deployed on the Internet. "BUSINESS DAY" means any day other than a day which is a Saturday, a Sunday or a statutory holiday in the Province of Alberta. "CANADIAN GAAP" means the generally accepted accounting principles and practices in Canada, including without limiting the foregoing, the principles set forth in the CICA Handbook published by the Canadian Institute of Chartered Accountants or any successor institute and which are applicable on the effective date as at which a calculation is required to be made in accordance therewith. "CLAIM" shall have the meaning ascribed thereto in Section 10.3. "CLOSING" means the completion of the purchase and sale of the Purchased Shares as herein provided. "CLOSING DATE BALANCE SHEET" means the balance sheet of the Corporation as at the Time of Closing prepared in accordance with U.S. GAAP on a basis consistent with previous years. "COMMON SHARES" means all of the issued and outstanding class A common voting shares in the capital of Corporation. "COMPANY AFFILIATE" shall have the meaning ascribed thereto in Subsection 5.1(m)(i). "COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property of the Corporation as set forth in Schedule 3.5(ff)(i). "CONFIDENTIAL INFORMATION" means the confidential information and trade secrets of the Corporation and third parties to which the Corporation is under an obligation of confidence including, without limitation: (a) all formulas, patterns, compilations, programmes, methods, techniques, processes, knowhow and information contained or embodied in the Ballista Software, including any updates of the same and further including, without limitation, any of the foregoing confidential information which is not generally known in the software business, has economic value from not being generally known and is subject to reasonable efforts of the Corporation to keep secret and confidential; (b) confidential matters of a business nature or of a technical nature relating to the development or marketing of the Ballista Software and related to the Business and the Corporation including, without limitation: (i) customers, suppliers, product licensing prices, marketing research, (ii) product research and development, 9 Page 5 of 67 (iii) inventions, (whether patentable or not); and (c) confidential matters of a financial nature relating to the development or marketing of the Ballista Software and related to the Business and the Corporation including, without limitation, business plans, corporate financing, accounting and financing statements, and books and records. "DIRECT CLAIM" shall have the meaning ascribed thereto in Section 10.3. "DISPUTE" shall have the meaning ascribed thereto in Section 12.2. "DRAG ALONG AGREEMENT" means that Shareholder Agreement dated as of April 2, 1998 among the Individual Vendors, PRL and certain of the Trustees on behalf of the Trusts. "EFFECTIVE TIME" means 12:01 a.m. on the date of Closing. "EMPLOYMENT AGREEMENTS" shall have the meaning ascribed thereto in Section 7. 1. "ENCUMBRANCE" means any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement, security interest of any nature, adverse claim, exception, reservation, easement, right of occupation, any matter capable of registration against title, option, right of pre-emption, privilege or any agreement, indenture, contract, lease, deed of trust, licence, option, instrument or other commitment, whether written or oral, to create any of the foregoing. "ESCROW" means the escrow of the Escrow Shares in the Escrow Fund for the Escrow Period as set forth in this Agreement. "ESCROW FUND" shall have the meaning ascribed thereto in Subsection 2.4(a). "ESCROW PERIOD" means the period commencing on the date of the Closing and ending at 5:30 p.m. (Calgary time) on the date that is the first anniversary of the date of Closing or, if such first anniversary date is not a Business Day, then the next subsequent Business Day after such first anniversary date. "ESCROW SHARES" means the aggregate of 10% of each Vendor's proportionate share as determined in accordance with Section 2.3, of the Issued NAI Shares. "EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as amended. "FEE EVENT" shall have the meaning ascribed thereto in Section 2.7. "FINANCIAL STATEMENTS" means the following financial statements provided to the Purchaser: (a) the unaudited Balance Sheet and Statement of Income for the Corporation as at April 30, 1998; and (b) unaudited Balance Sheets and Statements of Income for the Corporation for the fiscal periods ended February 28, 1998, December 31, 1997 and December 31, 1996. copies of which are set forth in Schedule 1.1. 10 Page 6 of 67 "INDEMNIFIED PARTY" shall have the meaning ascribed thereto in Section 10.3. "INDEMNIFYING PARTY" shall have the meaning ascribed thereto in Section 10.3. "INDIVIDUAL VENDORS" means, individually or collectively, as the context may require, Wong, M. Tam, K.C. Tam, Bailey, Huger, Friedrichs, Wilkins, Ptacek and Newsham. "INTELLECTUAL PROPERTY" means any or all of the following and all rights in, arising out of, or associated with: (a) all Canada, United States and foreign patents and applications therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (b) all trade secrets and proprietary information, including trade secrets and proprietary information that are inventions (whether patentable or not), invention disclosures, improvements, know how, technology, technical data and customer lists, and all documentation relating to any of the foregoing; (c) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world; (d) all industrial designs and any registrations and applications therefor throughout the world; (e) all trade names, logos, common law trademarks and service marks; trademark and service mark, registrations and applications therefor and all goodwill associated therewith throughout the world; (f) all media on which any of the foregoing is recorded, all Web addresses, sites and domain names; (g) any similar, corresponding or equivalent rights to any of the foregoing; and (h) all documentation related to any of the foregoing. "ISSUED NAI SHARES" shall have the meaning ascribed thereto in Subsection 2.3(a). "KEY EMPLOYEES" shall have the meaning ascribed thereto in Section 7.1. "MATERIAL AGREEMENTS" means the agreements as set forth in Schedule 3.5(y). "NAI SHARES" means common shares in the capital of the Parent. "NASDAQ" means the National Association Securities Dealers Automated Quotation System. "OFFICER'S CERTIFICATE" shall have the meaning ascribed thereto in Subsection 2.4(e). "PARENT SEC REPORTS" shall have the meaning ascribed thereto in Section 4.3(g). "PERSON" means any individual, corporation, body corporate, partnership, joint venture, association, trust, governmental or regulatory authority, or other legal entity. 11 Page 7 of 67 "PREFERRED SHARES" means all of the issued and outstanding class B preferred shares in the capital of the Corporation. "PREMISES" means the premises at which the Business is operated by the Corporation, being 330, 1201 5th Street S.W., Calgary, Alberta. "PRINCIPAL SHAREHOLDERS" means Wong, Huger and Friedrichs. "PRL DEBENTURE" means that convertible debenture granted by the Corporation to PRL, dated March 16, 1998. "PROPORTIONATE ESCROW INTEREST" means, for a Vendor, the portion of the aggregate number of Escrow Shares contributed by such Vendor to the Escrow Fund. "PURCHASE PRICE" shall have the meaning ascribed thereto in Section 2.2. "PURCHASED SHARES" means all of the Shares as follows: (a) the 226,866 Preferred Shares owned beneficially and of record by Wong; (b) the 226,866 Common Shares owned beneficially and of record by the Wong Trust; (c) the 100,000 Preferred Shares owned beneficially and of record by M. Tam; (d) the 100,000 Common Shares owned beneficially and of record by the M. Tam Trust; (e) the 126,866 Preferred Shares owned beneficially and of record by K.C. Tam; (f) the 126,866 Common Shares owned beneficially and of record by the K. Tam Trust; (g) the 226,866 Preferred Shares owned beneficially and of record by Bailey; (h) the 226,866 Common Shares owned beneficially and of record by the Bailey Trust; (i) the 180,000 Preferred Shares owned beneficially and of record by Huger; (j) the 180,000 Common Shares owned beneficially and of record by the Huger Trust; (k) the 95,000 Preferred Shares owned beneficially and of record by Friedrichs; (l) the 95,000 Common Shares owned beneficially and of record by the Friedrichs Trust; (m) the 20,000 Common Shares and 20,000 Preferred Shares owned beneficially and of record by Wilkins; (n) the 20,000 Common Shares and 20,000 Preferred Shares owned beneficially and of record by Ptacek; (o) the 10,000 Common Shares and 10,000 Preferred Shares owned beneficially and of record by Newsham; and 12 Page 8 of 67 (p) the 111,733 Common Shares and 111,733 Preferred Shares owned beneficially and of record by PRL. "PURCHASER'S GROUP" means, after the Time of Closing, the Purchaser, the Corporation and any Affiliate of the Purchaser or the Corporation. "RECORDS" means, collectively: (a) all written, machine readable or electronically stored information and data including, without limiting the generality of the foregoing, all books, records, agreements, reports, plans, drawings, papers, accounting and other documents which relate to: (i) the creation, acquisition, or ownership by the Vendors of the Purchased Shares, (ii) the acquisition, construction, ownership or operation of the Assets by the Corporation, (iii) the conduct of the Business, (iv) all customer lists relating to the Business, and (v) the Corporation's title to the Assets; and (b) all minute books, accounting books and records, tax returns and records and other books, records, agreements, papers, returns, assessments, reassessments and documents, whether written, machine readable or electronically stored, which relate to any or all of the incorporation, existence or the business or activities of the Corporation and any or all of the activities of the Vendors and the Corporation in relation thereto. "REGISTERED INTELLECTUAL PROPERTY" means all Canadian, United States, international and foreign: (a) patents, patent applications (including provisional applications); (b) registered trademarks, applications to register trademarks, intent-to-use applications, or other registrations or applications related to trademarks; (c) registered copyrights and applications for copyright registration; and (d) any other Company Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public legal authority. "RELATED CONTRACTS" shall have the meaning ascribed thereto in Section 12.2. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "SHAREHOLDER LOANS" means, collectively those amounts owing by the Corporation to the Vendors as at the date of Closing as follows: 13 Page 9 of 67 (a) to Wong, the amount of $60,717,72; (b) to M. Tam, the amount of $17,114.04; and (c) to Bailey, the amount of $25,640.55. "SHARES" means all of the issued and outstanding shares of every class in the capital of the Corporation. "TANGIBLE NET WORTH" means the aggregate of all tangible Assets (net of all reserves and excluding all intangible Assets, including without limitation, all goodwill and capitalized software) set forth in the Closing Date Balance Sheet, less all liabilities of any kind (including, without limitation, accounts payable, royalties payable, warranty reserves, accrued bonuses, accrued vacation, employee expense obligations, deferred revenue, litigation reserves, amounts due to related parties, and debt and other liabilities, and excluding the PRL Debenture) set forth in the Closing Date Balance Sheet determined in accordance with U.S. GAAP. "TAX ACT" means the Income Tax Act (Canada). "THIRD PARTY CLAIM" shall have the meaning ascribed thereto in Section 10.3. "TIME OF CLOSING" means 10:00 a.m. Calgary time on May 15, 1998 or such other time and date following satisfaction of the conditions of the Purchaser and the Vendors as provided in Article 6 as the parties may agree. "TRUSTEES" means, individually or collectively, as the context may require: (a) Arthur Wong, Michael Tam, and Jason Chin, as trustees of the Wong Trust; (b) Michael Tam, Arthur Wong and Christopher Bailey, as trustees of the M. Tam Trust; (c) Kam Chun Tam, Michael Tam and Mu Zhen Hu, as trustees of the K. Tam Trust; (d) Christopher Bailey, Michael Tam and Christopher Keim, as trustees of the Bailey Trust; (e) Alfred Huger, Oliver Friedrichs and John Boletta, as trustees of the Huger Trust; (f) Oliver Friedrichs, Alfred Huger and Arthur Wong, as trustees of the Friedrichs Trust. "TRUSTS" means, individually, or collectively, as the context may require, the Wong Trust, the M. Tam Trust, the K. Tam Trust, the Bailey Trust, the Huger Trust and the Friedrichs Trust. "U.S. GAAP" means the generally accepted accounting principles and practices in the United States which are applicable on the effective date as at which a calculation is required to be made in accordance therewith. "VENDORS' AGENT" shall have the meaning ascribed thereto in Subsection 2.4(i). "YEAR 2000 COMPLIANT" shall have the meaning ascribed thereto in Subsection 3.5(ff)(xii). 1.2 EXPANDED MEANINGS. Unless the context otherwise necessarily requires: (a) words used herein importing the singular number only shall include the plural and vice versa, and words importing the use of any gender shall include all genders; 14 Page 10 of 67 (b) the terms "in writing" or "written" include printing, typewriting, or any electronic means of communication by which words are capable of being visually reproduced at a distant point of reception, including by telecopier; (c) references to the "parties" herein shall mean the parties to this Agreement; and (d) references herein to any agreement or instrument, including this Agreement, shall be deemed to be references to the agreement or instrument as varied, amended, modified, supplemented or replaced from time to time, and any specific references herein to any legislation or enactment shall be deemed to be references to such legislation or enactment as the same may be amended or replaced from time to time. 1.3 AMENDMENT OF AGREEMENT. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby. 1.4 WAIVER. No waiver of any of the provisions of this Agreement shall be valid unless in writing and no such waiver shall constitute nor be deemed to constitute a waiver of any other provisions (whether or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 1.5 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein and the parties hereby irrevocably submit to the jurisdiction of the courts of the Province of Alberta for all matters arising out of or in correction with this Agreement or any of the transactions contemplated hereby. 1.6 CURRENCY. Unless otherwise indicated, all dollar amounts in this Agreement are expressed in United States funds. 1.7 HEADINGS AND TABLE OF CONTENTS. The division of this Agreement into Articles, Sections, Subsections, Schedules and other subdivisions and the insertion of headings, is for convenience of reference only and shall not affect or be utilized in the construction or interpretation hereof. Unless otherwise stated, all references herein to Articles, Sections, Subsections and Schedules are to those in or to this Agreement. 1.8 SEVERABILITY. Any Article, Section, Subsection, Schedule or other subdivision or any other provision of this Agreement which is, is deemed to be, or becomes void, illegal, invalid or unenforceable shall he severable herefrom and ineffective to the extent of such voidability, illegality, invalidity or unenforceability, and shall not invalidate, affect or impair the remaining provisions hereof, which provisions shall be severable from any void, illegal, invalid or unenforceable Article, Section, Subsection, Schedule or other subdivision or provision hereof. 1.9 TIME OF ESSENCE. Time shall be of the essence in this Agreement. 1.10 KNOWLEDGE. Any reference herein to "the best of the knowledge" of any of the parties will be deemed to mean the actual knowledge of such party and the knowledge such party would have had after due and reasonable investigation. 1.11 SCHEDULES. The following is a list of the Schedules attached to and forming part of this Agreement: 15 Page 11 of 67 SCHEDULES Schedule 1.1 - Financial Statements; Schedule 3.2(e) - Purchase Agreements; Schedule 3.4(g) - Trust Beneficiaries; Schedule 3.5(p) - Corporation Changes; Schedule 3.5(w) - Employees; Schedule 3.5(y) - Material Agreements, Other Contracts and Agreements; Schedule 3.5(aa) - Bank Accounts; Schedule 3.5(bb) - Directors and Officers; Schedule 3.5(ff)(i) - Intellectual Property; Schedule 3.5(ff)(iv) - I.P., Tools and Other I.P. Rights; Schedule 3.5(ff)(x) - Employee and Contractor Moral Rights Waivers; Schedule 3.5(ff)(xvii) - Sources Code Disclosure; Schedule 3.5(ff)(xix) - Wares and Services; Schedule 3.5(hh) - Non-Arm's Length Transactions; Schedule 5.1(k) - General Release; Schedule 3.5(mm) - Litigation and Related Matters; Schedule 5.1(m) - Affiliate Agreement; Schedule 5.1 (n)(i) - Registration Rights Agreement; Schedule 5.1(n)(ii) - Investors Representation Certificate; and Schedule 12.2 - Arbitration Procedure. The parties agree that the Schedules are hereby incorporated into this Agreement by reference and shall form part hereof. In the event of a conflict between a Schedule or Schedules, on the one hand, and this Agreement, on the other hand, the provisions of this Agreement shall take precedence. ARTICLE 2 PURCHASE AND SALE OF PURCHASED SHARES 2.1 PURCHASE AND SALE OF PURCHASED SHARES. On and subject to the terms and conditions of this Agreement, at the Time of Closing and with effect at the Effective Time, the Vendors shall sell and convey to the Purchaser and the Purchaser shall purchase from the Vendors the Purchased Shares, all of which shall be free and clear of all Encumbrances of any kind whatsoever at the Time of Closing, for an amount equal to the Purchase Price. 2.2 PURCHASE PRICE. Subject to any adjustments made pursuant to this Agreement, the purchase price (the "PURCHASE PRICE") payable by the Purchaser to the Vendors for the Purchased Shares shall be the sum of $25,000,000. 2.3 PAYMENT OF PURCHASE PRICE. (a) The Purchase Price shall be satisfied by the issuance by the Parent to the Purchaser of 378,000 NAI Shares (the "ISSUED NAI SHARES") and the transfer and delivery by the Purchaser to the Vendors of 90% of the Issued NAI Shares and the deposit of the Escrow Shares with the Escrow Agent in accordance with Section 2.4. (b) The Issued NAI Shares shall be allocated amongst the Vendors in the following proportions: 16 Page 12 of 67 (i) 1.62% to Wong; (ii) 18.68% to the Wong Trust; (iii) 0.72% to M. Tam; (iv) 8.23% to the M. Tam Trust; (v) 0.91% to K.C. Tam; (vi) 10.45% to the K. Tam Trust; (vii) 1.62% to Bailey; (viii) 18.68% to the Bailey Trust; (ix) 1.29% to Huger; (x) 14.82% to the Huger Trust; (xi) 0.68% to Friedrichs; (xii) 7.82% to the Friedrichs Trust; (xiii) 1.79% to Wilkins; (xiv) 1.79% to Ptacek; (xv) 0.90% to Newsham; and (xvi) 10.00% to PRL. (c) If, on or before the Time of Closing, the NAI Shares as presently constituted shall be changed into or exchanged for a different number or kind of shares or other securities of NAI or of another corporation, whether by reason of conversion, consolidation, amalgamation, merger, recapitalization, reclassification, split, reverse split, combination of shares or otherwise, then there shall be substituted for or added to the Issued NAI Shares the number or kind of shares or other securities into which each Issued NAI Share shall be so changed, exchanged or entitled, as the case may be. 2.4 ESCROW ARRANGEMENTS. (a) ESCROW FUND - At the Effective Time, without any act of any Vendor, the Escrow Shares will be deposited into an escrow account with the Escrow Agent, such deposit to constitute an escrow fund (the "ESCROW FUND"). The Escrow Fund is to be governed by the terms set forth herein and maintained at the Corporation's sole cost and expense. (b) COMPENSATION - The Escrow Fund shall be available to compensate the Purchaser and its affiliates for any claim, loss, expense, liability or other damage (including without limitation legal fees on a solicitor and his own client basis) to the extent of the amount of such claim, loss, expense, liability or other damage (collectively "LOSSES") that the 17 Page 13 of 67 Purchaser or any of its affiliates has incurred (or reasonably anticipates incurring in the case of an extension of the Escrow Period pursuant to the provisions of Subsection 2.4(c)) by reason of the breach by: (i) the Corporation of any representation, warranty, covenant or agreement of the Corporation contained herein in which event claims for Losses incurred as a result shall be satisfied out of the Escrow Fund as a whole; or (ii) any or all of the Vendors of any representation, warranty, covenant or agreement of any or all of the Vendors contained herein; provided, however, that claims for Losses incurred as a result of a breach by a Vendor shall be satisfied solely out of such Vendor's Proportionate Escrow Interest. (c) TERMINATION AND DISTRIBUTION OF ESCROW FUNDS - Upon completion of the Escrow Period, the Escrow shall terminate; provided, however, that such portion of the Escrow Fund, which, in the reasonable judgment of the Purchaser, subject to the objection of a Vendor and the subsequent arbitration of the matter pursuant to the provisions of Section 12.2, is necessary to satisfy any unsatisfied Losses specified in any Officer's Certificate theretofore delivered to the Escrow Agent prior to termination of the Escrow, shall remain in the Escrow (and the Escrow only with respect to such claim shall remain in existence) until such claims have been resolved. On the later of the completion of the Escrow Period and the date upon which such claims have been resolved, the Escrow Agent shall deliver to the appropriate Vendors the remaining portion of the Escrow Fund not required to satisfy such claims. In the event that Escrow Funds are being held to satisfy an anticipated claim and no action, suit, or proceeding has been threatened with respect to such anticipated claim on or before the date which is 24 months after the Time of Closing, then the extended Escrow Period shall end and the remaining portion of the Escrow Fund shall be delivered by the Escrow Agent to the Vendors. Deliveries of Escrow Shares to Vendors pursuant to the provisions of this Subsection 2.4(c) shall be made according to each Vendor's Proportionate Escrow Interest as certified to the Escrow Agent by the Vendors' Agent. (d) PROTECTION OF ESCROW FUND - The Escrow Agent shall: (i) hold and safeguard the Escrow Fund during its existence; (ii) treat the Escrow Fund as a trust fund in accordance with the terms of this Agreement and not as the property of the Purchaser; and (iii) hold and dispose of the Escrow Fund only in accordance with the terms hereof. (e) CLAIM UPON ESCROW FUND - Upon receipt by the Escrow Agent of a certificate signed by any officer of the Purchaser (an "OFFICER'S CERTIFICATE"): (i) stating that the Purchaser or any of its affiliates has paid or properly accrued or reasonably anticipates that it will have to pay or accrue Losses; and (ii) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, or the basis for such anticipated liability, and either the nature of the misrepresentation, breach of warranty or claim or the litigation matter to which such item is related, 18 Page 14 of 67 the Escrow Agent shall, subject to the provisions of Section 12.2, deliver to the Purchaser out of the Escrow Fund, as promptly as practicable, that number of Escrow Shares (rounded up to the nearest whole number of shares) held in the Escrow Fund equal to such Losses. In determining the number of Escrow Shares to be paid out by the Escrow Agent pursuant to this Section 2.4, such shares shall be valued by the Escrow Agent at the average closing price of the NAI Shares on NASDAQ as at the date of Closing. Upon request by the Escrow Agent, a duly authorized officer of the Parent shall deliver a certificate to the Escrow Agent as to that closing price of the NAI Shares. (f) DEDUCTIBLE - The Purchaser shall not be entitled to receive any disbursement from the Escrow Fund with respect to any Losses arising in respect of any individual occurrence or circumstance unless: (i) the aggregate amount of all Losses shall exceed $25,000; or (ii) the Losses arising from any such individual occurrence or circumstance shall exceed $10,000. (g) OBJECTIONS TO CLAIM - At the time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate shall be delivered to the Vendors' Agent and for a period of 15 Business Days after receipt of such Officer's Certificate by the Vendors' Agent, the Escrow Agent shall make no delivery to the Purchaser of any Escrow Shares out of the Escrow Fund pursuant to the provisions of Subsection 2.4(e) unless the Escrow Agent shall have received written authorization from the Vendors' Agent to make such delivery. After the expiration of such 15 Business Day period, the Escrow Agent shall make delivery of the applicable number of Escrow Shares (rounded up to the nearest whole number of shares) from the Escrow Fund in accordance with the provisions of Subsection 2.4(e); provided that no such payment or delivery may be made if the Vendors' Agent shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such 15 Business Day period. (h) RESOLUTION OF CONFLICTS: ARBITRATION - (i) In case the Vendors' Agent shall make a written objection as provided in Subsection 2.4(g) to any claim or claims made in any Officer's Certificate, the Vendors' Agent and the Purchaser shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Vendors' Agent and the Purchaser should so agree, then a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute Escrow Shares from the Escrow Fund in accordance with the terms thereof; and (ii) if no agreement as set forth in Subsection 2.4(h)(i) can be reached after good faith negotiation, then either the Purchaser or the Vendors' Agent may demand arbitration of the matter (in accordance with the provisions of Section 12.2) unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event such arbitration shall not be commenced until such amount is ascertained upon the conclusion of such litigation or both parties agree to 19 Page 15 of 67 arbitration. The decision of the Arbitrator to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement and the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments or deliveries out of the Escrow Fund in accordance therewith. (i) VENDORS' AGENT: POWER OF ATTORNEY - (i) Effective at the Effective Time, and without further act of any Vendor, Wong is hereby appointed by each of the Vendors as agent and attorney-in-fact (the "VENDORS' AGENT") for each Vendor on whose behalf any Escrow Shares were deposited into the Escrow Fund, for and on behalf of the Vendors, to: (1) give and receive notices and communications; (2) authorize delivery to the Purchaser of Escrow Shares from the Escrow Fund in satisfaction of claims by the Purchaser; (3) object to such deliveries; (4) agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims; and (5) take all actions necessary or appropriate in the judgment of the Vendors' Agent for the accomplishment of the foregoing. Such agency may be changed by the Vendors from time to time upon not less than 30 days prior express written notice to the Purchaser; provided that the Vendors' Agent may not be removed unless holders of a two-thirds interest in the Escrow Fund agree to such removal and to the identity, and with the consent, of the substituted agent. No bond shall be required of the Vendors' Agent, and the Vendors' Agent shall not receive compensation for his services. Notices or communications to or from the Vendors' Agent shall constitute notice to or from each of the Vendors. (ii) The Vendors' Agent shall not be liable for any act done or omitted hereunder as the Vendors' Agent while acting in good faith and in the exercise of reasonable judgment. Each Vendor on whose behalf Escrow Shares were contributed to the Escrow Fund shall jointly and severally indemnify the Vendors' Agent and hold the Vendors' Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Vendors' Agent and arising out of or in connection with the acceptance or administration of the Vendors' Agent's duties hereunder, including without limitation the reasonable fees and expenses of any legal counsel (on a solicitor and his own client basis) retained by the Vendors' Agent. (j) ACTIONS OF THE VENDORS' AGENT - A decision, act, consent or instruction of the Vendors' Agent shall constitute a decision of all the Vendors for whom a portion of the Escrow Shares otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such Vendors, and the Escrow Agent and the 20 Page 16 of 67 Purchaser may rely upon any such decision, act, consent or instruction of the Vendors' Agent as being the decision, act, consent or instruction of each and every such Vendor. The Escrow Agent and the Purchaser are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of the Vendors' Agent. (k) THIRD PARTY CLAIMS - The Purchaser shall have the right in its sole discretion to settle any Third Party Claim; provided, however that the Purchaser shall in good faith consult with the Vendors' Agent prior to settling any Third Party Claim. Notwithstanding the foregoing provisions of this Subsection 2.4(k), any such settlement of a third party claim shall not be determinative of any disagreement or dispute by the Vendors relating to the Third Party Claim, or any conflict among the parties to this Agreement. All such disagreements, disputes and conflicts, if not resolved by the parties, are to be resolved by arbitration pursuant to Section 12.2. (l) ESCROW AGENT'S DUTIES - (i) The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of the Purchaser and the Vendors' Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. (ii) The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties or by any other Person, excepting only orders or process of any courts of law or any decision of the Arbitrator pursuant to the provisions of Section 12.2, and is hereby expressly authorized to comply with and obey orders, judgment or decrees of any court or any such decision of the Arbitrator. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, or any such decision of the Arbitrator, the Escrow Agent shall not be liable to any of the parties or to any other Person by reason of such compliance, notwithstanding any such order, judgment, decree or decision being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. (iii) The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. (iv) The Escrow Agent shall not be liable for the expiration of any rights, any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. (v) The Escrow Agent may resign at any time upon giving at least 30 days written notice to the Purchaser and the Vendors' Agent pursuant to this Agreement; 21 Page 17 of 67 provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: (1) the Purchaser and the Vendors' Agent shall use their best efforts to mutually agree upon a successor agent within 30 days after receiving such notice; (2) if the Purchaser and the Vendors' Agent fail to agree upon a successor escrow agent within such time, then the Arbitrator shall have the right to appoint a successor escrow agent; (3) the successor escrow agent selected in the preceding manner shall execute and deliver an instrument accepting such appointment and it shall thereupon be deemed the Escrow Agent hereunder and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor Escrow Agent as if originally named as Escrow Agent; and (4) thereafter, the predecessor Escrow Agent shall be discharged for any further duties and liabilities under this Agreement. 2.5 ADJUSTMENTS TO PURCHASE PRICE. (a) As soon as possible following the Closing but in any event no more than 30 days after the Time of Closing, the Corporation shall cause the Closing Date Balance Sheet to be prepared and delivered to the Purchaser. (b) If the Tangible Net Worth, as determined by the Closing Date Balance Sheet, is less than $20,000, then the Purchase Price will be reduced by the difference between $20,000 and such Tangible Net Worth amount and the Vendors shall pay to the Purchaser within 60 days of the delivery of the Closing Date Balance Sheet, such difference by the delivery out of Escrow to the Purchaser pursuant to the provisions of Section 2.4 that number of Escrow Shares equal to such difference. (c) At any time within 60 days following the delivery of the Closing Date Balance Sheet by the Corporation to the Purchaser, the Vendors' Agent, the Purchaser or the Corporation may dispute (pursuant to the provisions of Section 12.2) any amounts reflected therein. If no such dispute is referred to arbitration with such 60 day period, then the Closing Date Balance Sheet shall be thereupon deemed to be final and conclusive for the purposes of this Agreement. 2.6 SECTION 116 CERTIFICATE. If either of Newsham or Ptacek fails to deliver to the Purchaser at or before the Time of Closing a certificate issued pursuant to Section 116 of the Tax Act in respect of the sale of the Purchased Shares being sold by that Vendor, containing a certificate limited for that Vendor at least equal to the Purchase Price payable to such Vendor in respect of his Purchased Shares, then the number of NAI Shares to be delivered to that Vendor hereunder may be reduced by a number of NAI Shares (rounded up to the nearest whole number of shares) equal to the amount of tax for which the Purchaser may be liable as determined solely by the Purchaser's counsel as provided in Section 116 of the Tax Act with respect to that Vendor, divided by the closing price of the NAI Shares on NASDAQ on the day before the date of Closing, with such NAI Shares to be delivered to the Escrow Agent and to be released to that Vendor upon delivery to the Purchaser of the Section 116 certificate by that Vendor. 22 Page 18 of 67 2.7 BREAK FEE. If, at any time after the execution of this Agreement and prior to June 30, 1998. (a) any Person or Persons other than the Purchaser or its Affiliates acquires: (i) more than 50% of the outstanding Shares, (ii) any of the Company's Intellectual Property, other than in the ordinary course of the Business, or (b) any Person or Persons other than the Vendors or the Purchaser or its Affiliates acquires the power to elect any of the directors of the Corporation; or (c) the Corporation completes a merger, amalgamation, consolidation, business combination or similar transaction with any Person or Persons other than the Purchaser or its Affiliates, (any one of such events being a "FEE EVENT"), then the Vendors and the Corporation shall be jointly and severally obligated to pay to the Purchaser a fee in the amount of $1,250,000 within 10 Business Days of the Fee Event. 2.8 VENDORS' LEGAL AND ACCOUNTING EXPENSES. In the event of Closing, the Corporation shall pay on behalf of the Vendors all of the reasonable fees and expenses of Code Hunter Wittmann, the Vendors' counsel, the Vendor's United States counsel, and the Vendors' accountants, up to a maximum amount of $100,000. In the event such payments by the Corporation should cause the Tangible Net Worth to fall below $20,000, then the Corporation's obligation to pay such fees and expenses shall be limited to an amount that would cause the Tangible Net Worth to be $20,000 after such payment, and any such fees and expenses remaining unpaid, up to the maximum of $100,000, shall be paid by the Purchaser or the Parent on behalf of the Vendors. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE VENDORS, THE TRUSTEES AND THE CORPORATION 3.1 BASIS OF REPRESENTATIONS. (a) Each Individual Vendor, as to himself and such of the Purchased Shares owned by him (and not as to any other Vendor or the Purchased Shares owned by any other Vendor) hereby represents and warrants to the Purchaser and the Parent that each of the statements contained in Subsections 3.2(a) through (1), inclusive, is true and correct as at the time of execution and delivery of this Agreement by such Individual Vendor, except for any such statement which expressly speaks as at some other time; (b) each of the Principal Shareholders hereby jointly and severally represents and warrants to the Purchaser and the Parent that each of the statements contained in Subsections 3.2(m) and (n) is true and correct as at the time of execution and delivery of this Agreement by the Principal Shareholders, except for any such statement which expressly speaks as at some other time. (c) PRL hereby represents and warrants to the Purchaser and the Parent that each of the statements contained in Section 3.3 with respect to PRL is true and correct as at the time 23 Page 19 of 67 of execution and delivery of this Agreement by PRL, except for any such statement which expressly speaks as at some other time; (d) each of the Trusts and the Trustees in their capacities as Trustees and not in any personal capacity, for and on behalf of their respective Trust only, and not the other Trusts, hereby represents and warrants to the Purchaser and the Parent that each of the statements contained in Section 3.4 with respect to the Trust of which they are Trustee is true and correct as at the time of execution and delivery of this Agreement by the Trustees, except for any such statement which expressly speaks as at some other time; (e) each of the Principal Shareholders and the Corporation hereby jointly and severally represents and warrants to the Purchaser and the Parent that each of the statements contained in Section 3.5 is true and correct as at the time of execution and delivery of this Agreement by the Principal Shareholders and the Corporation, except for any such statement which expressly speaks as at some other time; (f) any such statement which expressly speaks as at a time other than the time of execution and delivery of this Agreement by any or all of the Vendors, the Trustees and the Corporation was or will be true and correct as at the time at which such statement speaks, except to the extent affected by the transactions contemplated hereby; and (g) each of such statements will be true and correct at the Time of Closing except for any such statement which expressly speaks as at some other time except to the extent affected by the transactions contemplated hereby, and each of the Vendors, the Trustees and the Corporation acknowledge that the Purchaser and the Parent are relying on such representations and warranties in connection with the purchase of the Purchased Shares and the completion of the other transactions hereunder. 3.2 REPRESENTATIONS AND WARRANTIES RELATING TO THE INDIVIDUAL VENDORS. (a) CAPACITY - Each of the Individual Vendors has the capacity to own the Purchased Shares owned by such Individual Vendor, to duly enter into this Agreement and to perform his or her obligations hereunder. (b) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly executed and delivered by each of the Individual Vendors and constitutes a legal, valid and binding obligation of each of the Individual Vendors enforceable in accordance with its terms. (c) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by any of the Individual Vendors at or before the Time of Closing will have been duly executed and delivered by each such Individual Vendor and shall constitute a legal, valid and binding obligation of each such Individual Vendor enforceable in accordance with its terms. (d) LITIGATION AND RELATED MATTERS - There are no actions, suits, investigations or proceedings pending or, to the best of the knowledge of the Individual Vendors threatened against or affecting the Individual Vendor's Purchased Shares or its ability to consummate the transactions contemplated hereby, at law or in equity, or before any arbitrator of any kind, or before or by any governmental or regulatory authority, domestic or foreign, and 24 Page 20 of 67 the Individual Vendor is not aware of any existing ground on which any such action or proceeding might be commenced with any reasonable likelihood of success. (e) NO OTHER PURCHASE AGREEMENTS - Except as disclosed in Schedule 3.2(e), no Person, other than the Purchaser, has any agreement, option or commitment or any right or privilege (whether by law, pre-emptive or contractual), capable of becoming an agreement, option or commitment for the acquisition from the Individual Vendor for any or all of the Individual Vendor's Purchased Shares. (f) LOANS - None of the Individual Vendors are indebted to the Corporation and except for the Shareholder Loans, the Corporation is not indebted to any of the Individual Vendors. (g) SHAREHOLDINGS OF THE INDIVIDUAL VENDORS - The Individual Vendor is the sole beneficial and registered owner of such of the Purchased Shares as follows, with good and marketable title thereto, free and clear of all Encumbrances and, without limiting the generality of the foregoing, none of the Purchased Shares owned by the Individual Vendor are subject to any voting trust, shareholder agreement or voting agreement other than the Drag Along Agreement:
NUMBER OF PURCHASED SHARES VENDOR COMMON SHARES PREFERRED SHARES Wong - 226,866 M. Tam - 100,000 K.C. Tam - 126,866 Bailey - 226,866 Huger - 180,000 Friedrichs - 95,000 Wilkins 20,000 20,000 Ptacek 20,000 20,000 Newsham 10,000 10,000 TOTAL 40,000 1,005,598
(h) OWNERSHIP BY PURCHASER - Upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares as are owned by the Individual Vendor will be transferred and delivered to the Purchaser free and clear of any and all Encumbrances. (i) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not: (i) violate, be in conflict with, result in a breach of, constitute a default, of cause the acceleration of any obligation of the Individual Vendor, under: (A) any agreement, instrument, licence, permit or authority to which the Individual Vendor is, or is entitled to be, a party or to which any or all of its property and its Purchased Shares are subject, 25 Page 21 of 67 (B) any judgment, decree, order, statute, rule or regulation applicable to the Individual Vendor, or (C) to the best of the knowledge of the Individual Vendor, any provision of law or regulation of any governmental or regulatory authority or any judicial or administrative order, award, judgment or decree applicable to the Individual Vendor; (ii) result in the creation of any Encumbrance upon any or all of the Purchased Shares owned by the Individual Vendor under any such agreement or instrument; or (iii) give to any Person any material interest or rights that have not been waived prior to the date hereof, including preferential rights of purchase of any part of the Purchased Shares owned by the Individual Vendor or to the best of the knowledge of the Individual Vendor (if the Individual Vendor is not a Principal Shareholder), any property of the Corporation or any right of termination, cancellation or acceleration under any such agreement, instrument, license, permit or authority. (j) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses, certifications, approvals, consents, orders-in-council, legislation or other action of any governmental or regulatory authority (except for the certificates referred to in Section 2.6) are required in Canada for the execution, delivery or performance by the Individual Vendor of this Agreement or the transactions contemplated herein, or for the execution, delivery or performance by the Individual Vendor of any other agreement contemplated hereunder to be delivered by the Individual Vendor at or before the Time of Closing or the transactions contemplated therein. (k) INTERMEDIARY FEES - No commission or other remuneration is payable by the Purchaser or will be payable by the Purchaser to any broker, agent or other intermediary who has acted for the Individual Vendor in connection with the sale of the Purchased Shares and the transactions herein contemplated. (l) RESIDENCY - None of the Individual Vendors is a non-resident of Canada for the purposes of Section 116 of the Tax Act, and each of the Individual Vendors is a resident of Alberta, except for: (i) Ptacek, who is a resident of the State of Illinois; and (ii) Newsham, who is a resident of the State of Hawaii. (m) NO FURTHER INFORMATION - The Principal Shareholders have no information or knowledge of any facts relating to the Business, the Assets or the Corporation not disclosed in writing to the Purchaser which might reasonably be expected to have a material adverse effect on the Business, the Company Intellectual Property or the Corporation. (n) CONTINUANCE - The Principal Shareholders are not aware of any fact or circumstance that would reasonably be expected to interfere with the Corporation being continued pursuant to the laws of the Province of Nova Scotia. 26 Page 22 of 67 3.3 REPRESENTATIONS AND WARRANTIES RELATING TO THE CORPORATE VENDOR. (a) ORGANIZATION - PRL is a duly organized and valid and subsisting corporation under the laws of the Province of Alberta. (b) CORPORATE POWER AND AUTHORITY - PRL has all necessary power, authority and capacity to enter into this Agreement and perform its obligations hereunder, and to own the Purchased Shares owned by it. (c) CORPORATE ACTION - At the Time of Closing, PRL will have taken all necessary actions, steps and corporate or other proceedings to approve or authorize, validly and effectively, the entering into and the execution, delivery and performance of this Agreement and the sale and transfer of the Purchased Shares owned by it to the Purchaser. (d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly authorized, executed and delivered by PRL and constitutes a legal, valid and binding obligation of PRL, enforceable in accordance with its terms. (e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by PRL at or before the Time of Closing will have been duly executed and delivered by PRL and shall constitute a legal, valid and binding obligation of PRL, enforceable in accordance with its terms. (f) NO OTHER PURCHASE AGREEMENTS - No Person, other than the Purchaser, has any agreement, option or commitment or any right or privilege (whether by law, pre-emptive or contractual), capable of becoming an agreement, option or commitment for the acquisition from PRL for any or all of the Purchased Shares. (g) SHAREHOLDINGS OF PRL - PRL is the sole beneficial and registered owner of 111,733 Common Shares and 111,733 Preferred Shares, with good and marketable title thereto, free and clear of all Encumbrances and, without limiting the generality of the foregoing, none of the Purchased Shares owned by PRL are subject to any voting trust, shareholder agreement or voting agreement other than the Drag Along Agreement. (h) LOANS - PRL is not indebted to the Corporation and the Corporation will not be indebted to PRL as at the Time of Closing. (i) OWNERSHIP BY PURCHASER - Upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares as are owned by PRL will be transferred and delivered to the Purchaser free and clear of any and all Encumbrances. (j) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not: (i) violate, be in conflict with, result in a breach of, constitute a default, or cause the acceleration of any obligation of PRL under: (A) any agreement, instrument, licence, permit or authority to which PRL is or is entitled to be, a party or to which any or all of its property and its Purchased Shares are subject, 27 Page 23 of 67 (B) any provision of the articles, by-laws or resolutions of the board of directors (or any committee thereof) or shareholders of PRL, (C) any judgment, decree, order, statute, rule or regulation applicable to PRL, or (D) to the best of the knowledge of PRL, any provision of law or regulation of any governmental or regulatory authority or any judicial or administrative order, award, judgment or decree applicable to PRL; (ii) result in the creation of any Encumbrance upon any or all of the Purchased Shares owned by PRL under any such agreement or instrument; or (iii) give to any Person any material interest or rights that have not been waived prior to the date hereof, including preferential rights of purchase of any part of the Purchased Shares owned by PRL or, to the best of the knowledge of PRL, any property of the Corporation or any right of termination, cancellation or acceleration under any such agreement, instrument, license, permit or authority. (k) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses, certifications, approvals, consents, orders-in-council, legislation or other action of any governmental or regulatory authority are required in Canada for the execution, delivery or performance by PRL of this Agreement or the transactions contemplated herein, or for the execution, delivery or performance by PRL of any other agreement contemplated hereunder to be delivered by PRL at or before the Time of Closing or the transactions contemplated therein. (l) INTERMEDIARY Fees - No commission or other remuneration is payable by the Purchaser or will be payable by the Purchaser to any broker, agent or other intermediary who has acted for PRL in connection with the sale of the Purchased Shares and the transactions herein contemplated. (m) RESIDENCY - PRL is a resident of Alberta and a taxable Canadian corporation within the meaning of the Tax Act. (n) LITIGATION AND RELATED MATTERS - There are no actions, suits, investigations or proceedings pending or threatened against or affecting PRL's Purchased Shares or its ability to consummate the transactions contemplated hereby, at law or in equity, or before any arbitrator of any kind, or before or by any governmental or regulatory authority, and PRL is not aware of any existing ground on which any such action or proceeding might be commenced with any reasonable likelihood of success. (o) RELATIONSHIP BETWEEN PRL AND THE CORPORATION - Other than as a shareholder of the Corporation, PRL has no interest in the Corporation and the Corporation, its officers, directors and shareholders have no beneficial interest in PRL. 3.4 REPRESENTATIONS AND WARRANTIES RELATING TO THE TRUSTS. (a) CAPACITY - The Trust is a validly existing trust formed under the laws of the Province of Alberta, the Trustees are duly appointed as the only trustees thereof and the Trustees have the power and authority, on behalf of the Trust, to own legal title to the Purchased Shares, 28 Page 24 of 67 and the Trustees have the power and authority, on behalf of the Trust, to duly enter into this Agreement and to perform the obligations of the Trust hereunder. (b) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not: (i) violate, be in conflict with, result in a breach of, constitute a default, or cause the acceleration of any obligation of the Trust, under: (A) any agreement, instrument, licence, permit or authority to which the Trust is, or are entitled to be, a party or to which any or all of its property and its Purchased Shares are subject, (B) any judgment, decree, order, statute, rule or regulation applicable to the Trust, or (C) to the best of the knowledge of the Trustees any provision of law or regulation of any governmental or regulatory authority or any judicial or administrative order, award, judgment or decree applicable to the Trust; (ii) result in the creation of any Encumbrance upon the Purchased Shares owned by that Trust under any such agreement or instrument; or (iii) give to any Person any material interest or rights that have not been waived prior to the date hereof, including preferential rights of purchase of any part of the Purchased Shares owned by that Trust or, to the best of the knowledge of the Trustees, any property of the Corporation, or any right of termination, cancellation or acceleration under any such agreement, instrument, license, permit or authority. (c) BINDING AND ENFORCEABLE AGREEMENT - The Trustees have the power, authority and capacity to execute and deliver this Agreement and to sell the Purchased Shares held by the Trust on behalf of the Trust, and this Agreement has been duly executed and delivered by each of the Trustees and constitutes a legal, valid and binding obligation of the Trust enforceable in accordance with its terms. (d) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by the Trustees and the Trust at or before the Time of Closing will have been duly executed and delivered by the Trustees, on behalf of the Trust, and shall constitute a legal, valid and binding obligation of the Trust enforceable in accordance with its terms. (e) NO OTHER PURCHASE AGREEMENTS - No Person, other than the Purchaser, has any agreement, option or commitment or any right or privilege (whether by law, pre-emptive or contractual), capable of becoming an agreement, option or commitment for the acquisition from the Trust for any or all of the Purchased Shares. (f) SHAREHOLDINGS OF THE TRUST - The Trust is the registered owner of such of the Purchased Shares as follows, with good and marketable title thereto, free and clear of all Encumbrances and, without limiting the generality of the foregoing, none of the Purchased 29 Page 25 of 67 Shares owned by the Trust are subject to any voting trust, shareholder agreement or voting agreement other than the Drag Along Agreement:
TRUST NUMBER OF PURCHASED SHARES - ----- -------------------------- Wong Trust 226,866 Common Shares M. Tam Trust 100,000 Common Shares K. Tam Trust 126,866 Common Shares Bailey Trust 226,866 Common Shares Huger Trust 180,000 Common Shares Friedrichs Trust 95,000 Common Shares TOTAL 955,598 Common Shares
(g) BENEFICIARIES - Schedule 3.4(g) sets forth the names of such of the Vendors as are beneficiaries of the Trust. (h) OWNERSHIP - Upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares as are owned by the Trust will be transferred and delivered to the Purchaser, free and clear of any and all Encumbrances. (i) LITIGATION AND RELATED MATTERS - There are no actions, suits, investigations or proceedings pending or threatened against or affecting such of the Purchased Shares held by the Trust or the Trustees' ability to consummate the transactions contemplated hereby, at law or in equity, or before any arbitrator of any kind, or before or by any governmental or regulatory authority, domestic or foreign, and none of the Trustees are aware of any existing ground on which any such action or proceeding might be commenced with any reasonable likelihood of success. (j) REGULATORY APPROVALS TO TRANSACTIONS - No permits, licenses, certifications, approvals, consents, orders-in-council, legislation or other action of any governmental or regulatory authority are required in Canada for the execution, delivery or performance by any or all of the Trustees and the Trusts of this Agreement or the transactions contemplated herein, or for the execution, delivery or performance by any or all of the Trustees and the Trusts of any other agreement contemplated hereunder to be delivered by any or all of the Trust at or before the Time of Closing or the transactions contemplated therein. (k) INTERMEDIARY FEES - No commission or other remuneration is payable by the Purchaser or will be payable by the Purchaser or will be payable to any broker, agent or other intermediary who has acted for the Trustees and the Trust in connection with the sale of the Purchased Shares and the transactions herein contemplated. (l) RESIDENCY - Each of the Trusts is a resident of Alberta and a resident of Canada within the meaning of the Tax Act. 30 Page 26 of 67 3.5 REPRESENTATIONS AND WARRANTIES RELATING TO THE CORPORATION (a) ORGANIZATION - The Corporation is a duly organized and valid and subsisting corporation under the laws of the Province of Alberta. (b) CORPORATE POWER AND AUTHORITY - The Corporation has all necessary power, authority and capacity to enter into this Agreement and perform its obligations hereunder, to own, lease, licence or otherwise hold, as applicable, the Assets and to carry on the Business as presently conducted and is validly registered wherever necessary under the federal and provincial laws of Canada and any other jurisdiction in which the failure to be so registered would have a material adverse effect on the Business or the tangible Assets, and in the case of the Company Intellectual Property, in any other jurisdiction in North America in which the failure to be so registered would have a material adverse effect. (c) CORPORATE ACTION - At the Time of Closing, the Corporation will have taken all necessary actions, steps and corporate and other proceedings to approve or authorize, validly and effectively, the entering into and the execution, delivery and performance of this Agreement and the sale and transfer of the Purchased Shares to the Purchaser. (d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly authorized, executed and delivered by the Corporation and constitutes a legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms. (e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by the Corporation at or before the Time of Closing will have been duly executed and delivered by the Corporation and shall constitute a legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms. (f) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement by the Vendors and the Corporation and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not: (i) violate, be in conflict with, result in a breach of, constitute a default, or cause the acceleration of any obligation of the Corporation, under: (A) any agreement, instrument, licence, permit or authority to which the Corporation is, or is entitled to be, a party or to which any or all of its property and the Shares are subject, (B) any provision of the articles, by-laws or resolutions of the board of directors (or any committee thereof) or shareholders of the Corporation, (C) any judgment, decree, order, statute, rule or regulation applicable in Canada to the Corporation, or (D) any provision of law or regulation of any governmental or regulatory authority or any judicial or administrative order, award, judgment or decree applicable in Canada to the Corporation; 31 Page 27 of 67 (ii) to the best of the knowledge of the Corporation with respect to the Vendors' execution and delivery of this Agreement, result in the creation of any Encumbrance upon the Assets under any such agreement or instrument; or (iii) to the best of the knowledge of the Corporation with respect to the Vendors' execution and delivery of this Agreement, give to any Person any material interest or rights that have not been waived prior to the date hereof, including preferential rights of purchase of any part of the Shares or the Assets, or any right of termination, cancellation or acceleration under any such agreement, instrument, license, permit or authority. (g) SHARE CAPITAL OF THE CORPORATION - The authorized share capital of the Corporation consists of: (i) an unlimited number of Class A common voting shares; and (ii) an unlimited number of Class B preferred shares, of which 1,117,331 Class A common voting shares, and 1,117,331 Class B preferred shares (and no more) are currently issued and outstanding, and all of which, including the Purchased Shares, have been duly and validly authorized and issued by the Corporation and are outstanding as fully paid and non-assessable. (h) SHAREHOLDERS OF THE CORPORATION - As of the date hereof, and immediately prior to the Time of Closing the following Persons are, and will be, the sole registered owners of all of the Shares, to the best of the knowledge of the Corporation, free and clear of all Encumbrances and, without limiting the generality of the foregoing, none of the Shares are subject to any voting trust, shareholder agreement or voting agreement other than the Drag Along Agreement: 32 Page 28 of 67
NUMBER OF COMMON NUMBER OF REGISTERED OWNER SHARES PREFERRED SHARES - ---------------- ------ ---------------- Arthur Wong 226,866 Michael Tam 100,000 Kam Chum Tam 126,866 Christopher Bailey 226,866 Alfred Huger 180,000 Oliver Friedrichs 95,000 Thomas Ptacek 20,000 20,000 Jonathan Wilkins 20,000 20,000 Tim Newsham 10,000 10,000 Wong Trust 226,866 M. Tam Trust 100,000 K. C. Tam Trust 126,866 Bailey Trust 226,966 Friedrichs Trust 95,000 Huger Trust 180,000 PRL Resources Inc. 111,733 111,733 TOTAL 1,117,331 1,117,331
(i) OWNERSHIP BY PURCHASER - To the best of the knowledge of the Corporation, upon completion of the transactions contemplated by this Agreement, all of the Purchased Shares will be transferred and delivered to the Purchaser, free and clear of any and all Encumbrances. (j) OPTIONS OR CONVERTIBLE SECURITIES - No Person has any agreement, option, commitment, or any right or privilege (whether by law, preemptive or contractual) capable of becoming an agreement, option or commitment (including any such right or privilege under convertible securities, warrants or convertible obligations of any nature) for: (i) the purchase, subscription, allotment or issuance of, or conversion into, any of the unissued Shares or any other securities of the Corporation; or (ii) the purchase or other acquisition from the Corporation of any of its undertaking, Business or Assets, other than in the ordinary course of the Business, and except pursuant to the agreements listed in Schedule 3.5(y). 33 Page 29 of 67 (k) SUBSIDIARIES - The Corporation does not own any subsidiaries or shares or any other interest in any other Person, nor is the Corporation subject to any agreements of any nature to acquire any subsidiary or shares or any other interest in any other Person or to acquire or lease any other business operations and will not prior to the Time of Closing acquire, or agree to acquire, any subsidiary or shares or any other interest in any other Person or any other business operations without the prior express written consent of the Purchaser. (l) PARTNERSHIPS OR JOINT VENTURES - Except as the agreements listed in Schedule 3.5(y) may create such, the Corporation is not a partner or participant in any partnership, joint venture, profit-sharing arrangement or other association of any kind and is not party to any agreement under which the Corporation agrees to carry on any part of the Business or any other activity in such manner or by which the Corporation agrees to share any revenue or profit with any other Person. (m) BOOKS AND RECORDS - The books and records of the Corporation fairly present, in accordance with Canadian GAAP, the financial position of the Corporation and all Assets and undertakings, all liabilities, including contingent liabilities and shareholders equity accounts as at the date hereof, and all material financial transactions of the Corporation relating to the Business have been accurately recorded in such books and records. (n) FINANCIAL STATEMENTS - The Financial Statements of the Corporation have been prepared in accordance with Canadian GAAP on a basis consistent with that of previous years and present fairly the Assets, liabilities and the financial position as at the dates indicated and the results of operation of the Corporation for the periods indicated and no material adverse change in such financial position or such results of operations has occurred since the date thereof. (o) MINUTE BOOKS - In all material respects, the corporate records and minute books of the Corporation contain complete and accurate minutes of all meetings and resolutions of the directors (and any committees thereof) and shareholders of the Corporation, and the share certificate books, register of shareholders, register of transfers and register of directors of the Corporation are complete and accurate in all material respects. (p) NO CHANGES - Except as set forth in Schedule 3.5(p), since February 28, 1998 there has not been, occurred or arisen any: (i) transaction by the Corporation, except in the ordinary course of business as conducted by the Corporation on that date; (ii) capital expenditure or commitment by the Corporation, in excess of $10,000 individually or $25,000 in the aggregate; (iii) destruction of, damage to or loss of any material tangible Assets (which includes any medium in which the Company Intellectual Property resides), Business or customer of the Corporation (whether or not covered by insurance); (iv) labour trouble or claim of wrongful discharge or other unlawful labour practice or action; 34 Page 30 of 67 (v) change in accounting methods or practices (including any change in depreciation or amortization, policies or rates) by the Corporation; (vi) revaluation for accounting purposes by the Corporation of any of the Assets; (vii) declaration, setting aside or payment of a dividend or other distribution with respect to the Shares, or any direct or indirect redemption, purchase, redemption or other acquisition by the Corporation of any of its securities; (viii) increase in the salary or other compensation payable or to become payable by the Corporation to any of its officers, directors, employees or advisors, or the declaration, payment or commitment or obligation of any kind for the payment, by the Corporation, of a bonus or other additional salary or compensation to any such person except as otherwise contemplated by this Agreement other than normal course of business salary increases in connection with ongoing yearly reviews or promotions (none of which individually exceeds 10% of the previous year's salary); (ix) acquisition, sale or transfer of any Assets, except in the ordinary course of business as conducted on that date, and except pursuant to the agreements listed in Schedule 3.5(y); (x) amendment or termination of any material contract, agreement or license to which the Corporation is a party or by which it is bound, except such amendments or terminations as may have been made in the ordinary course of business, or on a reasonable commercial basis; (xi) loan by the Corporation to any Person or entity (other than (A) loans to all employees aggregating to no more that $5,000 and (B) expense advances to employees, all of which are immaterial in any amount and are issued in the normal course of business), incurring by the Corporation of any indebtedness, guaranteeing by the Corporation of any indebtedness, issuance or sale of any debt securities of the Corporation or guaranteeing of any debt securities of others; (xii) waiver or release of any right or claim of the Corporation, including any write-off or other compromise of any account receivable of the Corporation in excess of $ 10,000; (xiii) the commencement or notice or, to the best knowledge of the Corporation, threat of commencement of any lawsuit or proceeding against or investigation of the Corporation or its affairs; (xiv) notice of any claim of ownership by a third party of the Company Intellectual Property or of infringement by the Corporation of any third party's intellectual property rights; (xv) issuance or sale by the Corporation of any of its Shares or securities exchangeable, convertible or exercisable therefor, or of any other of its securities, except: (A) the 111,733 Common Shares and 111,733 Preferred Shares as were issued to PRL pursuant to the terms of the PRL Debenture, and 35 Page 31 of 67 (B) the Common Shares and Preferred Shares which were issued in connection with a reorganization of the Corporation on March 23, 1998; (xvi) change in pricing or royalties set or charged by the Corporation; (xvii) any event or condition of any character that has or could be reasonably expected to have a material adverse impact on the Corporation and its Business; (xviii) to the best of the knowledge of the Principal Shareholders and the Corporation, any event or action taken by the Corporation that could be reasonably expected to interfere with the Parent's or Purchaser's ability to account for the purchase and sale contemplated hereby as a pooling of interests; or (xix) negotiation or agreement, oral or written, by the Corporation or any officer or employees thereof to do any of the things described in Subsections 3.5(p)(i) to (xviii), inclusive, (other than negotiations with the Purchaser and its representatives regarding the transactions contemplated by this Agreement). (q) POOLING OF INTERESTS - To the knowledge of the Corporation and the Principal Shareholders, based on consultation with the Corporation's independent accountants, neither the Corporation nor any of its directors, officers, Affiliates or shareholders has taken or agreed to take any action which would preclude the Parent's or Purchaser's ability to account for the purchase and sale contemplated by this Agreement as a pooling of interests under U.S. GAAP. (r) ONLY BUSINESS - The Business is the only business which has been or is currently conducted by the Corporation and the tangible Assets and the Intellectual Property described in Schedule 3.5(iv) are sufficient to carry on the Business in the ordinary course as conducted on the date hereof. (s) ACCOUNTS RECEIVABLE - All Accounts Receivable have been created in the course of bona fide business transactions by the Corporation and to the best of the knowledge of the Corporation are valid, enforceable and fully collectible and none of the Vendors nor the Corporation have any reason to believe that any Account Receivable of the Corporation will not be paid in accordance with its respective terms of payment or is subject to any setoff or counterclaim. (t) NO UNDISCLOSED LIABILITIES OF THE CORPORATION - Subject to the compliance by the Corporation with the terms of the agreements listed in Schedules 3.5(y) and 3.5(ff)(i), the Corporation does not have any liabilities, indebtedness, expense, claim, deficiency, guarantee or endorsement of any type whatsoever in excess of $5,000 individually or $15,000 in the aggregate, whether accrued, absolute, contingent, matured, unmatured or other and whether or not of the nature normally required to be disclosed for financial statement purposes in accordance with Canadian GAAP, except pursuant to the claim disclosed on Schedule 3.5(mm). (u) INDEBTEDNESS - Except as disclosed in the Financial Statements, the Corporation does not have outstanding, and is under no obligation to create or issue, any bonds, debentures, mortgages, promissory notes or other indebtedness maturing more than one year after the date of their original creation or issuance. 36 Page 32 of 67 (v) TAXES - (i) save for the requirement to file Income Tax Returns, the Corporation has in a due and timely manner, filed all reports and returns respecting taxes, duties, royalties, and other fees. charges and levies of every nature and kind, and all information and data in connection therewith, required to be filed by it with any taxing or regulatory authority to whom the Corporation and the Business are subject; (ii) the Corporation has paid all taxes, duties, royalties, and other fees, charges and levies, and any interest, penalties and fines in connection therewith, properly due and payable, and has paid all of same in connection with all known assessments, reassessments and adjustments; (iii) other than taxes and other such levies incurred in the ordinary course of business and not yet due, no other taxes, duties, royalties, or other fees, charges or levies, nor any interest, penalties and fines have been claimed by any governmental or regulatory authority or are known to any of the Vendors or the Corporation to be due and owing by the Corporation or are to the best of the knowledge of the Principal Shareholders and the Corporation, pending or threatened (including all tax instalments) or by reason of the transactions herein contemplated will become due and owing by the Corporation and there are no matters of dispute or under discussion with any governmental or regulatory authority, relating to taxes, duties, royalties or other fees, charges, levies, interest, penalties or fines asserted by such authority; (iv) the Corporation has withheld all amounts required to be withheld including, without limiting the generality of the foregoing, all amounts required to be withheld under the Tax Act, for employee deductions, unemployment insurance, the Canada Pension Plan and Goods and Services Tax payable under the Excise Tax Act (Canada) and any other amounts required by law to be withheld from any payments, made to non-residents and any of its officers, directors and employees, and has paid the same to the proper taxing authority or receiving offices; (v there are no agreements, waivers (including a waiver in respect of time within which a reassessment may be made by any taxing authority) or other arrangements providing for any extension of time with respect to the filing of any tax return by, or payment of any tax, governmental charge or deficiency against, the Corporation; and (v) there are no actions, suits, proceedings, investigations or claims threatened or pending against the Corporation in respect of taxes, governmental charges or assessments, or any other matters under discussion with any governmental or regulatory authority relating to taxes, charges or assessments asserted by any such governmental or regulatory authority. (w) EMPLOYEE COMMITMENTS - (i) The employee records provided to the Purchaser accurately set forth the names, duration of service, salary or other terms of remuneration and unused vacation entitlement for the employees of the Corporation; 37 Page 33 of 67 except as set forth in Schedule 3.5(w), the Corporation is not a party to or bound by: (A) any written or oral employment, service, pension, employee benefit agreement or collective bargaining agreement or other agreement with or respecting its employees or bound by or obligated to make any contributions under any pension plan or arrangement or any retirement income plan, deferred profit sharing plan or similar plan or arrangement, or any plan, program or other arrangement providing for medical services or coverage, dental care and life insurance, or (B) any agreements or arrangements that contain any severance pay or post-employment liabilities or obligations, or (C) any employment or consulting agreement, contract or commitment with an employee or individual consultant or salesperson or consulting or sales agreement, contract or commitment with a firm or other organization, or (D) any agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement; (iii) except as set forth in Schedule 3.5(w), since February 28, 1998, the Corporation has not hired any new employees, changed or agreed to change the terms of employment of any existing employees of the Corporation, or paid or agreed to pay any bonus or other payment to any employee; (iv) there are no existing or, to the best of the knowledge of the Vendors and the Corporation, threatened, labour strikes or labour disputes, grievances, controversies or other labour troubles affecting the Corporation or the Business; (v) the Corporation has complied with all laws, rules, regulations and orders applicable to it relating to employment, including those relating to wages, hours, collective bargaining, occupational health and safety, workers' hazardous materials, employment standards, pay equity and workers' compensation; (vi) there are no outstanding charges or complaints against the Corporation relating to unfair labour practices or discrimination or under any legislation relating to employees; and (vii) the Corporation has paid in full all amounts owing under provincial legislation relating to workers' compensation and the workers' compensation claims experience of the Corporation would not permit a penalty reassessment under such legislation. 38 Page 34 of 67 (x) REAL PROPERTY - Other than the leasehold interest in the Premises, the Corporation does not own or have any right, title or interest in any real property. (y) LEASES - Except as set forth in Schedule 3.5(y) and Schedule 3.5(hh), the Corporation is not a party to any lease or agreement in the nature of a lease, whether as lessor or lessee, and, except as expressly set forth in Schedule 3.5(y), each such lease is in good standing and in full force and effect without amendment thereto and the Corporation is not in breach of any of the material covenants, conditions or agreements contained in any such lease. (z) TITLE TO TANGIBLE ASSETS - The Corporation owns its tangible Assets free and clear of any and all Encumbrances except as described in the Material Agreements. (aa) BANK ACCOUNTS - Schedule 3.5(aa) contains a true and complete list showing the name of each bank, trust company or similar institution in which the Corporation has accounts or safe deposit boxes and the names of all persons authorized to draw thereon or to have access thereto. (bb) DIRECTORS AND OFFICERS - Schedule 3.5(bb) sets forth the names and titles of all directors and officers of the Corporation immediately prior to the Time of Closing. (cc) POWERS OF ATTORNEY - The Corporation has not granted to any Person a general or special power of attorney for the Corporation. (dd) GUARANTEES - Except as set forth in Schedule 3.5(y), the Corporation is not a party to or bound by any agreement of guarantee, indemnification, assumption or endorsement or any other like commitment of the obligations, liabilities (contingent or otherwise) or indebtedness of any Person or other entity. (ee) INSIDER DEBT - None of the directors, former directors, officers, former officers, shareholders, former shareholders or employees of the Corporation or any Person or corporation not dealing at arm's length (as such term is construed under the Tax Act) with any of the foregoing is indebted to the Corporation. (ff) INTELLECTUAL PROPERTY. (i) Schedule 3.5(ff)(i) sets forth all the Intellectual Property that is owned by or exclusively licensed to the Corporation (the "Company Intellectual Property"). Except as set forth on Schedule 3.5(ff)(i), each item of Company Intellectual Property is free and clear of any liens or Encumbrances. The Corporation owns, exclusively, the copyrights to copyrighted works that form part of the Company Intellectual Property. (ii) To the extent that any Intellectual Property has been developed or created by any Person other than the Corporation for which the Corporation has, directly or indirectly, paid, the Corporation has a written agreement with such Person with respect thereto and the Corporation thereby has obtained ownership of, and is the exclusive owner of, all such Intellectual Property that might otherwise vest in such Person. (iii) Except pursuant to agreements set forth in Schedule 3.5(y), the Corporation has not transferred ownership of or granted any licence of or right to use or authorized 39 Page 35 of 67 the retention of any rights to use any Intellectual Property that is or was Company Intellectual Property, to any other person, except for end user licence agreements with respect to object code granted to customers in the ordinary course of business, and there are no exclusive distribution or other such rights that have been granted by the Corporation except to Articon Information Systems GmbH ("Articon") pursuant to the Articon Agreement. (iv) Schedule 3.5(ff)(iv) contains a list of, and the same is all of, the Intellectual Property used in and/or necessary to the conduct of the Business as it currently is conducted including, without limitation, the design, development, manufacture, use, import and sale of the products, technology and services of the Corporation (including products, technology or services currently under development). (v) Other than "shrink-wrap" and similar widely available commercial end-user licenses, the contracts, licenses and agreements listed in Schedules 3.5(ff)(i), 3.5(y) and 3.5(ff)(iv) include all contracts, licenses and agreements, to which the Corporation is a party with respect to any Intellectual Property. No person other than the Corporation has ownership rights to improvements made by the Corporation in Intellectual Property which has been licensed to the Corporation and which forms part of the Ballista Software. (vi) Schedules 3.5(ff)(i), 3.5(y) and 3.5(ff)(iv) list all contracts, licenses and agreements between the Corporation and any other person wherein or whereby the Corporation has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by the Corporation or such other person of the Intellectual Property of any person other than the Corporation (and copies of same have been provided to Purchaser). (vii) Except with respect to the dispute set forth in Schedule 3.5(mm), the operation of the business of the Corporation as it currently is conducted, including but not limited to the Corporation's design, development, use, import, manufacture and sale of the products, technology or services (including products, technology or services currently under development) of the Corporation does not infringe or misappropriate the Intellectual Property of any person, violate the rights of any person (including rights to privacy or publicity), or to the Corporation's knowledge constitute unfair competition or trade practices under the federal laws of Canada applicable in Alberta or, to the Corporation's actual knowledge without investigation, under the laws of any other jurisdiction. The Corporation has not received notice from any Person claiming that such operation or any act, product, technology or service (including products, technology or services currently under development) of the Corporation infringes or misappropriates the Intellectual Property of any Person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor is the Corporation aware of any basis therefor). (viii) There are no contracts, licenses or agreements between the Corporation and any other person with respect to Company Intellectual Property under which there is any dispute known to the Corporation regarding the scope of such agreement, or performance under such agreement including with respect to any payments to be made or received by the Corporation thereunder. 40 Page 36 of 67 (ix) To the knowledge of the Principal Shareholders and the Corporation, no Person is infringing or misappropriating any Company Intellectual Property. (x) The Corporation has taken reasonable steps necessary to protect the Corporation's rights in confidential information and trade secrets of the Corporation or provided by any other person to the Corporation. Without limiting the foregoing, the Corporation has, and enforces, a policy requiring each employee, consultant and contractor other than ministerial employees to execute proprietary information, confidentiality and assignment agreements substantially in the Corporation's standard forms, and all material current and former employees, consultants and contractors of the Corporation have executed such an agreement. Waivers of moral rights in favour of the Corporation have been obtained with respect of all elements of the Company Intellectual Property created by independent contractors and employees of the Corporation, which waivers have been provided to the Purchaser and are summarized in Schedule 3.5(ff)(x). (xi) Except for the Agreements set forth in Schedules 3.5(ff)(i), 3.5(y) and 3.5(ff)(iv), no Company Intellectual Property or product, technology or service of the Corporation is subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by the Corporation or may affect the validity, use or enforceability of Company Intellectual Property. (xii) Software programs being the subject matter of the Company Intellectual Property will record, store, process, calculate and present calendar dates falling on and after (and if applicable, spans of time including) January 1, 2000. The Ballista Software does not calculate any information dependent on or relating to dates, other than the expiry time clocks. None of the Company Intellectual Property will lose functionality with respect to the introduction of records containing dates falling on or after January 1, 2000 (collectively, "YEAR 2000 COMPLIANT"). All software used with or in conjunction with the Ballista Software are Year 2000 Compliant. (xiii) The Corporation has no Registered Intellectual Property, except for the trademark application made for the trademark "Ballista". (xiv) No royalty or other fee is required to be paid by the Corporation to any other Person with respect to the Ballista Software, nor is any royalty or fee payable (other than fees as have been paid) by the Corporation to any other Person with respect to the OSF-Motif 2.0 Source License dated January 20, 1997, as set forth in Schedule 3.5(ff)(i). (xv) The computer systems of the Corporation contain at least North American industry standard anti-virus software and the Corporation will continue to take all steps and implement all procedures in accordance with industry standard to, so far as reasonably possible, ensure that such systems are free from viruses and will remain so until the Time of Closing. (xvi) The Ballista Software performs in all material respects in accordance with the functions and descriptions set forth in the user manual for the Ballista Software, 41 Page 37 of 67 a copy of which has been provided to the Purchaser and initialed by the parties hereto for future identification. (xvii) Except as specified in Schedule 3.5(ff)(xvii), the Corporation has not and will not provide the source code for the Ballista Software to any third party prior to the Time of Closing, directly or indirectly, by license transfer, sale, or escrow or otherwise permit any third party to reverse engineer, disassemble or decompile the Ballista Software to create such source code (except decompilation permitted by law), and such Persons who are identified in Schedule 3.5(ff)(xvii) are subject to confidentiality agreements with the Corporation in respect of such source code. (xviii) The Corporation has designed three software programs called "Sniper", "Decoynet" and "Watchtower" which designs were conceived by employees or officers of the Corporation and were not designed by appropriating the Intellectual Property of any third party. (xix) The Corporation has the exclusive right to use the trademark "Ballista" in Canada in relation to the wares and services set forth in Schedule 3.5(ff)(xix) and has not received notice of any violation of any third party's trademark in relation to the use of "Ballista" in relation to the wares and services set forth in Schedule 3.5(ff)(xix), except for a claim by Carnegie Mellon University which is described in Schedule 3.5(mm). (gg) SHAREHOLDER LOANS - Except for the Shareholder Loans, the Corporation is not indebted to any of the directors, former directors, officers, former officers, shareholders, former shareholders or employees of the Corporation or any Person (other than Millennium Systems Canada Inc.) not dealing at arm's length (as such terms is construed under the Tax Act) with any of the foregoing. (hh) NON-ARM'S LENGTH TRANSACTIONS - Except as disclosed in Schedule 3.5(hh), no director, officer, shareholder or employee of the Corporation and no entity that is an Affiliate or Associate of one or more of such individuals: (i) owns, directly or indirectly, in whole or in part, any property that the Corporation uses in the operation of the Business; or (ii) has any cause of action or other claim whatsoever against the Corporation in connection with the Business, except for any liabilities reflected in the Financial Statements and claims in the ordinary and normal course of business. (ii) GOVERNMENT PROGRAMS - No agreements, loans, funding arrangements or assistance programs are outstanding in favour of the Corporation from any governmental or regulatory authority, and, to the best of the knowledge of the Principal Shareholders and the Corporation no basis exists for any governmental or regulatory authority to seek payment or repayment from the Corporation of any amount or benefit received, or to seek performance of any obligation of the Corporation, under any such program. (jj) COMPLIANCE WITH COVENANTS - The Corporation has, or has caused to be, complied with, performed, observed and satisfied all material covenants, terms, conditions, obligations and liabilities required to be performed, observed, and satisfied by it, whether express or implied, which have arisen under the provisions of: 42 Page 38 of 67 (i) the Material Agreements; and (ii) any other contracts, agreements, indentures or other instruments to which the Corporation is a party, and all such contracts, agreements, indentures and other instruments are valid and enforceable, each in accordance with its respective terms, and no party to any of them is in default thereunder or in breach thereof or would, with the giving of notice or the lapse of time or both be in breach or default in any material respect. (kk) NO DEFAULTS - The Corporation is not in breach or default, has not received any notice of default or violation, and the Principal Shareholders and the Corporation are not aware, after due inquiry, of any potential or threatened notice of alleged default or violation, of the provisions of any Material Agreement or any other contracts, agreements, indentures or instruments to which the Corporation is a party, (ll) COMPLIANCE WITH LAWS - All laws, regulations, and orders of any governmental or regulatory authority having jurisdiction over the Corporation or its properties are being, and have been, complied with in all material respects by the Corporation. (mm) LITIGATION AND RELATED MATTERS - Except for the actions set forth in Schedule 3.5(mm), there are no actions, suits, investigations or proceedings pending or, to the best of the knowledge of the Principal Shareholders and the Corporation, threatened against or affecting the Corporation, at law or in equity, or before any arbitrator of any kind, or before or by any governmental or regulatory authority, domestic or foreign, and, after due inquiry, the Principal Shareholders and the Corporation are not aware of any existing ground on which any such action or proceeding might be commenced with any reasonable likelihood of success. The Corporation is not subject to any outstanding orders, writs, injunctions, decrees, judgments, awards, determinations, work orders or directions of any court, arbitrator or governmental or regulatory authority, the failure to comply with which can reasonably be expected to have a material adverse effect on the Corporation's conduct of the Business or its ownership or operation of the Assets. (nn) INSURANCE - The Corporation currently holds no insurance. (oo) ENVIRONMENTAL - (i) The Corporation has been and is in compliance with all applicable laws, statutes, ordinances, by-laws, regulations, policies, orders, directives and decisions rendered by any governmental or regulatory authority relating to the protection of the environment, the failure to comply with which would have a material adverse effect on the Business or the financial condition of the Corporation; and (ii) there have been no orders issued, environmental audits, evaluations, assessments or investigations conducted or other proceedings taken or, to the best of the knowledge of the Principal Shareholders and the Corporation, threatened against or relating to the Corporation, its officers or directors, the Business or the Assets under any applicable environmental protection legislation. 43 Page 39 of 67 (pp) OPERATING PERMITS AND LICENSES - There are no permits, licenses, consents, authorizations, approvals, privileges, waivers, exemptions, orders (inclusionary or exclusionary) or other concessions required in connection with the ownership and operation of the Assets and the conduct of the Business. (qq) OBLIGATIONS TO CUSTOMERS AND SUPPLIERS - The Corporation is not required to provide any bonding or other financial security arrangements in connection with any transactions with any of its customers or suppliers in the ordinary course of the Business. (rr) WARRANTIES AND INDEMNITIES - There are no existing warranty and indemnity claims in excess of $5,000 made against the Corporation. (ss) SIGNIFICANT CUSTOMERS - The Business is not dependent for more than 15% of its gross revenues on any single customer. (tt) PAID UP CAPITAL - The paid up capital of the Purchased Shares for the purposes of the Tax Act is $286,921 (Cdn.). (uu) WORKPLACE EVENTS - Neither the Corporation nor the Business is subject to any Workers' Compensation Board or similar authority or workers' compensation legislation or regulations. (vv) OTHER OUTSTANDING AGREEMENTS - The Corporation does not have outstanding any guarantees or credit support agreements and does not have any outstanding agreement (including employment agreements), contract or commitment, whether written or oral, of any nature or kind whatsoever, except: (i) the Material Agreements; (ii) agreements, contracts and commitments in the ordinary course of business; (iii) service contracts on office equipment; (iv) the employment and service agreements described in Schedule 3.5(w); and (v) the other contracts and agreements described in Schedule 3.5(y). (ww) PARTICULARS OF SCHEDULES - All particulars set out in the Schedules referred to in this Article 3 are true, complete and accurate and not misleading in any material respect. (xx) GST REGISTRATION - The Corporation is a registrant for the purposes of the Excise Tax Act (Canada) whose registration number is R102251972. (yy) JURISDICTION - The Corporation conducts business in Alberta only. (zz) RESIDENCY - The Corporation is a taxable Canadian corporation within the meaning of the Tax Act. (aaa) NOT AN OFFERING CORPORATION - The Corporation is not offering, nor has it offered, any of its securities to the public within the meaning of applicable federal or provincial laws and is not a reporting issuer thereunder. 44 Page 40 of 67 (bbb) PRIVATE COMPANY - The Corporation is a "private company" within the meaning of the Securities Act (Alberta). (ccc) AGREEMENTS, CONTRACTS AND COMMITMENTS - The Corporation does not have, is not a party to nor is bound by: (i) any fidelity or surety bond or completion bond, (ii) any lease of personal property having a value individually in excess of $25,000 except as set forth in Schedule 3.5(y), (iii) any agreement of indemnification or guarantee except as set forth in Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv); (iv) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $25,000, (v) any agreement, contract or commitment relating to the disposition or acquisition of Assets or any interest in any business enterprise outside the ordinary course of the Business, (vi) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, including guarantees referred to in clause (ii) hereof, (vii) any purchase order or contract for the purchase of raw materials involving $25,000 or more other than purchases in the ordinary course of the Business, (viii) any construction or development contracts except as set forth in Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv); (ix) any distribution, joint marketing or development agreement except as set forth in Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv); or (X) any other agreement, contract or commitment that involves $25,000 or more or is not cancelable without penalty within thirty (30) days except as set forth in Schedules 3.5(y), 3.5(ff)(i) and 3.5(ff)(iv). (ddd) CONSENTS - The Corporation has obtained, or will obtain prior to the Time of Closing, all necessary consents, waivers and approvals of parties to any contracts as may be required in connection with the purchase and sale of the Purchased Shares except those that, if not obtained after reasonable efforts, would not individually or in the aggregate be material to the Corporation. 3.6 NON-WAIVER. No investigations made by or on behalf of the Purchaser at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by any or all of the Vendors, the Trustees and the Corporation herein or pursuant hereto unless disclosure of the fact at issue is expressly made in writing in a Schedule or a certificate of the Vendors or of the Corporation delivered at or before the Time of Closing in accordance with this Agreement and such disclosure contains no material untrue statement. 45 Page 41 of 67 3.7 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants, agreements, representations, warranties and indemnities of each of the Vendors, the Trustees, the Beneficiaries and the Corporation contained in this Agreement shall survive Closing of the purchase and sale herein provided for and, notwithstanding Closing or any documents delivered or investigations made in connection therewith, shall continue in full force and effect for the benefit of the Purchaser. 3.8 LIMITATION AN REMEDIES FOR BREACH OF VENDORS' AND CORPORATION'S COVENANTS, REPRESENTATIONS AND WARRANTIES. Notwithstanding the provisions of Section 3.7, but without prejudice to the Vendors' obligations pursuant to Section 2.7 and Article 11, the Purchaser shall not be entitled to bring any action or assert any claim based upon the breach or untruth of any of the covenants contained in this Agreement or the representations or warranties contained in Sections 3.2 to 3.5, inclusive after the first anniversary of the Time of Closing unless, on or prior to such anniversary, written notice of such claim setting forth the details thereof shall have been delivered by the Purchaser to the Vendors. The Purchaser's remedies for any such breach and/or claim arising out of this Agreement (except for claims arising pursuant to Section 2.7 and claims arising after the first anniversary of the Time of Closing pursuant to Article 11) shall be in all respects limited to recovery by the Purchaser against the Escrow while the Escrow Shares are held by the Escrow Agent, in accordance with Section 2.4, provided that nothing contained in this Agreement shall limit the right and remedies as are otherwise available to the Purchaser in the event of fraud on the part of any of the Vendors or the Corporation. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE PARENT 4.1 BASIS OF REPRESENTATIONS. (a) The Purchaser and the Parent jointly and severally represent and warrant to the Vendors that each of the statements contained in Section 4.2 is true and correct as at the time of execution and delivery of this Agreement by the Purchaser, except for any such statement which expressly speaks as at some other time; (b) the Parent represents and warrants to the Vendors that each of the statements contained in Section 4.3 is true and correct as at the time of execution and delivery of this Agreement by the Parent, except for any such statement which expressly speaks as at some other time; (C) any such statement which expressly speaks as at a time other than the time of execution and delivery of this Agreement by the Purchaser or the Parent was or will be true and correct as at the time at which such statement speaks; and (d) each of such statements will be true and correct at the Time of Closing except for any such statement which expressly speaks as at some other time, except to the extent affected by the transactions contemplated hereby, and each of the Purchaser and the Parent acknowledges that the Vendors are relying on such representations and warranties in connection with the sale of the Purchased Shares and the completion of the other transactions hereunder. 46 Page 42 of 67 4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. (a) DUE INCORPORATION AND ORGANIZATION OF PURCHASER - The Purchaser is a corporation duty organized, validly existing and in good standing under the laws of the State of Delaware, and is a wholly-owned subsidiary of the Parent. (b) CORPORATE POWER AND AUTHORITY - The Purchaser has all necessary power, authority and capacity to enter into and perform its obligations pursuant to the terms of this Agreement and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated by this Agreement. (c) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not in any material respect violate, nor be in conflict with, result in a breach of, constitute a default or cause the acceleration of any obligation of the Purchaser under: (i) any of the terms and provisions of the constating documents or by-laws of the Purchaser or resolutions of the shareholders or directors thereof; (ii) any judgment, decree, order, or award of any court, arbitrator or governmental or regulatory authority; or (iii) any applicable law, statute, rule or regulation applicable to the Purchaser, and which would materially adversely affect the ability of the Purchaser to fulfil and comply with the terms and provisions hereof. (d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly executed and delivered by the Purchaser and this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable in accordance with its terms. (e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by the Purchaser at or before the Time of Closing will have been duly executed and delivered by the Purchaser and shall constitute a valid and binding obligation of the Purchaser enforceable in accordance with its terms. (f) REGULATORY APPROVALS OF TRANSACTIONS - No permits, licenses, certifications, approvals, consents, orders-in-council, legislation or other action of any governmental or regulatory authority are required for the execution, delivery or performance by the Purchaser and the Parent of this Agreement or the transactions contemplated herein, or for the execution, delivery or performance by the Purchaser of any other agreement contemplated hereunder to be delivered by the Purchaser at or before the Time of Closing or the transactions contemplated therein, except for such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign, provincial and state securities (or related) laws and such other consent, authorizations, filings, approvals and registrations which if not obtained or made would not be material to the Purchaser or have a material adverse effect on the ability of the Purchaser to complete the transactions contemplated hereby. 47 Page 43 of 67 4.3 REPRESENTATIONS AND WARRANTIES OF PARENT. (a) DUE INCORPORATION AND ORGANIZATION OF PARENT - The Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) CORPORATE POWER AND AUTHORITY - The Parent has all necessary power, authority and capacity to enter into and perform its obligations pursuant to the terms of this Agreement and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the ability of the Parent to consummate the transactions contemplated by this Agreement. (c) NO CONFLICTING INTERESTS - The execution and delivery of this Agreement and each and every agreement or document to be executed and delivered hereunder and the consummation of the transactions contemplated herein will not in any material respect violate, nor be in conflict with, result in a breach of, constitute a default or cause the acceleration of any obligation of the Parent under: (i) any of the terms and provisions of the constating documents or by-laws of the Parent or resolutions of the shareholders or directors thereof; (ii) any judgment, decree, order, or award of any court, arbitrator or governmental or regulatory authority; or (iii) any applicable law, statute, rule or regulation applicable to the Parent, and which would materially adversely affect the ability of the Parent to fulfil and comply with the terms and provisions hereof. (d) BINDING AND ENFORCEABLE AGREEMENT - This Agreement has been duly executed and delivered by the Parent and this Agreement constitutes a legal, valid and binding obligation of the Parent enforceable in accordance with its terms. (e) BINDING EFFECT OF OTHER AGREEMENTS - At the Time of Closing, each agreement contemplated to be executed and delivered hereunder by the Parent at or before the Time of Closing will have been duly executed and delivered by the Parent and shall constitute a valid and binding obligation of the Parent enforceable in accordance with its terms. (f) REGULATORY APPROVALS OF TRANSACTIONS - No permits, licenses, certifications, approvals, consents, orders-in-council, legislation or other action of any governmental or regulatory authority are required for the execution, delivery or performance by the Parent of this Agreement or the transactions contemplated herein, or for the execution, delivery or performance by the Parent of any other agreement contemplated hereunder to be delivered by the Parent at or before the Time of Closing or the transactions contemplated therein, except for such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal, foreign, provincial and state securities (or related) laws and such other consent, authorizations, filings, approvals and registrations which if not obtained or made would not be material to the Parent or have a material adverse effect on the ability of the Parent to complete the transactions contemplated hereby. 48 Page 44 of 67 (g) SEC FILINGS; MATERIAL ADVERSE EFFECT - The Parent has filed all forms, reports and documents required to be filed by parent with the SEC since January 1, 1996, and has made available to the Vendors such forms, reports and documents in the form filed with the SEC. All such required forms, reports and documents (including those that Parent may file subsequent to the date hereof) are referred to herein as the "PARENT SEC REPORTS". As of their respective dates, the Parent SEC Reports: (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Reports; and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Except as disclosed in the Parent SEC Reports filed by the Parent and publicly available prior to the date of this Agreement, there has not been any material adverse effect with respect to Parent. (h) PARENT FINANCIAL STATEMENTS - Each of the audited consolidated financial statements of the Parent (including any related notes and schedules thereto) including (or incorporated by reference) in its Annual Report on Form 10-K for the year ended December 31, 1997, is accurate and complete and fairly presents, in conformity with U.S. GAAP applied on a consistent basis through the periods involved (except as may be noted therein), and in conformity with the SEC's Regulation S-X, the consolidated financial position of the Parent and its consolidated subsidiaries as of its date and the consolidated results of operations and changes in financial position for the period then ended. (i) NAI Shares. The Issued NAI Shares, when issued in accordance with the terms and provisions of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable and will not be subject to any preemptive or other statutory right of stockholders and will be issued in compliance with applicable United States federal and state securities laws, and in compliance with securities laws applicable in the Province of Alberta. 4.4 NON-WAIVER. No investigations made by or on behalf of any or all of the Vendors at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by the Purchaser or the Parent herein or pursuant hereto, unless disclosure of the fact at issue is expressly made in writing in a Schedule or certificate of the Parent or of the Corporation delivered at or before the Time of Closing in accordance with this Agreement and such disclosure contains no material untrue statement. 4.5 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants, agreements, representations, warranties and indemnities of the Purchaser and the Parent contained in this Agreement shall survive Closing of the purchase and sale herein provided for and, notwithstanding Closing or any documents delivered or investigations made in connection therewith, shall continue in full force and effect for the benefit of the Vendors. 49 Page 45 of 67 4.6 LIMITATION ON PRINCIPALS' VENDORS' REMEDIES FOR BREACH OF PURCHASES AND PARENT'S REPRESENTATION AND WARRANTIES. Notwithstanding the provisions of Section 4.5, but without prejudice to the Purchaser's obligations pursuant to Section 5.2(b), the Vendors shall not be entitled to bring any action or assert any claim based upon the breach or untruth of any of the representations or warranties contained in Section 4.2 or Section 4.3 after the first anniversary of the Time of Closing unless, on or prior to such anniversary, written notice of such claim setting forth the details thereof shall have been delivered by the Vendors to the Purchaser and the Parent. ARTICLE 5 COVENANTS OF THE VENDORS, THE CORPORATION, AND THE PURCHASER 5.1 COVENANTS OF THE VENDORS. Each of the Vendors and the Corporation covenants and agrees with the Purchaser, during the period from the date hereof to the Time of Closing, as set forth below. (a) NO SHOPPING - The Vendors and the Corporation agree that they shall not, nor shall they permit any of their respective Affiliates, agents, consultants, advisors or representatives to solicit, initiate, encourage, or participate in any discussions or negotiations with any third party concerning: (i) any sale of the Assets, or any portion thereof other than in the ordinary course of the Business; (ii) any sale of the Purchased Shares, or any portion thereof; or (iii) any merger, amalgamation, consolidation, business combination or similar transaction involving the Corporation. (b) CONTINUANCE TO NOVA SCOTIA - The Vendors shall and shall cause the Corporation to, and the Corporation shall, initiate the steps and proceedings necessary to continue the Corporation pursuant to the laws of the Province of Nova Scotia, on terms and conditions and pursuant to such documentation as is satisfactory to the Purchasers' counsel, acting reasonably, and will provide to the Purchaser such assistance as may be requested by the Purchaser following closing to complete such continuance. (c) EXAMINATION AND INVESTIGATION - Immediately after the execution and delivery of this Agreement and prior to the Time of Closing, the Vendors and the Corporation shall permit employees, advisors and representatives of the Purchaser full and complete access to all facilities and premises and all current and historical Records and information of every nature and kind within either of the Vendors' or the Corporation's possession or control which relate to: (i) the acquisition, development, construction, operation, maintenance, or ownership of any of the Assets or the Business; (ii) the incorporation, organization, operations, or financial position of the Corporation; and (iii) the acquisition or ownership of the Purchased Shares, 50 Page 46 of 67 for the purposes of reviewing the Records and information and such employees, advisors, and representatives shall be permitted to make copies of such records and information as they may deem advisable. The Vendors and the Corporation shall use their best efforts to make available to the Purchaser any pertinent information that is possessed by a third party or which is relevant to Subsections 5.1(c)(i), 5.1(c)(ii) OR 5.1(c)(iii), (d) DELIVERY OF BOOKS AND RECORDS - At the Time of Closing there shall be delivered to the Purchaser, by the Vendors or as directed by the Vendors, all of the Records of and relating to the Corporation and the Business. The Purchaser agrees that it will preserve the Records to be delivered to it for a period of six years from the date of Closing, or for such longer period as is required by any applicable law, and will permit the Vendors or their authorized representatives reasonable access thereto in connection with the affairs of the Vendors relating to their matters, but the Purchaser shall not be responsible or liable to the Vendors for or as a result of any accidental loss or destruction of or damage to any such Records. (e) CONDUCT OF BUSINESS - The Vendors shall and shall cause the Corporation to, and the Corporation shall: (i) operate and maintain the Business in a good and business-like manner in the ordinary course thereof so as to: (A) maintain and enhance the goodwill of the Business, (B) preserve and protect the Assets and rights of the Corporation under the Material Agreements, (C) maintain and enhance the Corporation's relationship with its suppliers and customers, and (D) keep available the services of its present officers and employees; (ii) take all action within their control to ensure that the representations and warranties of the Vendors, the Trustees, and the Corporation hereunder are true and correct at the time indicated for such representations and warranties; (iii) promptly advise the Purchaser of any facts that come to their attention which would cause any of the Vendors', Trustees' and the Corporation's representations and warranties herein to be untrue in any material respect; (iv) promptly advise the Purchaser in writing of any material adverse change in the Business, the Assets or the Corporation; (v) ensure that the Corporation does not make any purchase, sale or lease of Assets with a total sale price or purchase price, as the case may be, of more than $5,000 in the aggregate without the prior express written consent of the Purchaser; (vi) ensure that the Corporation does not create, incur or assume any long-term debt or create any Encumbrance upon any of the Assets not in the ordinary course of the Business or guarantee or otherwise become liable for the obligations of any other Person or make any loans or advances to any Person; 51 Page 47 of 67 (vii) ensure that the Corporation does not declare or pay any dividends on the Shares, redeem or repurchase any Shares in the capital of the Corporation, or make any other distributions in respect of the securities of the Corporation; (viii) ensure that the Corporation does not hire any new employees, change the terms of employment of any of the existing employees of the Corporation or pay any bonus or other payment to any employee, without the prior express verbal or written consent of the Purchaser; (ix) maintain all of the tangible Assets in the same condition as they now exist, normal wear and tear and depreciation excepted, shall not sell, lease or otherwise dispose of any of the Assets except in the ordinary course of the Business; (x) maintain the books, records and accounts of the Corporation in the ordinary course of the Business and record all transactions on a basis consistent with Canadian GAAP; (xi) ensure that the Corporation does not take any action to amend its constating documents or its by-laws; (xii) ensure that the Corporation does not take any action which is out of the ordinary course of the Business without the prior express written consent of the Purchaser; and (xiii) maintain existing policies of insurance and shall give all notices and present all claims under all policies of insurance in a due and timely fashion. (f) REGULATORY CONSENTS - The Vendors shall use their reasonable commercial efforts to obtain or cause the Corporation to obtain, and the Corporation shall use its reasonable commercial efforts to obtain at or prior to the Time of Closing, from all appropriate federal, provincial, state, municipal or other governmental or regulatory authorities, the licenses, permits, consents, approvals, certificates, registrations and authorizations required to effect the transactions contemplated herein, except for those transactions contemplated in the Registration Rights Agreement which licences, permits, consents, approvals, certificates, registrations and authorizations required by the Registration Rights Agreement will be obtained in accordance with the terms of that agreement. (g) CONTRACTUAL CONSENTS - The Vendors shall use their reasonable commercial efforts to give or obtain or cause the Corporation to give or obtain and the Corporation shall use its reasonable commercial efforts to obtain, at or prior to the Time of Closing the notices, consents and approvals required to give effect to the transactions contemplated herein. (h) TRANSFER OF SHARES - At or before the Time of Closing, the Vendors shall use their best efforts to take and to cause the Corporation to take, and the Corporation shall use its best efforts to take, all necessary steps and corporate proceedings to be taken in order to permit the Purchased Shares to be duly transferred to the Purchaser, free and clear of all Encumbrances. 52 Page 48 of 67 (i) DISCHARGE LIABILITIES - The Vendors shall cause the Corporation to pay and discharge, and the Corporation shall pay and discharge, the liabilities of the Corporation in the ordinary course of the Business except those contested in good faith by the Corporation. (j) RESIGNATION OF OFFICERS AND DIRECTORS - At or before the Time of Closing, the Vendors shall cause each officer and director of the Corporation, to submit his written resignation as a director or officer of the Corporation, effective at the Time of Closing. (k) RELEASES - At the Time of Closing, each of the Vendors shall execute and deliver to the Corporation and the Purchaser, a release, in substantially the form set forth in Schedule 5. 1 (k). (l) POOLING OF INTEREST - None of the Vendors and the Corporation shall commit any act or omission that they are informed by the Purchaser or the Parent could be reasonably expected to interfere with the Parent's or the Purchaser's ability to account for the purchase and sale contemplated hereby as a pooling of interests pursuant to U.S. GAAP, and the Corporation and the Vendors shall use their reasonable commercial efforts to cause the purchase and sale contemplated hereby to be accounted for as a pooling of interests. (m) AFFILIATE AGREEMENTS AND RELEASES - (i) Prior to the Time of Closing, the Corporation shall deliver to the Parent a written list, identifying all Persons who are, as at the date of this Agreement, an Affiliate of the Company (each, a "COMPANY AFFILIATE") within the meaning of Rule 145 promulgated under the Securities Act. (ii) At or prior to the Time of Closing, the Vendors and the Corporation shall cause each Company Affiliate to: (A) execute and deliver an Affiliate Agreement in the form attached as Schedule 5. 1 (m); and (B) execute and deliver a General Release in substantially the form attached as Schedule 5. l(k) with such amendments as the Purchaser's counsel may reasonably require to such form. (n) REGISTRATION RIGHTS AGREEMENT AND INVESTORS REPRESENTATION CERTIFICATE - At or prior to the Time of Closing, each of the Vendors shall execute and deliver a: (i) Registration Rights Agreement, in the form attached as Schedule 5. l(n)(i); and (ii) Investors Representation Certificate, in the form attached as Schedule 5. 1 (n)(ii). (o) BENEFICIARIES RATIFICATION - At or before the Time of Closing, the Vendors who are beneficiaries of the Trusts as set forth in Schedule 3.4(g)shall execute and deliver a letter confirming the Trustees' authority to execute this Agreement and to perform the obligations of the Trusts and Trustees hereunder. (p) SHAREHOLDER OPTION AGREEMENTS - At or before the Time of Closing, the Option Holders pursuant to those Purchase Agreements described in Schedule 3.2(e) shall either terminate those agreements or execute and deliver an acknowledgement agreeing to the substitution 53 Page 49 of 67 of Issued NAI Shares for the Option Shares (defined therein) upon completion of the transactions contemplated by this Agreement, and releasing the Parent and the Purchaser for any matter arising out of the Option. (q) CONDITIONS OF CLOSING - Each of the Vendors and the Corporation shall use their best efforts to cause all of the conditions for the benefit of the Vendors or the Purchaser to be fulfilled at or before the Time of Closing. 5.2 PURCHASER'S AND PARENT'S COVENANTS. The Purchaser and Parent covenant and agree with the Vendors, during the period from the date hereof to the Time of Closing, as set forth below. (a) TRANSFER OF SHARES - At or before the Time of Closing, the Parent and the Purchaser shall cause all necessary steps and corporate proceedings to be taken in order to permit the Purchased Shares to be duly transferred to the Purchaser. (b) CONFIDENTIALITY - In the event that the purchase and sale of the Purchased Shares contemplated herein is not completed, the Parent and the Purchaser agree that they shall not, in any manner whatsoever: (i) use the Confidential Information for any purpose including, without limitation their personal benefit or the benefit of any third party; (ii) charge or receive, any direct or indirect payments by way of trade of services, compensation or fees from third party for use of the Confidential Information; or (iii) copy or otherwise reproduce or render capable of reproduction by any means whatsoever all or part of the Confidential Information. The Purchaser and the Parent further agree that they will not disclose the Confidential Information to any third party including publishing or otherwise communicating to any Person, in any form, the Confidential Information. (c) The restrictions set forth in Subsection 5.2(b) shall not apply to any part of the Confidential Information which: (i) is at the time of disclosure to the Purchaser or the Parent or thereafter becomes a part of the public domain through no violation of this Agreement; (ii) was in the lawful possession of the Purchaser or the Parent prior to its disclosure to either of them by the Vendors or the Corporation. (iii) is hereafter lawfully acquired by the Parent or the Purchaser through a third party which, to the best of the Parent's or Purchaser's knowledge, is not under an obligation of confidence to the Corporation and which third party was not in a contractual or fiduciary relationship with the Corporation; (iv) is disclosed following receipt of the express written consent of the Corporation to such disclosure being made; or 54 Page 50 of 67 (v) is required by law or requested by a court of competent jurisdiction, tribunal, administrative or regulatory body or by a stock exchange having jurisdiction over the Parent or the Purchaser to be disclosed. (d) RETURN OF CONFIDENTIAL INFORMATION - In the event that the purchase and sale of the Purchased Shares herein provided for is not completed, the Parent and the Purchaser agree, on demand, to return to the Corporation all Confidential Information, including correspondence, records, specifications, software source code, models, notes, reports and other documents and any copies thereof. The Parent and the Purchaser shall confirm in writing of their compliance with their obligations hereunder. 5.3 ARTICON AGREEMENT. The Corporation has executed a letter of intent (the "ARTICON AGREEMENT") between ARTICON Information Systems GmbH ("Articon") and the Corporation on or about December 11, 1997 (Germany time) with respect to, among other things, the Corporation appointing Articon as its reseller in Germany and other regions. The Vendors, the Purchaser and the Parent shall use their best efforts to assist the Corporation to terminate or convert the Articon Agreement to a non-exclusive arrangement (collectively, the "COMPROMISE"). The Purchaser and the Vendors' Agent jointly shall have the right to settle the terms of the Compromise; provided, however, that the Purchaser and the Vendors' Agent, both acting reasonably, mutually agree to such settlement. With respect to any litigation in connection with the Articon Agreement, the Purchaser shall have the right to participate in or assume control of the negotiation or defence of such litigation. All of the costs of the Compromise (including without limitation any amounts payable by the Corporation to Articon in connection with the Compromise and the Corporation's legal fees and disbursements on a solicitor and his own client basis) shall: (a) if the Compromise occurs before the Time of Closing, constitute a purchase price adjustment pursuant to the provisions of Section 2.5; or (b) if the Compromise occurs on or after the Time of Closing, be paid by the Vendors to the Purchaser from the Escrow Fund pursuant to the provisions of Section 2.4, to a maximum amount of $500,000, with 50% of the first $60,000 of such costs to be borne by the Purchaser. In the event the Compromise is not completed by the last day of the Escrow Period, then on such day the Vendors shall pay to the Purchaser from the Escrow Fund (pursuant to the provisions of Section 2.4) the amount of $470,000, as liquidated damages. ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS UNDER THIS AGREEMENT 6.1 PURCHASER'S CONDITIONS. The obligation of the Purchaser to complete the purchase of the Purchased Shares contemplated by this Agreement shall be subject to the satisfaction of, or compliance with, at or before the Time of Closing, the conditions set forth below (which is hereby acknowledged to be inserted for the exclusive benefit of the Purchaser and may be unilaterally waived by the Purchaser in whole or in part). (a) TRUTH AND ACCURACY OF REPRESENTATIONS - All of the representations and warranties of the Vendors, the Trustees and the Corporation set forth in this Agreement shall be true and correct as at the Time of Closing with the same force and effect as though made at the Time of Closing, except to the extent affected by the transactions contemplated by this Agreement, and certificates of each of the Vendors, the Trustees and the President (or other officer acceptable to the Purchaser) of the Corporation dated the date of Closing to 55 Page 51 of 67 that effect shall have been delivered to the Purchaser, such certificates to be in form and substance reasonably satisfactory to the Purchaser. (b) COMPLIANCE WITH AGREEMENT - All of the terms, covenants, agreements and conditions of this Agreement to be complied with or performed by the Vendors, the Trustees and the Corporation at or before the Time of Closing shall have been complied with or performed and certificates of each of the Vendors, the Trustees and the President (or other officer acceptable to the Purchaser) of the Corporation dated the date of Closing to that effect shall have been delivered to the Purchaser, such certificates to be in form and substance reasonably satisfactory to the Purchaser. (c) RECEIPT OF CLOSING DOCUMENTATION - The Purchaser and the Parent shall have received all documentation required to be delivered to the Purchaser and the Parent at or before the Time of Closing in accordance with this Agreement. (d) POOLING MATTERS - (i) No action shall have been taken or have been agreed to have been taken by the Corporation or its officers, directors, shareholders or Affiliates that would, in the reasonable judgement of the Parent's independent accountants, jeopardize the accounting treatment of the transactions contemplated hereby as a pooling of interests pursuant to U.S. GAAP; (ii) the Parent shall have received a letter from Coopers & Lybrand LLP dated as of the date of the Closing and addressed to the Parent and the Purchaser stating that the transactions contemplated hereby will qualify as a pooling of interests transaction pursuant to U.S. GAAP; and (iii) not to limit the generality of Subsections 6. 1(b) and (c); the Vendors and the Company Affiliates, as applicable, shall have executed and delivered to the Purchaser and the Parent the documentation referred to in Subsections 5. 1 (m) and (n). (e) APPROVALS AND CONSENTS - All required approvals, consents, authorizations and waivers relating to the consummation of the transactions hereby contemplated shall have been obtained from the relevant governmental or regulatory authorities as are required by law to be obtained to permit the change of ownership of the Purchased Shares, the creditors of any of the Vendors and the Corporation and other third parties. (f) CONTINUANCE OF THE CORPORATION - There shall be no impediment existing at the Time of Closing to the continuance of the Corporation pursuant to the laws of the Province of Nova Scotia which cannot, in the opinion of counsel to the Purchaser, be cured with reasonable efforts. (g) LEGAL FORMALITIES - All necessary corporate action and all instruments and documents required to authorize the sale and transfer of the Purchased Shares to the Purchaser and implement this Agreement or any other agreements incidental thereto, shall have been taken, 56 Page 52 of 67 (h) LEGAL OPINION - The Vendors shall have delivered to the Purchaser a favourable opinion of Code Hunter Wittmann, counsel to the Vendors, in a form reasonably satisfactory to the Parent and the Purchaser and their counsel. (i) NO RESTRICTIONS - No action or proceeding, judicial (at law or in equity) or extrajudicial shall be pending or threatened by any Person to enjoin, restrict or prohibit: (i) the purchase and sale contemplated hereby or the Purchaser's subsequent ownership, use, or enjoyment of the Purchased Shares; or (ii) the right of the Corporation or the Purchaser from and after the Time of Closing to conduct the Business. (j) CONCURRENT CLOSINGS - All of the conditions precedent to the obligations of the Purchaser to complete the transactions herein contemplated or contemplated in the other agreements contemplated or required hereby and the Schedules shall have been fulfilled or satisfactorily performed in accordance therewith including, without limitation, the delivery of all documents required to be delivered thereunder. (k) CONSENT UNDER MATERIAL AGREEMENTS - No consents are required under the Material Agreements to the transactions contemplated hereunder. (l) NO DAMAGE - No destruction, material damage, appropriation, expropriation or seizure of all or any part of the tangible Assets (which shall include any medium in which Intellectual Property resides), or the Purchased Shares shall have occurred, except such as has been fully insured against in accordance with the provisions hereof. (m) RESIGNATION OF DIRECTORS AND OFFICERS - Such directors and officers of the Corporation as the Purchaser may specify shall have resigned from the Corporation, effective as at the Time of Closing. (n) SHAREHOLDER LOANS - The Corporation shall have paid, in full, all amounts outstanding under the Shareholder Loans. (o) EMPLOYMENT AGREEMENTS - The Parent and the Key Employees shall have entered into the Employment Agreements. (p) NO MATERIAL ADVERSE CHANGE - No material adverse change to the Business, the Assets or the financial condition of the Corporation shall have occurred since February 28, 1998. 6.2 VENDORS' CONDITIONS. The obligation of the Vendors to complete the sale of the Purchased Shares contemplated by this Agreement shall be subject to the satisfaction of, or compliance with, at or before the Time of Closing, the conditions set forth below (which is hereby acknowledged to be inserted for the exclusive benefit of the Vendors and may be unilaterally waived by the Vendors in whole or in part). (a) TRUTH AND ACCURACY OF REPRESENTATIONS - All of the representations and warranties of the Purchaser and of the Parent set forth in this Agreement shall be true and correct as at the Time of Closing with the same force and effect as though made at the Time of Closing, and certificates to that effect of the President (or other officer acceptable to the Vendors) of the Purchaser and of the Parent dated the date of Closing to that effect shall have been 57 Page 53 of 67 delivered to the Vendors, such certificates to be in form and substance reasonably satisfactory to the Vendors. (b) PERFORMANCE OF OBLIGATIONS - All of the terms, covenants, agreements and conditions of this Agreement to be complied with or performed by the Purchaser and the Parent at or before the Time of Closing shall have been complied with or performed, and a certificate to that effect of the President (or other officer acceptable to the Vendors) of the Purchaser and of the Parent dated the date of Closing to that effect shall have been delivered to the Vendors, such certificates to be in form and substance reasonably satisfactory to the Vendors. (c) RECEIPT OF CLOSING DOCUMENTATION - The Vendors shall have received all documentation required to be delivered to the Vendors at or before the Time of Closing in accordance with this Agreement. (d) APPROVALS AND CONSENTS - All required approvals consents, authorizations and waivers relating to the consummation of the transactions hereby contemplated shall have been obtained from the relevant governmental and regulatory authorities as are required by law to be obtained to permit the change of ownership of the Purchased Shares, the creditors of the Vendors and the Corporation, and other third parties. (e) NO RESTRICTIONS - No action or proceeding, judicial (at law or in equity) or extrajudicial, shall be pending or threatened by any Person to enjoin, restrict or prohibit the purchase and sale contemplated hereby. (f) STATUTORY RESTRICTIONS - There shall be no impediment, prohibition or restriction existing and no offence would occur or result at the Time of Closing under any applicable statute or regulation to which the transactions contemplated hereby would be subject, by Closing of the transactions contemplated hereby. (g) LEGAL OPINIONS - The Purchaser and the Parent shall have delivered to the Vendors: (i) a favourable opinion of Wilson Sonsini Goodrich and Rosati, counsel to the Parent and the Purchaser in a form reasonably satisfactory to the Vendors and their counsel; and (ii) a favourable opinion of Milner Fenerty, counsel to the Purchaser in a form reasonably satisfactory to the Vendors and their counsel. (h) ORDER OF THE ALBERTA SECURITIES COMMISSION - The Alberta Securities Commission shall not have: (i) finally refused (which refusal shall not include an adjournment) the application dated May 7, 1998 for an order (the "Order") pursuant to section 116 of the Securities Act (Alberta) with respect to the first trade (the "First Trade") of the Issued NAI Shares acquired by the Vendors (other than Ptacek and Newsham) and made by Milner Fenerty on behalf of the Parent; or (ii) indicated that it is unlikely to approve the Order in a form that would permit the First Trade of such Issued NAI Shares through the facilities of NASDAQ (without 58 Page 54 of 67 the need to resort to the use of the exemptions from the prospectus requirements of the Securities Act (Alberta) other than the Order). 6.3 RIGHTS OF PURCHASER. If any of the conditions for the exclusive benefit of the Purchaser as set forth in Section 6.1 shall not have been fulfilled in any material respect at or prior to the Time of Closing to the satisfaction of the Purchaser, then the Purchaser shall be entitled, by notice to the Vendors' Agent prior to the Time of Closing: (a) to provide written notice, describing the condition that has not been fulfilled and of its intention to terminate its obligations hereunder and this Agreement effective as of the date that is 30 days from the date of receipt of such written notice by the Vendors' Agent unless such condition has been fulfilled on or before the end of such 30 day period; or (b) to proceed with Closing as contemplated by Article 8. If no such notice is given prior to the completion of Closing, then the Purchaser shall be deemed to have elected to proceed with Closing as contemplated by Article 8. 6.4 RIGHTS OF VENDORS. If any of the conditions for the exclusive benefit of the Vendors set forth in Section 6.2 shall not have been fulfilled in any material respect at or prior to the Time of Closing to the satisfaction of the Vendors, then the Vendors shall be entitled, by notice from the Vendors' Agent to the Purchaser prior to the time of completion of Closing: (a) to provide written notice, describing the condition that has not been fulfilled and of their intention to terminate their obligations hereunder and this Agreement effective as of the date that is 30 days from the date of receipt of such written notice by the Purchaser unless such condition has been fulfilled on or before the end of such 30 day period; or (b) to proceed with Closing as contemplated by Article 8. If no such notice is given prior to the completion of Closing, then the Vendors shall be deemed to have elected to proceed with Closing as contemplated by Article 8. 6.5 RIGHTS OF TERMINATION. If this Agreement has been terminated pursuant to Subsection 6.3(a) or Subsection 6.4(a), then the party terminating the Agreement shall be released from all its obligations under this Agreement other than any obligations set out in Section 2.7 and Section 5.2(b) and the termination of this Agreement shall not affect the rights and remedies of the party terminating this Agreement against the other parties. 6.6 REIMBURSEMENT OF COSTS FOR CONTINUANCE. Notwithstanding any other provision of this Agreement, in the event that the purchase and sale of the Purchased Shares herein provided for is not consummated by reason of termination of this Agreement pursuant to Subsection 6.4(a) and the Vendor's have completed the continuance of the Corporation into Nova Scotia as contemplated by Section 5. 1 (b), the Purchaser and Parent shall bear the reasonable costs and expenses (to a maximum total amount of $5,000) of the Vendors and the Corporation to discontinue the Corporation pursuant to the laws of Nova Scotia and to continue the Corporation pursuant to the laws of Alberta upon the Vendors' and the Corporation's written request. 59 Page 55 of 67 ARTICLE 7 EMPLOYMENT MATTERS 7.1 EMPLOYMENT AGREEMENTS. The Purchaser agrees that, at or before the Time of Closing, the Parent shall offer employment contracts to, and shall enter into letters of understanding (the "EMPLOYMENT AGREEMENTS") with each of Alfred Huger, Oliver Friedrichs, Thomas Ptacek and Jennifer Meyers (the "KEY EMPLOYEES"). 7.2 OTHER EMPLOYEES. The Parent shall negotiate in good faith to retain the services of such other employees and independent contractors of the Corporation as the Purchaser deems appropriate. ARTICLE 8 CLOSING 8.1 PLACE OF CLOSING. The Closing shall take place at the Time of Closing at the offices of Milner Fenerty, 30th Floor, Fifth Avenue Place, 237 - 4th Avenue S.W., Calgary, Alberta, or at such other place as may be agreed upon by the Vendors and the Purchaser. 8.2 DELIVERIES BY VENDOR. At the Time of Closing and at the place of Closing, the Vendors shall deliver to the Purchaser: (a) one or more share certificates representing the Purchased Shares duly endorsed for transfer to the Purchaser; (b) certificates of incumbency for PRL, each of the Trusts and the Corporation listing all of the directors and officers of PRL and the Corporation, and all of the Trustees of each Trust, as at Closing; (c a letter from such of the beneficiaries of the Trusts as set forth in Schedule 3.4(g) confirming the authority of the Trustees; (d) notarized copies of the constating documents and by-laws of the Corporation; (e) a certificate of status of the Corporation and of PRL; (f) a certified copy of a resolution of the directors of the Corporation consenting to the transfer of the Purchased Shares to the Purchaser and authorizing the registration of such transfer on the share register of the Corporation; (g) a certified copy of a resolution of the directors of PRL authorizing this Agreement and the transactions contemplated herein; (h) a certificate signed by each of the Vendors and the Corporation to the effect that the representations and warranties of each of the Vendors and the Corporation herein contained are true and correct as at the Time of Closing; (i) a certificate signed by each of the Vendors to the effect that all of the terms, covenants, agreements and conditions of this Agreement to be complied with or performed by the Vendors and the Corporation at or before the Time of Closing have been complied with or performed. 60 Page 56 of 67 (j) written consents pursuant to the Material Agreements to the extent required; (k) the minute books and corporate seals of the Corporation; (1) the Employment Agreements, executed by the Key Employees; (m) the legal opinion of Code Hunter Wittmann, the Vendors' counsel, dated as of the date of Closing; (n) resignations of the directors and officers of the Corporation; (o) the documentation referred to in Subsections 5. 1(m), (n), (o) and (p); (p) such other certificates or documents as the Vendors and the Corporation are required to deliver pursuant to the terms of this Agreement or as the Purchaser or its counsel may reasonably require. 8.3 DELIVERIES OF PURCHASER AT CLOSING. At the Time of Closing and at the place of Closing, the Purchaser shall deliver to the Vendors: (a) copies of all duly executed documentation submitted to the Parent's registrar and transfer agent authorizing and directing the issuance of the Issued NAI Shares and subject to all terms and conditions in favour of the Purchaser contained herein being waived or satisfied, the Parent's registrar and transfer agent shall be directed to make an entry in the share register of the Parent as at the Time of Closing that the Issued NAI Shares have been issued; (b) a certified copy of a resolution of the directors of the Purchaser consenting to the purchase of the Purchased Shares; (c) a certificate signed by the Purchaser to the effect that the representations and warranties of the Purchaser herein contained are true and correct as at the Time of Closing; (d) certificates signed by the Purchaser and the Parent to the effect that all of the terms, covenants, agreements and conditions of this Agreement to be complied with or performed by the Purchaser, or the Parent as the case may be, at or before the Time of Closing have been complied with or performed; (e) a legal opinion of Wilson Sonsini Goodrich & Rosati, the Purchaser's U.S. counsel, dated the date of closing; (f) a legal opinion of Milner Fenerty, the Purchaser's Canadian counsel, dated the date of closing; (g) a draft of the Registration Statement containing such information concerning the Parent as is accurate at the Time of Closing referred to in the Registration Rights Agreement; and (h) such other certificates or documents as the Purchaser is required to deliver pursuant to the terms of this Agreement or as the Vendors or their counsel may reasonably require. 61 Page 57 of 67 8.4 CLOSING ESCROW. All payments or documents delivered by any Person at the Time of Closing shall be deemed not to have been delivered until each of the Vendors and the Purchaser has declared that it is satisfied with the form and substance of all of the payments and documents to be delivered to such Person at Closing and all conditions to the delivery or release of any payments or documents to be delivered at the Time of Closing by parties other than the Vendors or the Purchaser shall have been satisfied. ARTICLE 9 SOLICITATION OF EMPLOYEES AND INJUNCTIVE RELIEF 9.1 SOLICITATION OF EMPLOYEES. None of the Vendors shall, for a period ending on the later of one year from the date of this Agreement or one year following cessation of employment with the Purchaser's Group, on its own behalf or on behalf of any other Person, solicit, encourage or otherwise induce any of the employees of the Purchaser's Group to leave such employee's employment with the Purchaser's Group. 9.2 INJUNCTIVE RELIEF. Each of the Vendors acknowledges that breach by it of the covenants contained in Section 9.1 may cause irreparable harm to the Business, the Corporation and to the Purchaser, which may not be compensable through monetary damages. Each of the Vendors, therefore, hereby acknowledges that the Purchaser may enforce such covenants through injunctive relief. ARTICLE 10 INDEMNIFICATION 10.1 VENDOR INDEMNIFICATION. Subject to the provisions of Section 3.8, each of the Vendors and the Corporation covenants and agrees to defend, indemnify and save harmless the Purchaser and its officers, directors, employees and agents and affiliates and the Corporation (which collectively shall be a "PURCHASER" for the purpose of this Section 10.1 and an "INDEMNIFIED PARTY" for the purpose of Sections 10.3 to 10.4, inclusive, where the context so requires) from and against any losses, liabilities, obligations, damages, penalties, claims, actions, suits, costs and expenses of any nature whatsoever arising out of, under or pursuant to any of the following: (a) any or all debts, liabilities, contracts or engagements whatsoever, including any liabilities for federal, provincial, sales, excise (including goods and services), income, capital, corporate, withholding or any other taxes of the Corporation in an amount, together with all other liability for or in connection with taxes to be indemnified hereunder, existing at the Time of Closing and not disclosed on or included in the balance sheet forming part of the Financial Statements, save and except those liabilities: (i) disclosed in this Agreement or any Schedule, or (ii) accruing or incurred subsequent to February 28, 1998 in the ordinary course of business; (b) all contingent liabilities which the Corporation becomes obligated to pay, existing at the Time of Closing, not disclosed or reflected in the balance sheets forming part of the Financial Statements; (c) any liability arising under the Employment Standards Code (Alberta) for the period prior to the Time of Closing, but excluding severance payments payable to the employees of the Corporation whose employment ends on or after the Time of Closing; 62 Page 58 of 67 (d) any reassessment for income, capital or corporate tax, interest and all penalties for any period up to the Time of Closing for which no adequate reserve has been provided for and disclosed in the Financial Statements, other than: (i) a reassessment disallowing an expense or a deduction claimed by the Corporation in respect of which any of such corporations subsequently will be entitled to claim capital cost allowances pursuant to the regulations to the Tax Act, and (ii) any reassessments, interest and penalties which, together with all other liabilities for Or in connection with taxes to be indemnified hereunder, is in the aggregate amount less than or equal to the Tax Deductible; (e) any loss suffered by the Purchaser or the Corporation as a result of any breach of any representation, warranty or covenant contained in this Agreement given by any or all of the Vendors and the Corporation or in the Registration Rights Agreement, the Affiliates Agreements, the General Releases, or the Investors Representation Certificate or in any other certificate delivered pursuant to this Agreement by any or all of the Vendors and the Corporation; and (f) all claims, demands, fines, penalties, costs and expenses of any nature whatsoever (including, without limitation, legal fees, charges and disbursements on an as between a solicitor and his own client basis) in respect of the foregoing. 10.2 PURCHASER INDEMNIFICATION. Subject to the provisions of Section 4.6, the Purchaser and Parent agree to indemnify and save harmless the Vendors from any loss suffered or incurred by the Vendors as a result of or arising directly or indirectly out of or in connection with: (a) any breach by the Purchaser or Parent of or any inaccuracy of any representation or warranty given by either or both of the Purchaser or Parent contained in this Agreement or in any agreement, instrument, certificate or other document delivered pursuant hereto; and (b) any breach or non-performance by the Purchaser or Parent of any covenant to he performed by it that is contained in this Agreement or in any agreement, certificate or other document delivered pursuant hereto. 10.3 NOTICE OF CLAIM. In the event that an indemnified party (the "INDEMNIFIED PARTY") shall become aware of any claim, proceeding or other matter (a "CLAIM") in respect of which the Vendors, the Corporation, the Purchaser or the Parent (the "INDEMNIFYING PARTY") agreed to indemnify the Indemnified Party pursuant to this Agreement, the Indemnified Party shall promptly give written notice thereof to the Indemnifying Party. Such notice shall specify whether the Claim arises as a result of a claim by a Person against the Indemnified Party (a "THIRD PARTY CLAIM") or whether the Claim does not so arise (a "DIRECT CLAIM"), and shall also specify with reasonable particularity (to the extent that the information is available) the factual basis for the Claim and the amount of the Claim, if known. 10.4 DIRECT CLAIMS. With respect to any Direct Claim, following receipt of notice from the Indemnified Party of the Claim, the Indemnifying Party shall have 60 days to make such investigation of the Claim as is considered necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Claim, together with all such other information as the Indemnifying Party may reasonably 63 Page 59 of 67 request. If both parties agree at or prior to the expiration of such 60 day period (or any mutually agreed upon extension thereof) to the validity and amount of such Claim, then the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed upon amount of the Claim subject to Section 2.4, failing which the matter shall be referred to binding arbitration as provided in Section 12.2 or shall be determined by a court of competent jurisdiction, 10.5 THIRD PARTY CLAIMS. With respect to any Third Party Claim, such claims shall be governed by the provisions of Subsection 2.4(k). 10.6 LIMITATION. Notwithstanding anything else contained herein: (a) the Purchaser's remedies against the Vendors and the Corporation pursuant to the Indemnities contained herein shall be limited to recovery against the Escrow Fund while such Escrow Fund is held by the Escrow Agent, in accordance with Sections 2.4 and 3.8, except in a circumstance of fraud; and (b) the Vendors' remedies against the Purchaser and the Parent pursuant to the Indemnities contained herein shall be limited to the amount of the Purchase Price. ARTICLE 11 CONFIDENTIALITY AND NON-COMPETITION 11.1 CONFIDENTIALITY. The Vendors acknowledge that they have heretofore had access to and have been entrusted with Confidential Information, the disclosure of which to competitors of the Corporation or of the Purchaser, or to the general public would be highly detrimental to the best interests of the Purchaser and the Corporation. The Vendors further acknowledge and agree that the right to maintain confidential the Confidential Information constitutes a proprietary right that the Corporation and the Purchaser are entitled to protect. Accordingly, the Vendors covenant and agree with the Corporation and the Purchaser that they will not disclose any Confidential Information to any Person nor will they use the same for any purposes other than those of the Corporation or the Purchaser. 11.2 NON-COMPETITION. None of the Vendors shall within one year after Closing in any area where the Corporation is carrying on business as at the Time of Closing: (a) be, either directly or indirectly, interested in any business other than the Business, which manufactures, assembles, distributes or supplies products or services competitive with the Business; or (b) in any way: (i) solicit in respect of the sale of products or services competitive with the Business from, or (ii) enter into contractual relations for the supply of products or services competitive with the Business with, any customer of the Corporation which is a customer of the Corporation as at the Time of Closing. 64 Page 60 of 67 11.3 SURVIVAL. The provisions of this Article II shall survive Closing of the purchase and sale herein provided for and notwithstanding Closing, shall continue in full force and effect for the benefit of the Corporation and the Purchaser. ARTICLE 12 GENERAL 12.1 NOTICES. Any notice or other writing required or permitted to be given hereunder or for the purposes hereof to any party shall be sufficiently given if delivered personally or by telecopier to such party: (a) in the case of a notice to the Vendors, in care of the Vendors' Agent: Arthur Wong Suite 330, 1201 - 5th Street S.W. Calgary, Alberta T2R OX6 Telecopy: (403) 262-9221, with a copy to the Vendors' solicitors at: Code Hunter Wittmann Suite 1400, 700 - 2nd Street S.W. Calgary, Alberta T2P 4V5 Attention: Andrew Oppenheim Tclecopy: (403) 263-9193; (b) in the case of a notice to the Purchaser at: FSA Combination Corporation 2805 Bowers Avenue Santa Clara, CA 95051 Attention: Richard Hornstein, Esq. Telecopy: (408) 970-9727, with a copy to Purchaser's and Parent's solicitors at: Milner Fenerty -and- Wilson Sonsini 30th Floor, Fifth Avenue Place Goodrich & Rosati 237 - 4th Avenue S.W. 650 Page Mill Road Calgary, Alberta Palo Alto, California T2P 4X7 94304-1050 Attention: David Lefebvre Attention: Greg Wharton Telecopy: (403) 268-3100; and Telecopy: (650) 493-6811 65 Page 61 of 67 (c) in the case of a notice to the Parent at: Networks Associates, Inc. - and- Wilson Sonsini 2805 Bowers Avenue Goodrich & Rosati Santa Clara, CA 95051 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Richard Hornstein, Esq. Attention: Greg Wharton Telecopy: (408) 970-9727; and Telecopy: (650) 493-6811 (d) with a copy to Parent's solicitors at: Milner Fenerty - and- Wilson Sonsini 30th Floor, Fifth Avenue Place Goodrich & Rosati 237 - 4th Avenue S.W. 650 Page Mill Road Calgary, Alberta Palo Alto, California T2P 4X7 94304-1050 Attention: David Lefebvre Attention: Greg Wharton Telecopy: (403) 268-3100; and Telecopy: (650) 493-6811 (e) in the case of a notice to the Escrow Agent at: Greater Bay Trust Company 400 Emerson Street, Second Floor Palo Alto, California 94301 Attention: Anna Paiva (f) in the case of a notice to the Corporation: Secure Networks Inc. Suite 330, 1201 - 5th Street S.W. Calgary, Alberta T2R 0Y6 Attention: Arthur Wong Telecopy: (403) 262-9221, or at such other address as the party to whom such writing is to be given shall have last notified to the party giving the same in the manner provided in this Section 12.1. Any notice delivered to the party to whom it is addressed hereinbefore provided shall be deemed to have been given and received on the day it is so delivered at such address, provided that if the notice is delivered after 4:00 p.m. (local time) or if such day is not a Business Day then the notice shall be deemed to have been given and received on the Business Day next following such day. 12.2 ARBITRATION PROCEDURE. Should a dispute, controversy or claim (each, a "DISPUTE") arise respecting anything contained in this Agreement or any related agreement or contracts ("RELATED CONTRACTS") specifically referred to in this Agreement or the performance, non-performance, breach, 66 Page 62 of 67 termination or invalidity hereof or thereof, such Dispute shall be referred to and finally resolved by arbitration in accordance with the provisions of Schedule 12.2. 12.3 AUDIT AND INSPECTION. The Purchaser, upon notice in writing to the Vendors' Agent and the Corporation, shall have the right (but not the obligation) to audit the Corporation's and any of its Affiliate's accounts and records. Any claims of discrepancies disclosed by such audit shall be made by the Purchaser to the Vendors' Agent and the Corporation in writing. The cost of such audit shall be borne by the Purchaser. 12.4 ENUREMENT. This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors and permitted assigns but shall not be assignable by any of the parties prior to the Time of Closing without the prior written consent of the other parties. 12.5 FURTHER ASSURANCES. The parties shall provide all such reasonable assurances as may be required to consummate the transactions contemplated hereby, and each party shall provide such further documents or instruments required by any other party as may be reasonably necessary or desirable to effect the purpose of this Agreement and carry out its provisions, whether before or after Closing. 12.6 EXPENSES. Subject to Section 2.8 and Section 6.6, all costs and expenses (including, without limitation, the fees and disbursements of legal counsel) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. 67 12.7 COUNTERPARTS. Ms Agreement may be executed in one or more counterparts, which so executed shall constitute an original and all of which together shall constitute one and the same agreement. A signed counterpart provided by way of telecopier shall be as binding upon the parties as an originally signed counterpart. IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date first above written. /s/ [SIG] /s/ ARTHUR WONG - ------------------------------------------ ------------------------------- WITNESS ARTHUR WONG /s/ [SIG] /s/ MICHAEL TAM - ------------------------------------------ ------------------------------- WITNESS MICHAEL TAM /s/ [SIG] /s/ KAM CHUN TAM - ------------------------------------------ ------------------------------- WITNESS KAM CHUN TAM /s/ [SIG] /s/ CHRISTOPHER BAILEY - ------------------------------------------ ------------------------------- WITNESS CHRISTOPHER BAILEY /s/ [SIG] /s/ ALFRED HUGER - ------------------------------------------ ------------------------------- WITNESS ALFRED HUGER /s/ [SIG] /s/ OLIVER FRIEDRICHS - ------------------------------------------ ------------------------------- WITNESS OLIVER FRIEDRICHS /s/ [SIG] /s/ JOHNATHAN WILKINS - ------------------------------------------ ------------------------------- WITNESS JOHNATHAN WILKINS - ------------------------------------------ ------------------------------- WITNESS THOMAS PTACEK - ------------------------------------------ ------------------------------- WITNESS TIMOTHY NEWSHAM PRL RESOURCES INC. By: [SIG] -------------------------------------- This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 68 12.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, which so executed shall constitute an original and all of which together shall constitute one and the same agreement. A signed counterpart provided by way of telecopier shall be as binding upon the parties as an originally signed counterpart. IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date first above written. - ----------------------------------- ----------------------------------- WITNESS ARTHUR WONG - ----------------------------------- ----------------------------------- WITNESS MICHAEL TAM - ----------------------------------- ----------------------------------- WITNESS KAM CHUN TAM - ----------------------------------- ----------------------------------- WITNESS CHRISTOPHER BAILEY - ----------------------------------- ----------------------------------- WITNESS ALFRED HUGER - ----------------------------------- ----------------------------------- WITNESS OLIVER FRIEDRICHS - ----------------------------------- ----------------------------------- WITNESS JOHNATHAN WILKINS /s/ JENNIFER MYERS /s/ THOMAS PTACEK - ----------------------------------- ----------------------------------- WITNESS THOMAS PTACEK - ----------------------------------- ----------------------------------- WITNESS TIMOTHY NEWSHAM This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 69 12.7 COUNTERPARTS. This Agreement may be executed in one or more counterparts, which so executed shall constitute an original and all of which together shall constitute one and the same agreement. A signed counterpart provided by way of telecopier shall be as binding upon the parties as an originally signed counterpart. IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date first above written. - ----------------------------------- ----------------------------------- WITNESS ARTHUR WONG - ----------------------------------- ----------------------------------- WITNESS MICHAEL TAM - ----------------------------------- ----------------------------------- WITNESS KAM CHUN TAM - ----------------------------------- ----------------------------------- WITNESS CHRISTOPHER BAILEY - ----------------------------------- ----------------------------------- WITNESS ALFRED HUGER - ----------------------------------- ----------------------------------- WITNESS OLIVER FRIEDRICHS - ----------------------------------- ----------------------------------- WITNESS JOHNATHAN WILKINS - ----------------------------------- ----------------------------------- WITNESS THOMAS PTACEK /s/ KRIS KAUKA /s/ TIMOTHY NEWSHAM - ----------------------------------- ----------------------------------- WITNESS TIMOTHY NEWSHAM This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 70 WONG FAMILY 1998 TRUST By: /s/ ARTHUR WONG /s/ C. JAMES ---------------------------------- --------------------------------------- Arthur Wong, as Trustee Witness By: /s/ MICHAEL TAM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Michael Tam, as Trustee Witness By: /s/ JASON CHIN /s/ C. JAMES ---------------------------------- --------------------------------------- Jason Chin, as Trustee Witness MICHAEL TAM FAMILY 1998 TRUST By: /s/ MICHAEL TAM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Michael Tam, as Trustee Witness By: /s/ ARTHUR WONG /s/ C. JAMES ---------------------------------- --------------------------------------- Arthur Wong, as Trustee Witness By: /s/ CHRISTOPHER BAILEY /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Christopher Bailey, as Trustee Witness KAM CHUN TAM FAMILY 1998 TRUST By: /s/ KAM CHUN TAM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Kam Chun Tam, as Trustee Witness By: /s/ MICHAEL TAM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Michael Tam, as Trustee Witness By: /s/ MU ZHEN HU /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Mu Zhen Hu, as Trustee Witness BAILEY FAMILY 1998 TRUST By: /s/ CHRISTOPHER BAILEY /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Christopher Bailey, as Trustee Witness By: /s/ MICHAEL TAM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Michael Tam, as Trustee Witness By: /s/ CHRISTOPHER KEIM /s/ BRUCE LEIDL ---------------------------------- --------------------------------------- Christopher Keim, as Trustee Witness This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 71 HUGER FAMILY 1998 TRUST By: /s/ ALFRED HUGER /s/ BRUCE LEIDL ----------------------------- ----------------------------- Alfred Huger, as Trustee Witness By: /s/ OLIVER FRIEDRICHS /s/ BRUCE LEIDL ----------------------------- ----------------------------- Oliver Friedrichs, as Trustee Witness By: /s/ JOHN BOLETTA /s/ BRUCE LEIDL ----------------------------- ----------------------------- John Boletta, as Trustee Witness FRIEDRICHS FAMILY 1998 TRUST By: /s/ OLIVER FRIEDRICHS /s/ BRUCE LEIDL ----------------------------- ----------------------------- Oliver Friedrichs, as Trustee Witness By: /s/ ALFRED HUGER /s/ BRUCE LEIDL ----------------------------- ----------------------------- Alfred Huger, as Trustee Witness By: /s/ ARTHUR WONG /s/ C. JAMES ----------------------------- ----------------------------- Arthur Wong, as Trustee Witness This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 72 SECURE NETWORKS INC. By: /s/ [SIG] ----------------------------------- By: ----------------------------------- This is a counterpart execution page to a Share Purchase Agreement dated May 7, 1998, relating to Secure Networks Inc. 73 PRL RESOURCES INC. FSA COMBINATION CORPORATION By: By: /s/ [SIG] ------------------------------- ------------------------------- Its: Its: Chief Financial Officer ------------------------------ ------------------------------ By: ------------------------------- Its: ------------------------------ NETWORKS ASSOCIATES, INC. By: ------------------------------- Its: ------------------------------ GREATER BAY TRUST COMPANY By: ------------------------------- Its: ------------------------------ This is a counterpart execution page to a Share Purchase Agreement dated May __, 1998, relating to Secure Networks Inc. 74 PRL RESOURCES INC. FSA COMBINATION CORPORATION By: By: --------------------------- --------------------------- Its: Its: -------------------------- --------------------------- By: --------------------------- Its: -------------------------- NETWORKS ASSOCIATES, INC. By: /s/ [SIG] --------------------------- Its: CFO -------------------------- GREATER BAY TRUST COMPANY By: /s/ [SIG] --------------------------- Its: Vice President -------------------------- This is a counterpart execution page to a Share Purchase Agreement dated May ___, 1998, relating to Secure Networks Inc. EX-4.8 5 REGISTRATION RIGHTS AGREEMENT DATED 2/26/98 1 Exhibit 4.8 SYSCON (PROPRIETARY) LIMITED REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of 26 February 1998, by and between Networks Associates, Inc., a Delaware corporation (the "Company"), and Brenda Joyce Crook ("Crook"). RECITALS WHEREAS, concurrent with delivery of this Agreement, the Company, FSA Combination Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("FSA") and Crook are entering into a Stock Purchase Agreement (the "PURCHASE AGREEMENT") which provides for the Purchase (the "PURCHASE") of the entire share capital of Syscon (Proprietary) Limited by FSA in exchange for shares of Company Common Stock; WHEREAS, the Purchase Agreement provides that, as of the Closing Date, the shares of Company Common Stock that are issued to Crook pursuant to the Purchase Agreement be granted registration rights as set forth herein; and WHEREAS, all terms not otherwise defined herein shall have the same meanings ascribed to them in the Purchase Agreement; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: 1.1.1 The term "Act" means the Securities Act of 1933, as amended. 1.1.2. The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. 1.1.3. The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. 1.1.4. The term "Registrable Securities" means the Common Stock of the Company ("Common Stock") issued to Crook in accordance with the terms and conditions of the Purchase Agreement. 2 Page 2 1.1.5. The term "SEC" shall mean the Securities and Exchange Commission. 1.2. Obligations of the Company. The Company shall, as soon as reasonably possible: 1.2.1. Prepare and file with the SEC as soon as commercially practicable, but in no event later than 180 days after the Closing Date, a registration statement on Form S-3 with respect to such Registrable Securities (hereinafter referred to as the "Registration Statement") and use its reasonable best efforts to cause such registration statement to become effective as soon as reasonably practicable thereafter, and, subject to the provisions below, use its reasonable best efforts to, keep such registration statement effective indefinitely or, if earlier, until Crook has sold all of the Registrable Securities. If at any time after a registration statement becomes effective, the Company advises Crook in writing that due to the existence of material information that has not been disclosed to the public and included in the registration statement it is necessary to amend the registration statement, Crook shall suspend any further sale of Registrable Securities pursuant to the Registration Statement until the Company advises Crook that the registration statement has been amended. In such event, the Company shall cause the registration statement to be amended as soon as reasonably practicable, provided that the Company shall not be required to amend the registration statement during any time when the Company's officers and director are prohibited from buying or selling the Company's Common Stock pursuant to the Company's insider trading policy. Notwithstanding the foregoing sentence, the Company shall file any amendment necessary for Crook to recommence sales under the registration statement concurrently with the commencement of any period in which directors and officers of the Company are allowed to buy or sell Common Stock pursuant to the Company's insider trading policy. In addition, the Company may suspend use of the registration statement to the extent the Company is advised by its legal counsel, such action is reasonably necessary to comply with federal securities law. In the event the sales of Registrable Securities of Crook are suspended as provided above, the 180-day period during which a registration statement must be kept effective shall be extended for the total number of days during which sales are suspended. 1.2.2. Subject to subsection 1.2(a), prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. 1.2.3. Furnish to Crook such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as Crook may reasonably request in order to facilitate the disposition of Registrable Securities owned by her. 1.2.4. Use its best efforts to register and qualify the securities covered by such registration statement under such other (U.S.) securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by Crook, provided that the 3 Page 3 Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. 1.2.5. The Company may include securities issued in connection with any acquisition not otherwise registered on an S-4 Registration Statement in the registration pursuant to this Agreement. 1.3. Information from Crook. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section I with respect to the Registrable Securities of Crook that Crook shall furnish to the Company such information regarding herself, the Registrable Securities held by her, and the intended method of disposition of such securities, as shall be required to effect the registration of the Registrable Securities. 1.4 Expenses of Registration. All expenses of Crook, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company shall be borne by the Company; provided, however, that the Company shall not be required to pay any professional fees of Crook other than the fees of one counsel to Crook (not to exceed $5,000). 1.5 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: 1.5.1 The Company will indemnify and hold harmless Crook against any losses, claims, damages, or liabilities (joint or several) to which Crook may become subject under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements' therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, or any rule or regulation promulgated under the Act, or the 1934 Act; and the Company will pay to Crook as incurred any legal or other expenses reasonably incurred by Crook in connection with investigating or defending any such loss, claim, damage, liability, or action, provided, however, that the indemnify agreement contained in this subsection 1.5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by Crook. In addition, the Company shall not be liable for any untrue statement or omission in any prospectus if a supplement or 4 Page 4 amendment thereto correcting such untrue statement or omission was delivered to Crook prior to the pertinent sale or sales by Crook. 1.5.2 Crook will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any other Crook selling securities in such registration statement and any controlling person of any such Crook, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Crook expressly for use in connection with such registration; and Crook will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.5(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Crook, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.5(b) exceed the gross proceeds from the offering received by such Crook. 1.5.3 Promptly after receipt by an indemnified party under this Section 1.5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.5, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.5. 1.5.4 If the indemnification provided for in this Section 1.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of 5 Page 5 the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 1.5.5 The obligations of the Company, and Crook under this Section 1.5 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.6 Reports Under the Securities Exchange Act. The Company agrees to file with the SEC in a timely manner all reports and other documents and information required of the Company under the 1934 Act, and take such other actions as may be necessary to assure the availability of Form S-3 for use in connection with the registration rights provided in this Agreement. 1.7 Rules 144 and 144A. The Company shall use commercially reasonable efforts to file the reports required to be filed by it under the Act and the 1934 Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of Crook, make publicly available other information so long as necessary to permit sales of Crook's securities pursuant to Rule 144 and 144A. The Company covenants that it will take such further action as Crook may reasonably request, all to the extent required from time to time to enable Crook to sell securities without registration under the Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). 2. Miscellaneous 2.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 2.1.0.1. if to the Company: Networks Associates, Inc. 2805 Bowers Ave. Santa Clara, CA 95051 Attention: Richard Hornstein, Esq. Facsimile No.: (408) 970-9727 6 Page 6 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Jeffrey D. Saper, Esq. Kurt J. Berney, Esq. Facsimile No.: (415) 493-6811 2.1.0.2 if to the Escrow Agent, to: Greater Bay Trust Company 400 Emerson Street 2nd Floor Palo Alto, CA 94301 Attention: Anna Paivah Telephone No.: 650-614-5720 Facsimile No.: 650-473-1326 2.1.0.3 if to Crook: 19 Concourse Crescent Lonehill Sandton South Africa Telephone: 27 + 11 + 7031472 Facsimile: 27 + 11 + 4651067 2.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 2.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 2.4. Entire Agreement; Assignment. This Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person (including, without limitation, those persons listed on any exhibits hereto) any rights or remedies hereunder; and (c) without the prior written consent of each party shall not be assigned by operation of law or otherwise, except that the Company may assign its rights and obligations hereunder to an affiliate of the Company pro- 7 Page 7 vided that the Company shall remain liable for all its obligations hereunder notwithstanding such assignment. Any assignment of rights or delegation of duties under this Agreement by a party without the prior written consent of the other parties, if such consent required hereby, shall be void. 2.5. Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 2.6. Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 2.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 2.8. Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. * * * * 8 Page 8 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. NETWORK ASSOCIATES, INC. By: /s/ Eric Borrman Title: Finance Director BRENDA JOYCE CROOK /s/ B J Crook EX-4.9 6 REGISTRATION RIGHTS AGREEMENT DATED 3/30/98 1 Exhibit 4.9 NORDIC LAN TOOLS OY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of February 27, 1998, by and between Networks Associates, Inc., a Delaware corporation (the "COMPANY"), and the undersigned shareholders of Nordic Lan Tools Oy (the "SHAREHOLDERS"). RECITALS WHEREAS, concurrent with delivery of this Agreement, the Company, FSA Combination Corp., a Delaware corporation and a wholly owned subsidiary of the Company ("FSA"), and the Shareholders are entering into a Stock Purchase Agreement (the "PURCHASE AGREEMENT") which provides for the purchase (the "PURCHASE") of all the issued and outstanding shares of Nordic Lan Tools Oy by FSA in exchange for shares of Company Common Stock: WHEREAS, the execution and delivery of this Agreement is a condition to the Closing of the Purchase Agreement; WHEREAS, as an inducement to the Shareholders to enter into the Purchase Agreement, as of the Closing Date, the shares of Company Common Stock that are issued to the Shareholders pursuant to the Purchase Agreement shall be granted registration rights as set forth herein; and WHEREAS, all terms not otherwise defined herein shall have the same meanings ascribed to them in the Purchase Agreement; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (c) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (d) The term "Registrable Securities" means the Common Stock of the Company ("Common Stock") issued to the Shareholders in accordance with the terms and conditions of the Purchase Agreement. (e) The term "SEC" shall mean the Securities and Exchange Commission. 2 1.2 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall as soon as reasonably possible: (a) Prepare and file with the SEC as soon as reasonable practicable, but in no event later than 180 days after the Closing Date, a registration statement on Form S-3 with respect to such Registrable Securities (hereinafter referred to as the "Registration Statement") and use its reasonable best efforts to cause such registration statement to become effective as soon as reasonably practicable thereafter, and, subject to the provisions below, use its reasonable best efforts to, keep such registration statement effective for a period of 180 days or, if earlier, until the Shareholders have sold all of the Registrable Securities. If at any time after a registration statement becomes effective, the Company advises the Shareholders in writing that due to the existence of material information that has not been disclosed to the public and included in the registration statement it is necessary to amend the registration statement, the Shareholders shall suspend any further sale of Registrable Securities pursuant to the Registration Statement until the Company advises the Shareholders that the registration statement has been amended. In such event, the Company shall cause the registration statement to be amended as soon as reasonably practicable, provided that the Company shall not be required to amend the registration statement during any time when the Company's officers and director are prohibited from buying or selling the Company's Common Stock pursuant to the Company's insider trading policy. Notwithstanding the foregoing sentence, the Company shall file any amendment necessary for the Shareholders to recommence sales under the registration statement concurrently with the commencement of any period in which directors and officers of the Company are allowed to buy or sell Common Stock pursuant to the Company's insider trading policy. In addition, the Company may suspend use of the registration statement to the extent the Company is advised by its legal counsel, such action is reasonably necessary to comply with federal securities law. In the event the sales of Registrable Securities of the Shareholders are suspended as provided above, the 180-day period during which a registration statement must be kept effective shall be extended for the total number of days during which sales are suspended. (b) Subject to subsection 1.2(a), prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Shareholders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as the Shareholders may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other (U.S.) securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Shareholders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. 3 (e) The Company may include securities issued in connection with any acquisition not otherwise registered on an S-4 Registration Statement in the registration pursuant to this Agreement. 1.3. Information from Shareholders. It shall be condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of the Shareholders that the Shareholders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities, as shall be required to effect the registration of the Registrable Securities. 1.4. Expenses of Registration. All expenses of the Shareholders, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company shall be borne by the Company; provided, however, that the Company shall not be required to pay any professional fees of The Shareholders other than the fees of one counsel to The Shareholders (not to exceed $5,000). 1.5. Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) The Company will indemnify and hold harmless the Shareholders against any losses, claims, damages, or liabilities (joint or several) to which Shareholder may become subject under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements' therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, or any rule or regulation promulgated under the Act, or the 1934 Act; and the Company will pay to the Shareholders as incurred any legal or other expenses reasonably incurred by the Shareholders in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by the Shareholders. In addition, the Company shall not be liable for any untrue statement or omission in any prospectus if a supplement or amendment thereto correcting such untrue statement or omission was delivered to the Shareholders prior to the pertinent sale or sales by the Shareholders. (b) The Shareholders will each indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any other shareholder selling securities in such registration statement and any controlling person of any such shareholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing 4 persons may become subject, under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by the Shareholders expressly for use in connection with such registration; and the Shareholders will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.5(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Shareholders, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.5(b) exceed the gross proceeds from the offering received by such Shareholder. (c) Promptly after receipt by an indemnified party under this Section 1.5 of notice of the commencement of any action (included any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.5, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.5 (d) If the indemnification provided for in this Section 1.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company, and the Shareholders under this Section 1.5 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 5 1.6 Reports Under the Securities Exchange Act. The Company agrees to file with the SEC in a timely manner all reports and other documents and information required of the Company under the 1934 Act, and take such other actions as may be necessary to assure the availability of Form S-3 for use in connection with the registration rights provided in this Agreement. 1.7 Rules 144 and 144A. The Company shall use commercially reasonable efforts to file the reports required to be filed by it under the Act and the 1934 Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of the Shareholders, make publicly available other information so long as necessary to permit sales of the Shareholders' securities pursuant to Rule 144 and 144A. The Company covenants that it will take such further action as the Shareholders may reasonably request, all to the extent required from time to time to enable the Shareholders to sell securities without registration under the Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). 2. Miscellaneous. 2.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parities at the following addresses (or at such other address for a party as shall be specified by like notice): (1) if to the Company: Networks Associates, Inc. 2805 Bowers Ave. Santa Clara, CA 95051 Attention: Richard Hornstein, Esq. Facsimile No.: (408) 970-9727 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Jeffrey D. Saper, Esq. Kurt J. Berney, Esq. Facsimile No.: (415) 493-6811 (2) if to the Shareholders, to: Ms Irina Karlsson Prinssintie 8 as 1 01260 Vantaa 6 Mr. Jarmo Rouvinen Rasintie 4 B 00780 Helsinki with a copy to: Asianajotoimisto Jyri Sarpaniemi Simonkatu 8 00100, Helsinki Attention: Mr. Jyri Sarpaniemi Fascimile No.: (358)9-562 5059 (3) if to the Escrow Agent, to: Greater Bay Trust Company 400 Emerson Street 2nd Floor Palo Alto, CA 94301 Attention: Anna Paivah Telephone No.: (650) 614-5720 Fascimile No.: (650) 473-1326 2.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 2.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. 2.4 Entire Agreement; Assignment. This Agreement, the schedules and Exhibits hereto, and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person (including, without limitation, those persons listed on any exhibits hereto) any rights or remedies hereunder; and (c) with the prior written consent of each party shall not be assigned by operation of law or otherwise, except that the Company may assign its rights and obligations hereunder to an affiliate of the Company provided that the Company shall remain liable for all its obligations hereunder notwithstanding such assignment. Any assignment of rights or delegation of duties under this Agreement by a party without the prior written consent of the other parties, if such consent is required hereby, shall be void. 2.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the 7 application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 2.6 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 2.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 2.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. * * * * 8 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. NETWORKS ASSOCIATES, INC. By: /s/ Eric Borrmann -------------------------------------- Eric Borrmann Finance Director Address: 2805 Bowers Avenue Santa Clara, California 95051-0963 SHAREHOLDERS By: /s/ Irina Karlsson -------------------------------------- Irina Karlsson Address: Prinssintie 8 as 1 01260 Vantaa By: /s/ Jarmo Rouvinen -------------------------------------- Jarmo Rouvinen Address: Rasintie 4 B 00780 Helsinki [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-4.10 7 REGISTRATION RIGHTS AGREEMENT DATED 5/8/98 1 EXHIBIT 4.10 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of May 15, 1998, by and between Networks Associates, Inc., a Delaware corporation (the "COMPANY"), and the undersigned shareholders of Secure Networks, Inc. (the "SHAREHOLDERS"). RECITALS WHEREAS, concurrent with delivery of this Agreement, the Company, and the Shareholders are entering into a Stock Purchase Agreement (the "PURCHASE AGREEMENT") which provides for the purchase (the "PURCHASE") of all of the issued and outstanding shares of Secure Networks, Inc. by the Company in exchange for shares of Company Common Stock; WHEREAS, as an inducement to the Shareholders to enter into the Purchase Agreement, as of the Closing Date, the shares of Company Common Stock that are issued to the Shareholders pursuant to the Purchase Agreement shall be granted registration rights as set forth herein; and WHEREAS, all terms not otherwise defined herein shall have the same meanings ascribed to them in the Purchase Agreement; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (c) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (d) The term "Registrable Securities" means the Common Stock of the Company ("Common Stock") issued to the Shareholders in accordance with the terms and conditions of the Purchase Agreement and any securities of the Company issued as a dividend on or other distribution with respect to, or in exchange for or replacement of, such common stock. (e) The term "SEC" shall mean the Securities and Exchange Commission. 2 1.2 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as soon as reasonably possible: (a) Prepare and file with the SEC as soon as reasonably possible, but in no event later than 180 days after the Closing Date, a registration statement on Form S-3, or other available form of registration statement with respect to such Registrable Securities (hereinafter referred to as the "Registration Statement") and use its reasonable best efforts to cause such registration statement to become effective as soon as reasonably possible thereafter, and, subject to the provisions below, use its reasonable best efforts to, keep such registration statement effective for a period of 180 days or, if earlier, until the Shareholders have sold all of the Registrable Securities. If at any time after a registration statement becomes effective, the Company advises the Shareholders' Agent (defined below) in writing that due to the existence of material information that has not been disclosed to the public and included in the registration statement it is necessary to amend the registration statement, the Shareholders shall suspend any further sale of Registrable Securities pursuant to the Registration Statement until the Company advises the Shareholders' Agent that the registration statement has been amended. In such event, the Company shall cause the registration statement to be amended forthwith, provided that the Company shall not be required to amend the registration statement during any time when the Company's officers and director are prohibited from buying or selling the Company's Common Stock pursuant to the Company's insider trading policy. Notwithstanding the foregoing sentence, the Company shall file any amendment necessary for the Shareholders to recommence sales under the registration statement concurrently with the commencement of any period in which directors and officers of the Company are allowed to buy or sell Common Stock pursuant to the Company's insider trading policy. In addition, the Company may suspend use of the registration statement to the extent the Company is advised by its legal counsel, such action is reasonably necessary to comply with federal securities law. In the event the sales of Registrable Securities of the Shareholders are suspended as provided above, the 180-day period during which a registration statement must be kept effective shall be extended for the total number of days during which sales are suspended. (b) Subject to subsection 1.2(a), prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement. (c) Furnish to Arthur Wong (the "Shareholders' Agent") such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as the Shareholders may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other (U.S.) securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Shareholders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to -2- 3 service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. (e) The Company may include securities issued in connection with any acquisition not otherwise registered on an S-4 Registration Statement in the registration pursuant to this Agreement. 1.3 Information from Shareholders. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of the Shareholders that the Shareholders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities, as shall be required to effect the registration of the Registrable Securities. 1.4 Expenses of Registration. All expenses of the Shareholders, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company shall be borne by the Company; provided, however, that the Company shall not be required to pay any professional fees of the Shareholders other than the fees of one counsel to the Shareholders' Agent (not to exceed $2,000). 1.5 Indemnification. In the event any Registrable Securities are included in the Registration Statement under this Section 1: (a) The Company will indemnify and hold harmless the Shareholders, each of their directors, officers, trustees or beneficiaries, if applicable and each person, if any, who controls a non-individual shareholder within the meaning of the Act against any losses, claims, damages, or liabilities (joint or several) to which the Shareholders may become subject under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements' therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, or any rule or regulation promulgated under the Act, or the 1934 Act; and the Company will pay to the Shareholders as incurred any legal or other expenses reasonably incurred by the Shareholders in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.5(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing expressly for use in connection with such registration by the Shareholders seeking indemnification hereunder. In addition, the Company shall not be liable for any untrue statement or -3- 4 omission in any prospectus if a supplement or amendment thereto correcting such untrue statement or omission was delivered to the Shareholders' Agent prior to the pertinent sale or sales by the Shareholders. (b) Each Shareholder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the Act, any other shareholder selling securities in such Registration Statement and any controlling person of any such shareholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Shareholder expressly for use in connection with such registration; and such Shareholder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.5(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.5(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such Shareholder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.5(b) by such Shareholder exceed the gross proceeds from the offering received by such Shareholder. (c) Promptly after receipt by an indemnified party under this Section 1.5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.5, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.5. (d) If the indemnification provided for in this Section 1.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such -4- 5 indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company, and the Shareholders under this Section 1.5 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.6 Reports Under the Securities Exchange Act. The Company agrees to file with the SEC in a timely manner all reports and other documents and information required of the Company under the 1934 Act, and take such other actions as may be necessary to assure the availability of Form S-3 for use in connection with the registration rights provided in this Agreement. 1.7 Rules 144 and 144A. The Company shall use commercially reasonable efforts to file the reports required to be filed by it under the Act and the 1934 Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of the Shareholders' Agent, make publicly available other information so long as necessary to permit sales of the Shareholders' securities pursuant to Rule 144 and 144A. The Company covenants that it will take such further action as the Shareholders may reasonably request, all to the extent required from time to time to enable the Shareholders to sell securities without registration under the Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). 2. Miscellaneous. 2.1 Notices. Notice to the Shareholders' Agent shall constitute notice to all the shareholders party hereto. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with acknowledgment of complete transmission) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): -5- 6 (1) if to the Company: Networks Associates, Inc. 2805 Bowers Ave. Santa Clara, CA 95051 Attention: Richard Hornstein, Esq. Facsimile No.: (408) 970-9727 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Jeffrey D. Saper, Esq. Kurt J. Berney, Esq. Facsimile No.: (415) 493-6811 (2) if to the Shareholders' Agent, to Arthur Wong c/o Code Hunter Wittman Suite 1400, Scotia Centre 700-2nd St. S.W. Calgary, Alberta T2P 4V6 Attention: Andrew Oppenheim Facsimile No.: (403) 263-9193 with a copy to: Code Hunter Wittman Suite 1400, Scotia Centre 700-2nd St. S.W. Calgary, Alberta T2P 4V6 Attention: Andrew Oppenheim Facsimile No.: (403) 263-9193 2.2 Interpretation. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 2.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart. -6- 7 2.4 Entire Agreement; Assignment. This Agreement and the documents and instruments and other agreements among the parties hereto referenced herein: (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; (b) are not intended to confer upon any other person (including, without limitation, those persons listed on any exhibits hereto) any rights or remedies hereunder; and (c) without the prior written consent of each party shall not be assigned by operation of law or otherwise, except that the Company may assign its rights and obligations hereunder to an affiliate of the Company provided that the Company shall remain liable for all its obligations hereunder notwithstanding such assignment. Any assignment of rights or delegation of duties under this Agreement by a party without the prior written consent of the other parties, if such consent is required hereby, shall be void. 2.5 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 2.6 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 2.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. * * * * -7- 8 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written. NETWORKS ASSOCIATES, INC. By: [SIG] ----------------------------------------------- Prabhat K. Goyal, Chief Financial Officer, Vice President of Finance and Administration Address: 2805 Bowers Avenue Santa Clara, California 95051-0963 SHAREHOLDERS ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-5.1 8 OPINION OF WILSON SONSINI GOODRICH & ROSATI 1 Exhibit 5.1 May 26, 1998 Networks Associates, Inc. 3965 Freedom Circle Santa Clara, CA 95054 RE: REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 filed by you with the Securities and Exchange Commission on or about May 26, 1998 (the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of a total of 595,675 shares of your Common Stock (the "Shares"). We understand that the Shares are to be sold from time to time on the NASDAQ National Market at prevailing prices or as otherwise described in the Registration Statement. As legal counsel for Networks Associates, Inc., we have examined the proceedings taken by you in connection with the sale of the Shares. It is our opinion that the Shares are legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement and any amendments to it. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-23.2 9 CONSENT OF COOPERS & LYBRAND L.L.P. 1 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this registration statement on Form S-3 (File No. ____) of our report dated January 20, 1998, except for the matters discussed in Notes 14 and 16 as to which the date is February 13, 1998, on our audits of the financial statements of Network Associates, Inc. We also consent to the references to our firm under the caption "Experts". Coopers & Lybrand L.L.P. San Jose, California May 22, 1998 -----END PRIVACY-ENHANCED MESSAGE-----