-----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, Ahg7A1ReTmf8uCAHp3omiDC2vRLh0hfnBdqK6HNCMTL7BXun8xWSzatAS4MrHa9E cSh0h+8wasroJCR7hDMJKQ== 0000912057-96-010883.txt : 19960620 0000912057-96-010883.hdr.sgml : 19960620 ACCESSION NUMBER: 0000912057-96-010883 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960528 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK COMPUTING DEVICES INC CENTRAL INDEX KEY: 0000886138 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 770177255 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20124 FILM NUMBER: 96573025 BUSINESS ADDRESS: STREET 1: 350 NORTH BERNARDO AVENUE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4156940650 MAIL ADDRESS: STREET 1: 350 NORTH BERNARDO AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 10-Q This document consists of 16 pages, of which this is page number 1. The index to exhibits is located at page 15. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to ------ ------ Commission file number: 0-20124 NETWORK COMPUTING DEVICES, INC. (Exact name of registrant as specified in its charter) California 77-0177255 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 350 North Bernardo Avenue, Mountain View, California 94043 (Address of principal executive offices and zip code) Registrant's telephone number: (415) 694-0650 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No X ---- ---- The number of shares outstanding of the Registrant's Common Stock, $.01 par value, was 16,420,434 at April 30, 1996. NETWORK COMPUTING DEVICES, INC. INDEX DESCRIPTION PAGE NUMBER - - ---------------------------------------------- ----------- Cover Page 1 Index 2 Part I: Financial Information Item 1: Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 1996 and 1995 4 Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 1996 and 1995 5 Notes to Condensed Consolidated Financial Statements 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II: Other Information Item 1: Legal Proceedings 15 Item 6: Exhibits and Reports on Form 8-K 15 Signature 16 2 NETWORK COMPUTING DEVICES, INC. Part I: Financial Information Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS March 31, December 31, 1996 1995 ---------- ------------ (unaudited) Current assets: Cash and cash equivalents $ 16,865 $ 13,364 Short-term investments 16,684 22,786 Accounts receivable, net 26,555 28,591 Inventories 19,702 14,398 Prepaid expenses and other 8,065 6,863 ---------- ---------- Total current assets 87,871 86,002 Property and equipment, net 6,673 6,749 Other assets 4,487 4,786 ---------- ---------- Total assets $ 99,031 $ 97,537 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,513 $ 13,893 Accrued expenses 7,076 7,429 Current portion of capital lease obligations 1,108 1,246 Income taxes payable 2,268 2,666 Deferred revenue 3,465 3,298 ---------- ---------- Total current liabilities 29,430 28,532 Long-term portion of capital lease obligations 756 991 Shareholders' equity: Undesignated preferred stock - - Common stock 64,658 63,543 Unrealized gain on available-for-sale securities 7 31 Retained earnings 4,180 4,440 ---------- ---------- Total shareholders' equity 68,845 68,014 ---------- ---------- Total liabilities and shareholders' equity $ 99,031 $ 97,537 ---------- ---------- ---------- ---------- See accompanying notes. 3 NETWORK COMPUTING DEVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited -- in thousands, except per share amounts)
Three Months Ended March 31, ---------------------------- 1996 1995 ------- ------- Net revenues: Systems $26,628 $32,599 Software 3,811 4,929 ------- ------- Total net revenues 30,439 37,528 Cost of revenues: Systems 21,266 22,802 Software 834 584 ------- ------- Total cost of revenues 22,100 23,386 ------- ------- Gross profit 8,339 14,142 Operating expenses: Research and development 4,120 3,019 Marketing and selling 9,557 8,946 General and administrative 2,509 1,982 ------- ------- Total operating expenses 16,186 13,947 ------- ------- Operating income (loss) (7,847) 195 Other income, net 439 272 Gain on sale of product line 6,959 -- ------- ------- Income (loss) before income taxes (449) 467 Provision for income taxes (income tax benefit) (189) 163 ------- ------- Net income (loss) $ (260) $ 304 ------- ------- ------- ------- Net income (loss) per share: Primary $ (0.02) $ 0.02 ------- ------- ------- ------- Fully diluted $ (0.02) $ (0.06) ------- ------- ------- ------- Shares used in per share computations: Primary 16,260 16,575 ------- ------- ------- ------- Fully diluted 16,260 17,079 ------- ------- ------- -------
See accompanying notes. 4 NETWORK COMPUTING DEVICES, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Three Months Ended March 31, ---------------------------- 1996 1995 ---------- ---------- Cash flows from operations: Net income (loss) $ (260) $ 304 Reconciliation to cash provided (used) by operations: Depreciation and amortization 1,090 681 Gain on sale of product line (6,959) -- Changes in: Accounts receivable, net 2,036 4,666 Inventories (5,304) 2,226 Prepaid expenses and other (1,202) (1,452) Accounts payable 1,620 (3,806) Income taxes payable (398) 118 Accrued expenses (454) (339) Deferred revenue 167 2,906 ---------- ---------- Cash provided (used) by operations (9,664) 5,304 Cash flows from investing activities: Short-term investment, net 6,078 (2,143) Proceeds from sale of product line 7,300 -- Changes in other assets 109 119 Property and equipment purchases (1,064) (835) ---------- ---------- Cash provided (used) by investing activities 12,423 (2,859) Cash flows from financing activities: Principal payments on capital lease obligations (373) (317) Repurchases of stock (80) (564) Proceeds from issuance of stock, net of issuance costs 1,195 91 ---------- ---------- Cash provided (used) by financing activities 742 (790) Increase in cash and equivalents 3,501 1,655 Cash and equivalents: Beginning of period 13,364 7,407 ---------- ---------- End of period $ 16,865 $ 9,062 ---------- ---------- ---------- ---------- Noncash investing and financing activities: Property and equipment acquired under capital leases $ -- $ 59 ---------- ---------- ---------- ----------
See accompanying notes. 5 NETWORK COMPUTING DEVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The unaudited condensed consolidated financial information of Network Computing Devices, Inc. (the Company) furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the Company's consolidated financial position, the results of operations and cash flows for the periods presented. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1995 Annual Report on Form 10-K. The consolidated results of operations for the three-month period ended March 31, 1996 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 1996. Certain financial statement amounts from 1995 have been reclassified to conform with current year methods of presentation. PER SHARE INFORMATION Per share information is computed using the weighted average number of common and dilutive common equivalent shares outstanding. For primary and fully diluted earnings per share, common equivalent shares consist of the incremental shares issuable upon the assumed exercise of dilutive stock options (using the treasury stock method). For the first quarter of 1995, common equivalent shares were adjusted to assume that all financial performance objectives had been achieved, the maximum number of contingently issuable shares had been issued, and the maximum amount of cash contingently payable had been paid in connection with the Z-Code acquisition. In the second quarter of 1995, the Company determined that none of such shares or cash payments are issuable or payable. The effect of common equivalent shares is not included in earnings per share calculations during periods in which such effect would be antidilutive. INVENTORIES Inventories, stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market, consisted of (in thousands): March 31, December 31, 1996 1995 --------- --------- Purchased components and sub-assemblies $15,004 $ 9,548 Work in process 1,419 1,814 Finished goods 3,279 3,036 --------- --------- $19,702 $ 14,398 --------- --------- --------- --------- BUSINESS RESTRUCTURING In the third quarter of 1995, the Company determined that it was appropriate to undertake a strategic restructuring plan to realign and consolidate its software businesses and reduce operating expenses, and intended to improve the operating performance of its X-Terminal, or "Systems," operations in reaction to intense competition and slowness in the X terminal market. The Company began implementing this plan during the third quarter of 1995, and has streamlined its Systems operations as a result, including the termination of approximately fifty employees associated with such operations. 6 NETWORK COMPUTING DEVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The plan's major components include: - modifying the method of manufacturing and materials management to a "build-to-order" paradigm in order to increase the efficiency with which the Company receives product orders and manufactures and delivers products to its customers; - phasing out X-Terminal products that were currently yielding, or were anticipated to yield, profit margins that did not meet certain minimum requirements of the Company; - reducing and consolidating facilities devoted to the conduct of the Systems business through a combination of sublease activities or negotiating early exits to existing lease agreements; and - reducing the number of employees engaged in Systems business activities to a level deemed to be essential to reengineer the business for improved operating performance. A description of the types and amounts (in thousands) of accruals made for restructuring costs in 1995, and the cumulative amounts charged against such accruals, is presented below. Initial March 31, Amounts Asset Cash 1996 Accrued Write-offs Payments Balance ------- ---------- -------- --------- Reserve for the write-down of phase-out inventories $2,706 ($2,706) $ - $ - Employee termination benefits 1,580 - (1,009) 571 Exiting facilities-related obligations 2,256 - (985) 1,271 Asset impairment & other 996 (815) - 181 ---------------------------------------- Total $7,538 ($3,521) ($1,994) $2,023 ---------------------------------------- ---------------------------------------- It is anticipated that the restructuring plan will continue through 1996. INTEREST AND TAX PAYMENTS Interest payments, primarily related to interest on capital lease liabilities, were $24,000 and $67,000 for the first three months of 1996 and 1995, respectively. Income tax payments were $34,000 for the first three months of 1995. There were no income tax payments for the first quarter of 1996. 7 NETWORK COMPUTING DEVICES, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING BUT NOT LIMITED TO STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE, OPERATING RESULTS, PLANS AND OBJECTIVES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "FUTURE PERFORMANCE AND RISK FACTORS." The following discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes thereto included in Part I -- Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 1995 contained in the Company's 1995 Annual Report on Form 10-K. OVERVIEW The Company designs, develops, manufactures and markets hardware and software products that provide information access to networks of heterogeneous computers. During 1995, the Company took various actions to reorganize the two basic components of its business into two separate business units: the Systems business, consisting of the Company's network computers and related software; and the Software business, consisting of its lines of PC connectivity software, electronic messaging software and, initially, its Mariner Internet access software. In addition, the Company took steps to consolidate the management and sales organizations of the geographically separated segments of its Software business and reoriented its software sales strategy toward the increased use of distributors, value added resellers ("VARs") and other resellers. During the third quarter of 1995, the Company began implementing a plan to restructure its Systems business to improve its operating performance. The plan included substantial modifications to the Company's manufacturing processes, phasing out lower margin products, a reduction in the amount of leased space devoted to the conduct of the Systems business, and a reduction in the number of employees engaged in Systems business activities. During the third quarter of 1995, the Company recognized charges totaling $7.5 million for the implementation of this plan, which will continue into 1996. Included in these restructuring charges were amounts related to the severance of personnel, phase- out of certain products, and costs associated with the termination of lease obligations. In 1994, the Company began the development of Mariner, an Internet access and navigation tool which it intended to market to large enterprises, as well as to original equipment manufacturers ("OEMs") and VARs. In January 1995, the Company entered into a software development and licensing agreement with AT&T to develop a custom version of Mariner for AT&T (the "AT&T Agreement").The AT&T Agreement provided for total minimum royalties of $15 million through 1998, and contemplated the development of additional Internet access products by NCD for license to AT&T. In September 1995, the AT&T Agreement was amended to provide that the additional products would not be developed and that NCD would be paid fees totaling $9 million through 1996 for development work completed at the time of the amendment and for a license to evaluate the Mariner product. In 1995, the Company recognized license fees totaling $6.8 million under the AT&T Agreement and received $500,000 in fees for non-recurring engineering costs that offset research and development expenses. In 1995, the Company also recognized revenues of $300,000 from customers other than AT&T related to the Mariner product line. The Company anticipates that approximately $1.7 million in additional revenues associated with the AT&T Agreement will be recognized in 1996. In light of the Company's inability to develop a long-term relationship with AT&T, as well as other changes in the Internet market, including the development of intense price competition among vendors of Internet access products, the Company in late 1995 determined to sell the Mariner product line and focus its attention on its core business of providing desktop information access solutions for network computing environments. In February 1996, the Company sold the Mariner product line to FTP Software, Inc. ("FTP") for $9.8 million. NCD paid FTP a one-time license fee of $2.5 million for the right to incorporate Mariner technology into future versions of NCD's hardware and software products. The net gain recognized on this transaction was $7.0 million. In February 1994, the Company acquired all the outstanding stock of Z-Code Software Corp., a developer of electronic mail and messaging application products for open system environments. The Company's Z-mail electronic messaging product line is currently part of the Company's Software business unit. In light of disappointing recent operating results, intensifying competition in this market and other factors, the Company is evaluating various options including the sale or discontinuation of the Z-Mail product line. 8 NETWORK COMPUTING DEVICES, INC. RESULTS OF OPERATIONS TOTAL NET REVENUES Total net revenues for the first quarter of 1996 were $30.4 million, representing a decrease of 19% when compared with $37.5 million for the same period of 1995. The proportion of international revenues to total net revenues has remained relatively comparable for the periods presented. Sales to Motorola, Inc. ("Motorola"), which is deemed to be a related party due to its ownership of approximately 9% of the Company's common stock, accounted for 6% and 7% of the Company's total net revenues in the first quarters of 1996 and 1995, respectively. Motorola is the Company's largest OEM customer and also purchases the Company's products as an end user customer. The Company does not have a long-term sales contract with Motorola, which purchases products on as as-needed basis to satisfy the requirements of its own customers as well as its internal requirements. The Company believes that sales to Motorola may decline further during 1996, but is unable to predict future levels of sales to Motorola over the longer term. Substantial reductions in such sales levels could have a material adverse effect on the Company's operating results in future periods. SYSTEMS REVENUES Systems revenues consist primarily of revenues from the sale of network computers, or X terminals, and to a lesser extent, revenues from the licensing of related network computing system software and the sale of customer support services. Systems revenues were $26.6 million for the first quarter of 1996, compared to $32.6 for the first quarter of 1995, and $26.5 million for the fourth quarter of 1995. The decline in Systems revenues from the first quarter of 1995 to the first quarter of 1996 was due to a combination of factors, including a decline in the overall market demand for network computer products during 1995, a decline in the average selling prices ("ASPs") of the Company's Systems products due to intense price competition, the introduction of lower-priced EXPLORA-Registered Trademark- network computers, and new product introductions by certain of the Company's competitors. The slight increase in Systems revenues between the fourth quarter of 1995 and the first quarter of 1996 was related to volume. However, the volume increases were substantially offset by lower ASPs due to changes in product mix reflecting increased sales of lower-priced Explora network computers. The ASPs of these product are significantly lower than the ASPs of the Company's other Systems products, and the proportion of EXPLORA units shipped to total units shipped increased significantly from the fourth quarter of 1995. The Company believes that this trend may continue in the future. SOFTWARE REVENUES Software revenues consisted primarily of revenues from the licensing of PC connectivity software and electronic mail and messaging software. Prior to the first quarter of 1996, Software revenues also included revenues from the development and licensing of the Company's Mariner Internet connectivity software (which product line was sold in the first quarter of 1996). Software revenues were $3.8 million for the first quarter of 1996, a decrease of 23% compared to the first quarter of 1995, and a decrease of 36% compared to the fourth quarter of 1995. The decline in software revenues between the first quarter of 1995 and the first quarter of 1996 was due to significant declines in shipments across all Software product lines. First quarter 1996 net revenues included $426,000 associated with the AT&T Agreement, while no revenues related to the AT&T Agreement were recognized during the first quarter of 1995. The Company anticipates that approximately $1.3 million in revenues associated with the AT&T Agreement will be recognized throughout the remainder of 1996. Although unit shipments of Software products increased from the fourth quarter of 1995 to the first quarter of 1996, first quarter Software revenues declined due to a larger proportion of sales to OEMs, which generally carry lower ASPs. Revenues related to the Z-Mail electronic messaging product line, which the Company is contemplating selling or discontinuing, were $572,000 in the first quarter of 1996, a 51% decrease from the comparable quarter of 1995 and a 48% decrease from the fourth quarter of 1995. Exclusive of revenues related to the AT&T Agreement and the Mariner and Z-mail product lines, Software revenues would have declined by 25% compared to the first quarter of 1995 and increased by 36% compared to the fourth quarter of 1995. GROSS MARGIN ON SYSTEMS REVENUES The Company's gross profit margin on Systems revenues was 20%, 30% and 30% for the first quarter of 1996, and the first and fourth quarters of 1995, respectively. The decline in Systems gross margin was primarily due to heavier price discounting as a result of intense price competition, the increased sale of lower priced, lower-margin EXPLORA network computers, and increases in certain component costs. The Company expects Systems gross margins to continue to be affected by these factors during the balance of 1996. 9 NETWORK COMPUTING DEVICES, INC. GROSS MARGIN ON SOFTWARE REVENUES The Company's gross profit margin on Software revenues was 78% for the first quarter of 1996, compared to 88% for the first quarter of 1995 and 87% for the fourth quarter of 1995, reflecting lower revenues taken over proportionately greater costs, primarily related to the amortization of capitalized software development costs. RESEARCH AND DEVELOPMENT EXPENSES Research and development ("R&D") expenses were $4.1 million and $3.0 million for the first quarters of 1996 and 1995, respectively. The increase represented increases in personnel and facilities costs for the Company's Software business units. Fourth quarter 1995 R&D expenses were $3.6 million. The increase from the fourth quarter of 1995 to the first quarter of 1996 was attributable to increases in the engineering staff for all Software product lines. Approximately $525,000 of such expenses related to the Company's former Internet connectivity business unit that was sold during the first quarter of 1996, and the expenses incurred related to this business unit will not continue in the future. As a percentage of net revenues, R&D expenses increased to 14% for the first quarter of 1996 from 8% for the first quarter of 1995, reflecting the combined impact of increased spending and lower net revenues. The Company plans to continue investing in research and development in order to improve its competitive position in the market. However, the amount of such expenses may fluctuate in future periods. MARKETING AND SELLING Marketing and selling expenses were $9.6 million, $8.9 million, and $8.7 million for the first quarters of 1996 and 1995, and the fourth quarter of 1995, respectively. The increases in the first quarter of 1996 were primarily related to higher staffing costs associated with increased personnel and higher promotional costs. As a percentage of total net revenues, marketing and selling expenses were 31%, 24%, and 27% for the first quarters of 1996 and 1995, and the fourth quarter of 1995, respectively, reflecting the combined impact of increased spending and lower net revenues. GENERAL AND ADMINISTRATIVE General and administrative ("G&A") expenses were $2.5 million and $2.0 million for the first quarters of 1996 and 1995, respectively, and $2.4 million for the fourth quarter of 1995. The increase from the fourth quarter of 1995 to the first quarter of 1996 were primarily related to the write-off in the first quarter of 1996 of a note receivable from a customer for approximately $450,000, which was partially offset by reductions in the use of outside consultants and a reduction in staffing costs. When compared to the first quarter of 1995, the increase in first quarter 1996 expenses was due primarily to the aforementioned write-off of a customer note receivable. As a percentage of net revenues, G&A expenses increased to 8% in the first quarter of 1996 from 5% in the first quarter of 1995, and 7% in the fourth quarter of 1995, and resulted from the combined impact of increased expenses and lower revenues. OTHER INCOME Other income includes interest income, net of interest expense. The increase in first quarter 1996 interest income, net, over first quarter 1995 was due primarily to lower interest expense incurred on declining capital lease obligation balances. GAIN ON SALE OF PRODUCT LINE The gain on the sale of the product line for the first quarter of 1996 represents the net gain recognized on the Company's sale of the Mariner product line. INCOME TAXES The Company recorded an income tax benefit during the first quarter of 1996 of $189,000 due to a loss incurred during that quarter. This compares to an income tax provision of $163,000 during the first quarter of 1995. FINANCIAL CONDITION Total assets as of March 31, 1996 increased by $1.5 million, or two percent, from December 31, 1995. The change in total assets principally reflects an increase in inventories of $5.3 million. The increase in inventories was partially offset by a decrease in accounts receivable of $2.0 million, and decreases in the combined balances of cash and short-term investments used for inventory purchases. Cash balances were positively affected by $7.3 million related to the sale of the Company's Mariner product line. 10 NETWORK COMPUTING DEVICES, INC. Total liabilities as of March 31, 1996 increased by $0.7 million, or two percent, from December 31, 1995. The increase was primarily associated with higher accounts payable balances related to increased inventories, partially offset by slight decreases in accrued expenses and capital lease obligations. LIQUIDITY At March 31, 1996, the Company's primary sources of liquidity consisted of combined cash and equivalents and short-term investments totalling $33.5 million. The Company has a $7.0 million bank line of credit; however, as a result of its loss for the year ended December 31, 1995, the Company is in default under certain financial covenants in its agreement as of March 31, 1996, and accordingly, its line of credit was unavailable. The Company believes that its existing sources of liquidity are sufficient to meet operating cash requirements and capital lease repayment obligations at least through the next twelve months. FUTURE PERFORMANCE AND RISK FACTORS THE COMPANY'S FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW. EVOLVING NETWORK COMPUTING MARKET The Company derives a majority of its revenues from the sale of network computer products, or X terminals, and related software. During the past several years, the Company and other manufacturers of network computing systems and products have experienced intense competition from alternative desktop computing products, particularly personal computers, which has slowed the growth and development of the network computing market. Until recently, the absence of X protocol support from Microsoft Corporation ("Microsoft"), combined with the proliferation of off-the-shelf Windows-based application software, constituted an obstacle to the expansion of the network computing model into Windows-based environments. The introduction of the Company's WinCenter Pro multi-user Windows application server software and new, lower-priced network computers have allowed the Company to offer network computing systems that provide users with access to Windows applications, although sales of these new products have been limited to date. The Company's future success will depend in substantial part upon increased acceptance of the network computing model and the successful marketing of the Company's new network computing products. There can be no assurance that the Company's new network computing products will compete successfully with alternative desktop solutions or that the network computing model will be widely adopted in the rapidly evolving desktop computer market. The failure of new markets to develop for the Company's network computing products would have a material, adverse effect on the Company's business, operating results and financial condition. See "Item 1. Business - Industry Background" and "Business - - - Markets and Applications" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. COMPETITION The desktop computer and information access markets are characterized by rapidly changing technology and evolving industry standards. The Company experiences significant competition from other network computer manufacturers, suppliers of personal computers and workstations and software developers. Competition within the network computing market has intensified over the past several years, resulting in price reductions, reduced profit margins and the loss of the Company's leading market share position in the X terminal market. This competition has adversely affected the Company's operating results. In addition, intense competition from alternative desktop computing products, particularly personal computers, has resulted in a reduction in demand for X terminal products. The Company expects this intense competition to continue and there can be no assurance that the Company will be able to continue to compete successfully against current and future competitors as the desktop computer market evolves and competition increases. The Company's software products also face substantial competition from software vendors that offer similar products, including several large software companies. See "ltem 1. Business - Competition" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 11 NETWORK COMPUTING DEVICES, INC. FLUCTUATIONS IN OPERATING RESULTS The Company's operating results have varied significantly, particularly on a quarterly basis, as a result of a number of factors, including general economic conditions affecting industry demand for computer products, the timing and market acceptance of new product introductions by the Company and its competitors, the timing of significant orders from and shipments to large customers, periodic changes in product pricing and discounting due to competitive factors, and the availability and pricing of key components, such as video monitors, integrated circuits and electronic sub-assemblies, some of which require substantial order lead times. The Company's operating results may fluctuate in the future as a result of these and other factors, including the Company's success in developing and introducing new products, its product and customer mix, the level of competition which it experiences and its ability to develop and maintain strategic business alliances. In addition, the Company operates with a relatively small backlog. Revenues and operating results therefore generally depend on the volume and timing of orders received which are difficult to forecast and which may occur disproportionately during any given quarter or year. The Company's expense levels are based in part on its forecast of future revenues. If revenues are below expectations, the Company's operating results may be adversely affected. The Company has experienced an increasingly disproportionate amount of shipments occurring in the last month of its fiscal quarters. This trend increases the risk of material quarter-to-quarter fluctuations in the Company's revenues and operating results. In the past, the Company has experienced reduced orders during the first and third quarters due to buying patterns common in the computer industry. In addition, sales in Europe have been adversely affected in the third calendar quarter, when many European customers reduce their business activities. NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW AND ENHANCED PRODUCTS The markets for the Company's products are characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and short product life cycles. The Company's future results will depend to a considerable extent on its ability to continuously develop, introduce and deliver in quantity new hardware and software products that offer its customers enhanced performance at competitive prices. The development and introduction of new products is a complex and uncertain process requiring substantial financial resources and high levels of innovation, accurate anticipation of technological and market trends and the successful and timely completion of product development. Once a hardware product is developed, the Company must rapidly bring it into volume production, a process that requires accurate forecasting of customer requirements in order to achieve acceptable manufacturing costs. The introduction of new or enhanced products also requires the Company to manage the transition from older, displaced products in order to minimize disruption to customer ordering patterns, avoid excessive levels of older product inventories and insure that adequate supplies of new products can be delivered to meet customer demand. As the Company is continuously engaged in this product development and transition process, its operating results may be subject to considerable fluctuation, particularly when measured on a quarterly basis. The inability to finance important research and development projects, delays in the introduction of new and enhanced products, the failure of such products to gain market acceptance, or problems associated with new product transitions could adversely affect the Company's operating results. See "Item 1. Business - Industry Background" and "Business - Research and Development" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. RELIANCE ON INDEPENDENT DISTRIBUTORS AND RESELLERS The Company relies substantially on independent distributors and resellers for the marketing and distribution of its products, particularly its Software products. During 1995, the Company consolidated its Software sales operations by creating a single organization devoted to the sale of the Company's PC connectivity and messaging software and re-oriented its Software sales strategy toward the increased use of distributors, VARs and other resellers. In late 1995 and early 1996, the Company has experienced significant returns of its Software products from its distributors. There can be no assurance that the Company will not continue to experience similar problems. In addition, there can be no assurance that the Company's distributors and resellers will continue their current relationships with the Company or that they will not give higher priority to the sale of other products, which could include products of the Company's competitors. A reduction in sales effort or discontinuance of sales of the Company's products by its distributors and resellers could lead to reduced sales and could adversely affect the Company's operating results. In addition, there can be no assurance as to the continued viability or the financial stability of the Company's distributors and resellers, the Company's ability to retain its existing distributors and resellers or the Company's ability to add distributors and resellers in the future. See "Item 1. Business - Marketing and Sales" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 12 NETWORK COMPUTING DEVICES, INC. RELIANCE ON INDEPENDENT CONTRACTORS The Company relies on independent contractors for virtually all of the sub- assembly of the Company's network computer products. The Company's reliance on these independent contractors limits its control over delivery schedules, quality assurance and product costs. In addition, a number of the Company's independent suppliers are located abroad. The Company's reliance on these foreign suppliers subjects the Company to risks such as the imposition of unfavorable governmental controls or other trade restrictions, changes in tariffs and political instability. The Company currently obtains all of the sub- assemblies used for its network computer products (consisting of all major components except monitors and cables) from a single supplier located in Thailand. Any significant interruption in the supply of sub-assemblies from this contractor would have a material adverse effect on the Company's business and operating results. Disruptions in the provision of components by the Company's other suppliers, or other events that would require the Company to seek alternate sources of supply, could also lead to supply constraints or delays in delivery of the Company's products and adversely affect its operating results. The operations of certain of the Company's foreign suppliers were briefly disrupted during 1992 due to political instability in Thailand. See "Item. 1. Business - Manufacturing and Supplies" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. INTERNATIONAL SALES A majority of the Company's international sales are denominated in U.S. dollars, and an increase in the value of the U.S. dollar relative to foreign currencies could make the Company's products less competitive in those markets. Over the past two years, a significant portion of international revenues have been derived from sales to a customer in the United Kingdom that have been denominated in pound sterling and sales denominated in foreign currencies may increase in the future. These sales are subject to exchange rate fluctuations which could affect the Company's operating results negatively or positively, depending on the value of the U.S. dollar against the other currency. Where the Company believes foreign currency-denominated sales could pose significant exposure to exchange rate fluctuations, the Company acquires forward exchange contracts in an effort to reduce such exposure. International sales and operations may also be subject to risks such as the imposition of governmental controls, export license requirements, restrictions on the export of technology, political instability, trade restrictions, changes in tariffs and difficulties in staffing and managing international operations and managing accounts receivable. In addition, the laws of certain countries do not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. There can be no assurance that these factors will not have an adverse effect on the Company's future international sales and, consequently, on the Company's operating results. DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant degree upon the continuing contributions of its senior management and other key employees. Recently, Robert G. Gilbertson was appointed to the position of President and Chief Executive Officer of the Company. Moreover, partially as a consequence of the restructuring of its business in 1995, the Company has experienced significant turnover of management personnel, particularly in its finance, procurement, manufacturing, and sales organizations. The Company believes that its future success will also depend in large part on its ability to attract and retain highly-skilled engineering, managerial, sales and marketing personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting, integrating and retaining such personnel. Failure to attract and retain key personnel could have a material adverse effect on the Company's business, operating results or financial condition. 13 NETWORK COMPUTING DEVICES, INC. VOLATILITY OF STOCK PRICE The market price of the Company's common stock has fluctuated significantly over the past several years and is subject to material fluctuations in the future in response to announcements concerning the Company or its competitors or customers, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in product pricing policies by the Company or its competitors, general conditions in the computer industry, developments in the financial markets and other factors. In particular, shortfalls in the Company's quarterly operating results from historical levels or from levels forecast by securities analysts could have an adverse effect on the trading price of the common stock. The Company may not be able to quantify such a quarterly shortfall until the end of the quarter, which could result in an immediate and adverse effect on the common stock price. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices for technology companies and which have been unrelated to the operating performance of the affected companies. Broad market fluctuations of this type may adversely affect the future market price of the Company's common stock. 14 NETWORK COMPUTING DEVICES, INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 for a description of litigation pending against the Company and certain of its officers and directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: Exhibit 10.41 Asset Purchase Agreement dated February 20, 1996 by and between the Registrant and FTP Software, Inc. Exhibit 11.1 Statement Regarding Computation of Shares Used in Earnings per Share Computations. Exhibit 27 Financial Data Schedule (b) The Company filed no reports on Form 8-K during the three-month period ended March 31, 1996. 15 NETWORK COMPUTING DEVICES, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Network Computing Devices, Inc. (Registrant) Date: May 28, 1996 By: /s/ JACK A. BRADLEY --------------------------------------------- Jack A. Bradley Vice President - Finance and Chief Financial Officer (Duly Authorized and Principal Financial and Accounting Officer) 16 EX-10.1 2 EXHIBIT 10.1 - - -------------------------------------------------------------------------------- ASSET PURCHASE AGREEMENT AMONG NETWORK COMPUTING DEVICES, INC., NCD SOFTWARE CORPORATION, AS SELLERS AND FTP SOFTWARE, INC., AS BUYER Dated as of February 20, 1996 - - -------------------------------------------------------------------------------- TABLE OF CONTENTS ARTICLE 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Cross Reference Table. . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Knowledge of a Party . . . . . . . . . . . . . . . . . . . . . . . 5 1.4 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 2. PURCHASE AND SALE OF ASSETS. . . . . . . . . . . . . . . . . . . 6 2.1 Transfer of Assets to Buyer. . . . . . . . . . . . . . . . . . . . 6 2.2 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . 8 2.3 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . 8 2.4 Purchase Price; Payment. . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 3. THE CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.2 Sellers' Obligations at Closing. . . . . . . . . . . . . . . . . . 11 3.3 Buyer's Obligations at Closing . . . . . . . . . . . . . . . . . . 12 ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . 12 4.1 Organization; Power and Standing . . . . . . . . . . . . . . . . . 12 4.2 Authorization and Enforceability.. . . . . . . . . . . . . . . . . 12 4.3 Effect of Agreement; Consents. . . . . . . . . . . . . . . . . . . 13 4.4 The Assets.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.5 Contracts, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.6 Intellectual Property Rights.. . . . . . . . . . . . . . . . . . . 15 4.7 Software.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.8 Financial Information and Customer Lists . . . . . . . . . . . . . 18 4.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 19 4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 19 4.12 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.13 Employee Benefits Plans, Etc . . . . . . . . . . . . . . . . . . . 20 4.14 AT&T Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.15 Restrictive Documents. . . . . . . . . . . . . . . . . . . . . . . 21 4.16 Relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.17 No Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . 21 4.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.19 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . 22 4.20 Affiliated Transactions. . . . . . . . . . . . . . . . . . . . . . 22 4.21 No Insolvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.22 Representations Complete.. . . . . . . . . . . . . . . . . . . . . 22 4.23 Accrued Vacation Liabilities.. . . . . . . . . . . . . . . . . . . 22 4.24 Governmental Permits.. . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . 22 5.1 Organization; Power and Standing . . . . . . . . . . . . . . . . . 23 5.2 Authorization and Enforceability . . . . . . . . . . . . . . . . . 23 5.3 Conflicts, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5.5 No Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . 23 ARTICLE 6. CERTAIN AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . 24 6.1 Payment of Taxes and Other Expenses. . . . . . . . . . . . . . . . 24 6.2 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . 24 6.3 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.4 Assertion of Other Sellers' Patents Against Buyer. . . . . . . . . 25 6.5 Support Obligations. . . . . . . . . . . . . . . . . . . . . . . . 25 6.6 Cross-Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 7. CONFIDENTIALITY; NONCOMPETITION. . . . . . . . . . . . . . . . . 26 7.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.2 Residuals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.3 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.4 Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE 8. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . 28 8.1 Conditions to Buyer's Obligations. . . . . . . . . . . . . . . . . 28 8.2 Conditions to Sellers' Obligations . . . . . . . . . . . . . . . . 29 ARTICLE 9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 30 9.1 Indemnification by Sellers . . . . . . . . . . . . . . . . . . . . 30 9.2 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . 31 9.3 Survival of Representations and Warranties.. . . . . . . . . . . . 32 9.4 Notification of Claims . . . . . . . . . . . . . . . . . . . . . . 32 9.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . . 33 ii ARTICLE 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 10.3 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 35 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.6 Binding Effect; Third Parties. . . . . . . . . . . . . . . . . . 35 10.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 35 10.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 10.9 Publicity; Confidentiality . . . . . . . . . . . . . . . . . . . 36 10.10 Amendments; Waivers. . . . . . . . . . . . . . . . . . . . . . . 36 10.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 36 iii ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is entered into as of February 20, 1996, by and among Network Computing Devices, Inc., a California corporation ("NCD"), NCD Software Corporation, a California corporation and a wholly-owned subsidiary of NCD ("NCD SOFTWARE") (NCD and NCD Software are sometimes collectively referred to herein as "SELLERS"), and FTP Software, Inc., a Massachusetts corporation ("BUYER"). WITNESSETH: WHEREAS, Sellers are engaged, among other things, in the business of the development and sale of the Mariner software product (the "MARINER BUSINESS"); WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, the Assets (as hereinafter defined), on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements hereinafter set forth, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS 1.1 CROSS REFERENCE TABLE. The following terms are defined elsewhere in this Agreement in the Sections set forth below and shall have the respective meanings specified therein: "ACCRUED EMPLOYEE LIABILITIES" Section 2.3 "ACCRUED VACATION LIABILITIES" Section 6.3(b) "AGREEMENT" Preamble "ASSETS" Section 2.1 "ASSUMED LIABILITIES" Section 2.3 "AT&T AGREEMENTS" Section 4.14 "BUYER" Preamble "BUYER EMPLOYEES" Section 6.3 "CLOSING" Section 3.1 "CLOSING DATE" Section 3.1 "CONTRACTS" Section 2.1(e) "COPYRIGHTS" Section 2.1(a) "DISCLOSURE SCHEDULES" Article 4 "GOVERNMENTAL PERMITS" Section 4.24 "INDEMNIFIED PARTY" Section 9.4 "INDEMNIFYING PARTY" Section 9.4 "LICENSE AGREEMENT" Section 8.1(i) "MARINER BUSINESS" Recitals "MARINER EMPLOYEES" Section 4.12 "NCD" Preamble "NCD SOFTWARE" Preamble "NON-TRANSFERRED TANGIBLE PROPERTY" Section 2.1(i) "OTHER INFORMATION" Section 2.1(f) "PATENT APPLICATION" Section 4.6(g) "PATENT RIGHTS" Section 2.1(b) "PLANS" Section 4.13(b) "PROPRIETARY INFORMATION" Section 7.1 "PURCHASE PRICE" Section 2.4 "RESIDUAL INFORMATION" Section 7.2 "SELLERS" Preamble "SOFTWARE" Section 4.7(a) "TANGIBLE PERSONAL PROPERTY" Section 2.1(i) "TECHNICAL INFORMATION" Section 2.1(c) "TRADE RIGHTS" Section 2.1(d) "TRANSFERABLE GOVERNMENTAL PERMITS" Section 2.1(g) 1.2 OTHER DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "ACTION" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority. "AFFILIATE" shall mean, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by or under common control with the specified Person. "ANCILLARY DOCUMENTS" shall mean all agreements, certificates and other documents delivered pursuant to this Agreement or in connection with the transactions contemplated hereby excluding the Master Agreement and License Agreement. "CONTRACTUAL OBLIGATION" shall mean, with respect to any Person, any contract, agreement, purchase order, deed, mortgage, lease, license, other instrument, commitment, undertaking, arrangement or understanding, written or oral, or other document, including, without limitation, any document or instrument evidencing 2 indebtedness, to which or by which such Person is a party or otherwise subject or bound or to which or by which any property or right of such Person is subject or bound that relates in any material way to the Mariner Business. "DERIVATIVE WORK" shall have the meaning ascribed to it under Section 101 of the Copyright Act of 1976, as amended, 17 U.S.C. Section 101. "ENVIRONMENTAL LAWS" shall mean any and all applicable Legal Requirements pertaining to the environment or occupational health and safety in effect on the date of this Agreement or on the Closing Date, including, without limitation, the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act, as amended ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Occupational Safety and Health Act, as amended ("OSHA"), the Pollution Prevention Act, the Endangered Species Act, the National Environmental Policy Act of 1969, the Oil Pollution Act, comparable foreign, state and local Legal Requirements and other similar environmental or occupational health and safety protection Legal Requirements. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCLUDED ASSETS" shall mean all properties and assets of Sellers that are not included in the Assets, including, without limitation: (a) all cash and cash equivalents, (b) all of Sellers' accounts and notes receivable, (c) the Non- Transferred Tangible Property and (d) certain items listed on SCHEDULE 2.1(a). "EXCLUDED LIABILITIES" shall mean all obligations, indebtedness and liabilities of Sellers that are not expressly assumed by Buyer pursuant to Section 2.3(a), including without limitation the obligations and liabilities listed in Section 2.3(b). "GOVERNMENTAL AUTHORITY" shall mean any domestic and foreign jurisdiction in which NCD has developed or sold the Assets, any state, province, ken, territory, county, city, municipality and any subdivision thereof, any court, any administrative or regulatory agency, commission, department or body or other governmental authority or instrumentality or any entity or Person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "HAZARDOUS MATERIALS" shall mean any hazardous substance, hazardous or solid waste, pollutant, contaminant or toxic chemical, as such terms are defined in or regulated pursuant to CERCLA, RCRA or OSHA (each as defined in the definition of Environmental Laws), or any applicable Legal Requirement having a broader meaning. 3 "INTELLECTUAL PROPERTY RIGHTS" shall mean all Copyrights, Patent Rights, Technical Information and Trade Rights. "LEGAL REQUIREMENT" shall mean any domestic and foreign jurisdiction in which NCD has developed or sold the Assets, state, provincial or local law, statute, standard, ordinance, code, order, rule, regulation, resolution or promulgation, or any order, judgment or decree of any court, arbitrator, tribunal or other Governmental Authority, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force and effect of law as in effect on or prior to the Closing Date. "LETTER OF INTENT" shall mean the letter agreement dated as of January 15, 1996 between Buyer and NCD. "LIEN" shall mean any encumbrance, mortgage, pledge, lien, claim, option, charge or other security interest of any kind. "LOSSES" shall mean any and all liabilities, claims, damages, losses (including without limitation any diminution in value), fines, penalties, fees, obligations, payments (including, without limitation, those arising out of any demand, assessment, settlement, judgment or compromise relating to any Action), costs and expenses (including, without limitation, reasonable legal fees and any and all other expenses whatsoever incurred in investigating, preparing for or defending any Action or threatened Action). Any event or matter specified or referred to in this Agreement shall be considered "MATERIAL", or a standard of materiality achieved with respect thereto, if the liability or obligation of the Person affected thereby does or would exceed $5,000 or if the event or matter would affect the operations, business, assets or prospects of such Person by more than $5,000. "ORGANIZATIONAL DOCUMENTS" shall mean (i) with respect to a Person that is a corporation, the articles or certificate of incorporation, articles of association and bylaws or other organizational and governing documents of such Person and (ii) with respect to a Person that is a partnership, joint venture or other entity, the partnership agreement, joint venture agreement or other organizational and governing documents of such Person. "PERSON" shall mean any individual, partnership, corporation, joint venture, association, trust, estate, unincorporated organization or entity, and any Governmental Authority. "PRODUCTS" shall mean the Mariner software and accompanying documentation described on SCHEDULE 1.2. 4 "TECHNOLOGY" shall mean, with respect to each Product, all technical information whether tangible or intangible, including without limitation any: data; designs; calculations; computer source codes (human readable format) and executables and object codes (machine readable format); specifications; test and installation, instructions; service and maintenance notes; technical, operating and service and maintenance manuals; user documentation; training materials; and other data, information and know-how; in each case which are in the possession of, owned by or licensed to Sellers and are necessary or desirable to enhance, develop, manufacture, assemble, service, maintain, install, operate, use or test the Products. 1.3 KNOWLEDGE OF A PARTY. Whenever reference is made to the knowledge or best knowledge of a party hereto, it is understood that (a) the party has made, or caused to be made by personnel or representatives reasonably competent to determine the accuracy thereof (and the results thereof reported to such party), an inquiry that is reasonably appropriate to determine the accuracy of the statement in question and (b) such term shall include the actual knowledge of any director (other than the outside directors listed on SCHEDULE 1.3) or officer of such party or any other management employee of such party with substantial sole or shared operational responsibility relating to the subject matter. If such investigation has been made, the knowledge of any employee (other than the employee(s) making the investigation and other than the persons described in clause (b) of the immediately preceding sentence) of a party shall not be imputed to the party. 1.4 RULES OF CONSTRUCTION. The following rules of construction shall be applicable for all purposes of this Agreement, unless the context otherwise requires. (a) The terms "HEREBY", "HEREIN", "HEREOF", "HERETO", "HEREUNDEr" and any similar terms shall refer to this Agreement, and the term "HEREAFTER" shall mean after, and the term "HERETOFORE" shall mean before, the date of this Agreement. (b) Words importing the singular number shall mean and include the plural number and vice versa. (c) The terms "INCLUDE", "INCLUDING" and similar terms shall be construed as if followed by the phrase "WITHOUT BEING LIMITED TO", and the term "OR" shall be construed in the inclusive sense. (d) All references in this Agreement to numbered Articles, Sections, Schedules and Exhibits are references to the Articles and Sections of this Agreement and the Schedules and Exhibits to this Agreement (which are and shall be deemed to be a part of this Agreement). 5 ARTICLE 2. PURCHASE AND SALE OF ASSETS 2.1 TRANSFER OF ASSETS TO BUYER. Upon the terms, subject to the conditions and in reliance upon the representations, warranties and covenants set forth in this Agreement, each Seller shall, at the Closing, sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from such Seller all of Sellers' right, title and interest in and to the following (collectively, the "ASSETS"), free and clear of any and all Liens: (a) COPYRIGHTS. All of such Seller's worldwide rights and interests existing on the date hereof or acquired on or prior to the Closing Date in and to all copyrights (whether or not registered) which relate to the Products or the Technology or are otherwise required, and all registrations, applications for registration and licenses therefor, together with all ancillary rights thereto, including the right to sue for damages by reason of past infringement of any such rights (collectively, the "COPYRIGHTS"), and excluding only the items listed on SCHEDULE 2.1(a). (b) PATENTS. All of such Seller's worldwide rights and interests, if any, existing on the date hereof or acquired on or prior to the Closing Date in and to the United States patent application entitled "Integrated Network Access User Interface System and Method," Number 08/401-183, any foreign counterparts of such application; any patents issuing on the foregoing application; any divisions, substitutions, re-examinations, and continuations thereof; and all reissues, renewals and extensions thereof and licenses therefor, together with all ancillary rights thereto, including the right to sue for damages by reason of past infringement of any such rights (collectively, the "PATENT RIGHTS"). Continuations-in-part of the foregoing application and patents issuing on such continuations-in-part, patents of addition, and all reissues, renewals and extensions of such patents and patents of addition, shall also be within the Patent Rights, to the extent the same claim subject matter was disclosed in the foregoing application or any foreign counterparts thereof. (c) TECHNICAL INFORMATION. All of such Seller's worldwide rights and interests existing on the date hereof or acquired on or prior to the Closing Date in and to all Technology and all other trade secrets and know-how which (x) substantially relate to the Products and have ever been used by Sellers in the Mariner Business and/or (y) are otherwise reasonably necessary for Buyer to conduct the Mariner Business after the Closing in the manner presently conducted by Sellers, together with all ancillary rights thereto, including the right to sue for damages by reason of past infringement of any such rights (collectively, the "TECHNICAL INFORMATION"). Sellers hereby grant to Buyer a worldwide, perpetual, irrevocable, non-exclusive, fully paid, royalty free, transferable, assignable license, including the right to sublicense, to any 6 Technical Information which tangentially relates to the Product or the Mariner Business but is not otherwise transferred to Buyer by this subsection 2.1(c). (d) TRADEMARKS, ETC. All of such Seller's worldwide rights and interests existing on the date hereof or acquired on or prior to the Closing Date in and to all trademarks, common law trademarks, trade names, service marks, common law service marks, service names, slogans and any abbreviations or variations thereof, which relate to or are used in connection with the Products and all goodwill associated therewith, and all registrations, applications for registration and licenses therefor, together with all ancillary rights thereto, including the right to sue for damages by reason of past infringement of any such rights (collectively, the "TRADE RIGHTS") except as set forth in SCHEDULE 2.1(d). Seller hereby grants Buyer a non-exclusive, fully-paid, worldwide, royalty free license, for six (6) months from the date of this Agreement to use the Marathon icon as used in the Products; provided that Buyer agrees to provide Sellers from time to time with samples of Buyer's use of such mark and to use and reproduce such mark only in compliance with such reasonable quality standards as Sellers may establish consistent with Sellers' current use. (e) CONTRACTS. All claims and rights of such Seller in respect of the Products existing on the date hereof or acquired on or prior to the Closing Date under its contracts with licensors, licensees, manufacturers, distributors, dealers, sales representatives and other independent sales persons, identified on SCHEDULE 2.1(e) (such contracts are collectively referred to herein as the "CONTRACTS") and such other contracts of the nature described above as may be entered into prior to the Closing and which Buyer shall either (i) agree to assume in writing after such contract has been entered into or (ii) approve in writing in advance of such Seller's entering into such contract. (f) OTHER INFORMATION. All of such Seller's lists of present and former customers and suppliers, sales and marketing materials, research and development records and tools, business plans, records and documents in any and all formats existing on the date hereof or acquired on or prior to the Closing Date which (x) substantially relate to the Products and have ever been used by Sellers in the Mariner Business and/or (y) are otherwise reasonably necessary for Buyer to conduct the Mariner Business after the Closing in the manner presently conducted by Sellers (collectively, "OTHER INFORMATION"). (g) GOVERNMENTAL PERMITS. All of such Seller's transferable interests in and to the licenses, permits, filings, authorizations, approvals or indicia of authority which are listed on SCHEDULE 2.1(g) (collectively, "TRANSFERABLE GOVERNMENTAL PERMITS"). 7 (h) SOFTWARE; DOCUMENTATION. All software codebases, paper and magnetic media embodying the Products (in source code and object code formats), and all user, technical and maintenance documentation relating to any of the Products that are in the possession of or under the control of such Seller or any of such Seller's agents, contractors or employees. (i) TANGIBLE PERSONAL PROPERTY. The equipment and other personal property owned or held by such Seller and used or held for use by ten or more of Sellers' employees in connection with the Mariner Business, and listed on SCHEDULE 2.1(i)(a) (the "TANGIBLE PERSONAL PROPERTY"), excluding a proportionate amount of such equipment and other personal property should fewer than ten of Sellers' employees accept Buyer's offer of employment listed on SCHEDULE 2.1(i)(b) (the "NON-TRANSFERRED TANGIBLE PROPERTY"). (j) GOODWILL. All goodwill associated with the Assets or the Mariner Business. (k) OTHER ASSETS. All other tangible and intangible assets which (x) substantially relate to the Products and have ever been used by Sellers in the Mariner Business and/or (y) are otherwise reasonably necessary for Buyer to conduct the Mariner Business after the Closing in the manner presently conducted by Sellers which are not Excluded Assets; provided that third party software contained on hard disk drives transferred to Buyers, if any, is provided "as- is". Sellers hereby grant to Buyer a worldwide, perpetual, irrevocable, non-exclusive, fully paid, royalty free, transferable, assignable license, including the right to sublicense, to any other intangible assets which tangentially relate to the Product or the Mariner Business but are not otherwise transferred to Buyer by this subsection 2.1(k); provided that third party software contained on hard disk drives transferred to Buyers, if any, is provided "as-is". 2.2 EXCLUDED ASSETS. Notwithstanding anything herein to the contrary, Sellers shall retain all of their respective rights, title and interest in and to, and Buyer shall acquire no interest in, the Excluded Assets except as set forth in the License Agreement. 2.3 ASSUMPTION OF LIABILITIES. (a) Buyer shall assume from Sellers and agrees to pay, perform or discharge, as appropriate, the following liabilities and obligations (collectively, the "ASSUMED LIABILITIES"): (1) Sellers' obligations listed on SCHEDULE 2.3(a)(1); (2) except as provided in Section 2.3(b)(1), Sellers' obligations arising or to be performed after the Closing under the Contracts and the Transferable Governmental Permits, but only to the extent the Contracts and the Transferable Governmental Permits are assigned to Buyer pursuant to this Agreement; and (3) all obligations of Sellers to the Buyer 8 Employees for accrued sick pay, sabbaticals, bonuses and Accrued Vacation Liabilities, which amounts for each Buyer Employee are listed on SCHEDULE 2.3(a)(2) (collectively, the "ACCRUED EMPLOYEE LIABILITIES"), provided that the aggregate amount of such Accrued Employee Liabilities as of the Closing Date shall be deducted from the purchase price for the Assets pursuant to Section 2.4 hereof. (b) Buyer shall assume and be subject to no liabilities or obligations of Sellers except for the Assumed Liabilities to be assumed by Buyer pursuant to Section 2.3(b). Set forth below are certain liabilities or obligations that, without limitation, are expressly not assumed by Buyer and are included in the Excluded Liabilities: (1) all liabilities or obligations arising from any breach or default outstanding at the Closing Date under any Contract or resulting from any event occurring before the Closing Date which, with the giving of notice or the lapse of time, or both, would constitute a breach or default under any Contract; (2) all obligations, indebtedness and liabilities of Sellers to any shareholder of any Seller or any of such shareholder's Affiliates; (3) all obligations, indebtedness and liabilities (other than the Accrued Employee Liabilities to be assumed by Buyer pursuant to Section 2.3(a)) of Sellers to their current or former employees relating to their employment with Sellers or resulting from the termination of their employment with Sellers; (4) other than as set forth in Section 6.1, any liability or obligation of Sellers for income, franchise, transfer, sales, use and other taxes; (5) other than as set forth in Section 6.1, any liability of Sellers for the unpaid taxes of any Person including taxes imposed on Sellers, as a transferee or successor, by contract, or otherwise; (6) any liability or obligation of Sellers for taxes relating to Seller's business, whether or not incurred prior to the Closing; (7) any liability or obligation of Sellers to indemnify any Person (including any Seller) by reason of the fact that such Person was a director, officer, employee or agent of any Seller or was serving at the request of such entity as a partner, trustee, director, officer, employee, or agent of another entity; (8) subject to the provisions of Article 9, any liability or obligation of Sellers arising as a result of any legal or equitable action or judicial or administrative proceeding initiated at any time in respect of anything done, 9 suffered to be done or omitted to be done by Sellers or any of their directors, officers, employees or agents; (9) any liability of Sellers for costs and expenses incurred by them in connection with this Agreement and the transactions contemplated hereby; (10) any liability or obligation of Sellers incurred by them in connection with the making or performance of this Agreement; (11) any liability or obligation of Sellers for products manufactured or services rendered by Sellers prior to the Closing Date other than obligations under the Contracts included in the Assumed Liabilities; (12) any liability or obligation of Sellers arising out of any Plan established or maintained by Sellers or to which any Seller contributes or any liability for the termination of any such Plan; (13) other than the Accrued Employee Liabilities, any liability or obligation of Sellers for making payments or providing benefits of any kind to their respective employees or former employees, including without limitation, (A) as a result of the sale of the Assets or as a result of the termination by either Seller of any employees, (B) any obligation to provide former employees of Sellers so-called COBRA continuation coverage, (C) any liability or obligation in respect of medical and other benefits for existing and future retirees, and (D) any liability or obligation in respect of work-related employee injuries or worker's compensation claims; (14) any liability of Sellers pertaining to their business and arising out of or resulting from noncompliance prior to the Closing Date with any Legal Requirement, including without limitation, Environmental Laws; (15) any liability or obligation of Sellers under any leases, contracts, or agreements not listed on SCHEDULE 2.1(e), including without limitation the AT&T Agreements; and (16) any liability or obligation of Sellers arising out of (a) any Hazardous Materials existing at any real property owned, leased, or used by the Sellers, at or prior to the Closing, or (b) the use, storage, manufacture, processing, emission, discharge, disposal, sale, or exposure of any person to a Hazardous Material in connection with Sellers' business (including without limitation, Sellers' hardware business) or real property owned or leased by either Seller, without limit as to point of time, knowledge or amount. 10 2.4 PURCHASE PRICE; PAYMENT. The aggregate purchase price for the Assets shall be $9,850,000 minus the sum of (a) the aggregate amount of the Accrued Employee Liabilities as of the Closing Date as set forth on the SCHEDULE 2.3(a)(2), (b) $50,000 to be used by Buyer to fund bonuses to be distributed to Buyer Employees as determined by Buyer in its sole discretion, (c) the aggregate amount of the value of the Non-Transferred Tangible Property as set forth on SCHEDULE 2.1(i)(b), and (d) the aggregate license fees of $2,500,000 payable by Sellers under the License Agreement (the "PURCHASE PRICE"). The Purchase Price shall be paid by Buyer to Sellers at the Closing by bank or cashier's check made payable to NCD or, at NCD's option, by wire transfer of immediately available funds to such account as NCD shall have designated to Buyer in writing at least two business days prior to the Closing Date. ARTICLE 3. THE CLOSING 3.1 TIME AND PLACE. The closing of the transactions contemplated by Article 2 of this Agreement (the "CLOSING") shall take place at 10:00 a.m., local time, on February 20, 1996 at the offices of Gray Cary Ware & Freidenrich, Professional Corporation, 400 Hamilton Avenue, Palo Alto, California 94301, or at such other time and place as the parties hereto may agree. The date on which the Closing actually takes place is sometimes referred to herein as the "CLOSING DATE." 3.2 SELLERS' OBLIGATIONS AT CLOSING. At the Closing, each Seller shall: (a) execute and deliver to Buyer (i) a bill of sale and conveyance, in substantially the form of EXHIBIT A, (ii) an assignment and assumption agreement, in substantially the form of EXHIBIT B, (iii) one or more assignments of the Copyrights, in substantially the form of EXHIBIT C, (iv) one or more assignments of the trademarks included in the Trade Rights and registrations therefor, in substantially the form of EXHIBIT D, and (v) the assignments of the patent application included in the Patent Rights and registrations therefor, if any, in substantially the form of EXHIBIT E; (b) execute and deliver to Buyer such other instruments of conveyance, assignment and transfer, in form and substance reasonably satisfactory to Buyer, as shall be effective to vest in Buyer all rights and interests in, and good and marketable title to, the Assets including, without limitation, assignments of Copyrights and Trade Rights and registrations therefor and applications for registration thereof in countries other than the United States and written assignments of the Contracts; (c) deliver to Buyer all documents, opinions, certificates, consents, undertakings and assignments required to be delivered to Buyer pursuant to Section 8.1; 11 (d) deliver to Buyer physical possession of all copies (except as licensed under the License Agreement) of all media embodying the Products and Technology, including magnetic media embodying source code and object code formats of the Software; and (e) execute and deliver to Buyer a receipt for the Purchase Price. 3.3 BUYER'S OBLIGATIONS AT CLOSING. At the Closing: (a) Buyer shall deliver to Sellers the Purchase Price; (b) Buyer shall execute and deliver to Sellers an assignment and assumption agreement, in substantially the form of EXHIBIT B; and (c) Buyer shall deliver to Sellers all documents, opinions, certificates, consents and undertakings required to be delivered to Sellers pursuant to Section 8.2. ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLERS In order to induce Buyer to purchase the Assets and assume the Assumed Liabilities, Sellers, jointly and severally, hereby represent and warrant to Buyer except as specifically set forth on the schedules corresponding to the section number of such representation which schedules are provided to Buyer at least five days prior to the Closing and which are updated as of the Closing (collectively the schedules are referred to as the "DISCLOSURE SCHEDULES") as follows: 4.1 ORGANIZATION; POWER AND STANDING. Each of NCD and NCD Software is a corporation duly organized, validly existing and in good standing under the laws of the State of California. NCD owns all of the outstanding shares of NCD Software. Each Seller has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and each Ancillary Document to which it is a party and to consummate the transactions contemplated hereby and thereby, and each Seller has all requisite power and authority to own, lease or otherwise use the Assets and to carry on its business as now being conducted. Each Seller is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the character of its business or assets makes such qualification necessary, except where the failure to be so qualified or licensed would not have a material adverse effect on the Assets or such Seller's ability to perform its obligations hereunder. 12 4.2 AUTHORIZATION AND ENFORCEABILITY. The execution, delivery and performance by each Seller of this Agreement and each Ancillary Document to which it is a party and the consummation by each Seller of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of such Seller and its shareholders. This Agreement has been duly executed and delivered by each Seller and constitutes and, upon execution and delivery by each Seller of each Ancillary Document to which it is a party, each such Ancillary Document shall constitute, a legal, valid and binding obligation of each Seller, enforceable against each Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. 4.3 EFFECT OF AGREEMENT; CONSENTS. (a) CONFLICTS, ETC. Neither the execution and delivery by either Seller of this Agreement or any Ancillary Document to which it is a party nor the consummation by either Seller of the transactions contemplated hereby or thereby does or will (i) conflict with or violate any provision of any Organizational Document of either Seller, (ii) constitute, result in or give rise to, nor has any other event occurred nor does any other condition exist which, whether through the giving of notice or the lapse of time or otherwise, does or will constitute, result in or give rise to, except where it would not have a material adverse effect on the Assets or such Seller's ability to perform its obligations hereunder, (A) a breach of or a default under (1) any Contractual Obligation or (2) any contract, agreement, purchase order, deed, mortgage, lease, license, other instrument, commitment, undertaking, arrangement or understanding to which it is a party, (B) any right of termination, cancellation or acceleration under any such Contractual Obligation, (C) the imposition of any Lien upon or the forfeiture of, or the impairment of the value or usefulness of, or the arising of any cause of action with respect to, any of the Assets or (D) any other right or cause of action under any such Contractual Obligation or (iii) violate or give rise to any violation or default, except where it would not have a material adverse effect on the Assets or such Seller's ability to perform its obligations hereunder, under any Legal Requirement. (b) APPROVALS, CONSENTS, ETC. Except as set forth on SCHEDULE 4.3 and except where it would not have a material adverse effect on the Assets or such Seller's ability to perform its obligations hereunder, no approval, consent, waiver, authorization or other order of, and no notice to or declaration, filing, registration, qualification or recording with, any Governmental Authority or other Person is required to be obtained or made by or on behalf of either Seller in connection with the execution, delivery or performance of this Agreement or any Ancillary Document to which it is a party or the consummation of the transactions contemplated hereby or thereby. 13 4.4 THE ASSETS. (a) TITLE TO THE ASSETS. Sellers have and will deliver to Buyer, at the Closing, good and marketable title to all of the Assets. With respect to the third party software located on personal computers being transferred to Buyer, the Patent Rights and Trade Rights such representation is made to the best knowledge of Sellers. The Assets are not subject to any Liens except as set forth in SCHEDULE 4.4(a). As of the Closing, all of the Assets will be located at the premises listed on SCHEDULE 4.4(a) hereof. (b) LIABILITIES. The Assets are not subject to any liabilities or other obligations, absolute, accrued, contingent or otherwise, other than those described in SCHEDULE 4.4(b). After giving effect to the consummation of the transactions contemplated hereby, the Assets will not be subject to, nor will Buyer have, any liabilities or other obligations, absolute, accrued, contingent, or otherwise, relating to the Assets other than (i) the Assumed Liabilities and (ii) liabilities created by Buyer, if any. (c) TAXES. After giving effect to the consummation of the transactions contemplated hereby, the Assets will not be subject to, nor will Buyer have, any liability in respect of any taxes under any Legal Requirement arising from or relating to the ownership, possession, operation or use of the Assets or the operation of the Mariner Business prior to the Closing. 4.5 CONTRACTS, ETC. SCHEDULE 4.5 contains a true and complete list of all of the Contractual Obligations (including the Contracts listed on SCHEDULE 2.1(e)), to which either of the Sellers is a party that are in writing and a description of all such oral Contractual Obligations. Sellers have delivered to Buyer a true and complete copy of each of the Contractual Obligations listed on SCHEDULE 4.5 that are in writing, each as in effect on the date hereof and as it will be in effect at the Closing, including without limitation all amendments and supplements thereto and all waivers thereunder. Each of the Contracts listed on SCHEDULE 2.1(e) is valid, binding and enforceable in accordance with its terms, and each Seller that is a party thereto and, to the best knowledge, of Sellers, each other party thereto is in compliance therewith, and there is not under any of the Contracts any existing default, event of default or event which, with notice or the lapse of time, or both, would constitute a default or event of default, nor to the best knowledge of Sellers do there exist any other facts or circumstances which Sellers, reasonably expect to result in a default or event of default. There has been no notice of termination or threatened termination with respect to any of the Contracts, whether or not termination is permitted by the terms thereof. 14 4.6 INTELLECTUAL PROPERTY RIGHTS. (a) COPYRIGHTS. Sellers have delivered to Buyer true and complete copies of all copyrighted material covered by all Copyrights as well as the certificates of registration for all such Copyrights which are registered, if any. (b) PATENT RIGHTS. Sellers have delivered to Buyer true and complete copies of the patent application embodying the Patent Rights. (c) TECHNOLOGY AND TECHNICAL INFORMATION. Sellers have delivered to Buyer true and complete copies of all such Technology and Technical Information embodied in tangible media which is necessary to conduct the Mariner Business as presently conducted by Sellers. (d) TRADE RIGHTS. Sellers have delivered to Buyer true and complete copies of all registration applications evidencing those Trade Rights which constitute trademarks and service marks. (e) OTHER INFORMATION. Sellers have delivered to Buyer true and complete copies of all such Other Information embodied in tangible media which is necessary to conduct the Mariner Business as presently conducted by Sellers. (f) INTELLECTUAL PROPERTY RIGHTS. Sellers have provided Buyer with copies of documents and other materials embodied in tangible media containing or in which are embodied all copyrights, patent rights, inventions, trade names, trademarks and service marks related to the Products, none of which are registered, and all applications therefor that are pending or in the process of preparation and all licenses and other agreements allowing Sellers to use all copyrights, patent rights, inventions, trade secrets, trade names, trademarks and service marks of other Persons in connection with the Products. (g) OWNERSHIP AND TITLE. (i) TRADE RIGHTS, COPYRIGHTS AND TECHNICAL INFORMATION. Except as set forth on SCHEDULE 4.6(g), Sellers are the sole and exclusive owners of all right, title and interest in the Trade Rights, Copyrights and Technical Information. Sellers have not infringed, and are not now infringing, on any trade secret or copyright belonging to any other Person. To the best knowledge of Sellers, Sellers have not infringed, and are not now infringing, on any trade name, trademark or service mark belonging to any other Person. Except as set forth in SCHEDULE 4.6(g), Sellers have not received any notice or other communication alleging, that Sellers have infringed, or are now infringing, on any trade name, trademark, 15 service mark, trade secret or copyright belonging to any other Person. Except as set forth in SCHEDULE 4.6(g), neither Seller is a party to any license, agreement or arrangement, whether as a licensor, licensee or otherwise, with respect to any Trade Rights, Technical Information or Copyrights, or any applications for any of the foregoing. Sellers own and hold adequate licenses, or other rights to use, all Trade Rights, Technical Information and Copyrights necessary for the Mariner Business as now conducted by them and to the best knowledge of Sellers that use does not, and will not, conflict with, infringe on or otherwise violate any rights of third parties. (ii) PATENT RIGHTS. Sellers are the sole owner of the U.S. patent application named Integrated Network Access User Interface System and Method, Serial No. 08/401,183 (the "PATENT APPLICATION"). The Patent Application is awaiting action by the U.S. Patent Office. Except as set forth in SCHEDULE 4.6(g), to the best knowledge of Sellers, the manufacture, use, importation or sale of the Products have not infringed and are not now infringing any patent or other right belonging to any Person. Sellers have not received any notice or other communication alleging, and Sellers have no reason to believe, (a) that the Patent Application is not valid and in full force or that it is subject to any filing, prosecution or other similar fees or actions falling due within one hundred twenty (120) days after the Closing Date; (b) that the manufacture, use, importation or sale of the Products violate or infringe on any patent or any proprietary or personal right of any Person. Neither Seller is a party to any license, agreement or arrangement, whether as licensee, licensor or otherwise, with respect to the Patent Application. (iii) TECHNOLOGY AND TECHNICAL INFORMATION. (A) The specific location of Technical Information is set forth in SCHEDULE 2.1(c). (B) Sellers are the sole owner of the Technical Information, free and clear of any liens, encumbrances, restrictions or legal or equitable claims of others. Sellers have taken all reasonable security measures to protect the secrecy, confidentiality and value of the Technical Information and any of its employees and any other Persons who, either alone or in concert with others, developed, invented, discovered, derived, programmed or designed these secrets, or who have knowledge of or access to information relating to them, have entered into agreements 16 that these secrets are proprietary to Sellers and not to be divulged or misused. Neither Seller has received any notice or other communication alleging, and neither has any reason to believe, (x) that either Seller does not have the right and authority to use the Technical Information or (y) that such use will conflict with, infringe on or violate any patent or other rights of any other Person. Except as noted on SCHEDULE 2.1(C), neither Seller is a party to any license agreement or any other arrangement, whether as licensee, licensor or otherwise, with respect to any of the Technical Information. (C) To the best knowledge of Sellers, the Technical Information is not part of the public knowledge, or literature, nor has it been used, divulged or appropriated for the benefit of any past or present employees or other Persons, or to the detriment of Sellers. 4.7 SOFTWARE. (a) IDENTIFICATION. SCHEDULE 4.7(a) lists the most current embodiment of all the computer software which is incorporated in the Products or otherwise used by Sellers in, and material to, the conduct of the Mariner Business related to the Assets, excluding commercially available third-party software (collectively, the "SOFTWARE"). Sellers have delivered to Buyer true and complete copies of the most current embodiment of the source code and object code formats of the Software and the most current revisions to all user and technical documentation related to the Software. (b) PERFORMANCE. EXCEPT AS OTHERWISE PROVIDED HEREIN, THE SOFTWARE IS PROVIDED AS IS, AND SELLERS DISCLAIM ALL WARRANTIES WITH RESPECT TO ITS PERFORMANCE, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSES. (c) ENHANCEMENTS, NEW PRODUCTS. Except as disclosed on SCHEDULE 4.7(c), neither of the Sellers nor any employee, contractor or agent of either Seller has (i) developed or assisted in the development of enhancements of the Software except for enhancements included in the Software as delivered to Buyer pursuant to this Agreement or (ii) assisted in the development by any other Person of any computer program based on the Software or any part thereof. (d) DEVELOPMENT. No employee or subcontractor of either Seller is, or to the best knowledge of Sellers, is now expected to be, in default under any term of 17 any employment contract, agreement or arrangement relating to the Products or any noncompetition agreement, contract or restrictive covenant relating to the Products or their development or exploitation. Except as otherwise expressly disclosed in SCHEDULE 4.7(d): (x) each of the Products (i) was made by an employee of a Seller in the course of such employee's employment by such Seller, (ii) constitutes a "work made for hire" of Sellers within the meaning of the Copyright Act of 1976, as amended, or (iii) has been validly assigned to Sellers; and (y) all works of authorship contained within the Products were created within the United States. (e) TITLE. Except as otherwise expressly disclosed in SCHEDULES 2.1(a), (c) or (d), all right, title and interest in and to the Software is owned by Sellers, free and clear of all Liens, contingent or otherwise, and Sellers' right, title and interest in and to the Software is fully transferable to Buyer. Neither of the Sellers has any obligation to compensate any Person for the development, use, sale or exploitation of the Software. Except as described on SCHEDULE 2.1(e), neither of the Sellers has granted to any other Person (i) any license, option or other rights to develop, use, sell or exploit in any manner the Software, whether requiring the payment of royalties or not, (ii) any license with respect to the source code(s) for any of the Software or (iii) any paid-up license with respect to any of the Software or Products or portions thereof. SCHEDULE 2.1(e) contains a true and complete list of the aggregate amount of prepaid royalties, if any, that have been paid to Sellers under each Contract, on a Contract by Contract basis. (f) PROTECTION OF PROPRIETARY NATURE OF SOFTWARE. Except as disclosed in SCHEDULE 2.1(e) AND SCHEDULE 4.7(f), Sellers have kept secret and have not disclosed the source code(s) for the Software owned by Sellers to any Person other than certain employees and subcontractors of Sellers. Sellers have taken all reasonable and appropriate measures to protect the confidential and proprietary nature of the Software, including, without limitation, the use of confidentiality agreements with all of their employees and subcontractors having access to the Software source code and all object code copies of the Software distributed to third parties (other than employees and subcontractors) have been subject to licenses consistent with reasonable industry practice, including (except for an immaterial number of beta and demonstration copies) prohibitions on decompilation and reverse engineering. To the best knowledge of Sellers, there have been no patents or copyrights applied for or registered for any part of the Software other than as expressly disclosed in the Schedules. 4.8 FINANCIAL INFORMATION AND CUSTOMER LISTS. (a) The gross revenue information for the Mariner Business for the year ended December 31, 1995 and the period ended as of the Closing is attached hereto as SCHEDULE 4.8(a), was prepared in accordance with the books and records of 18 Sellers on a basis consistent with Sellers' past practice and fairly represents in all material respects the sales data for the Mariner Business for the periods presented. (b) The Customer List attached hereto as SCHEDULE 4.8(b) lists all customers of the Mariner Business known to Sellers that have purchased Products from either Seller for the year ended December 31, 1995 and the period ended as of the Closing. (c) SCHEDULE 4.8(C) is a schedule of backlog for the Products. 4.9 COMPLIANCE WITH LAWS. The conduct of the Mariner Business by Sellers is in compliance in all material respects with, and the use, operation, ownership and possession of the Assets as presently used, operated, owned and possessed by Sellers, except where it would not have a material adverse effect on the Assets or such Seller's ability to perform its obligations hereunder, have not and do not violate any applicable Legal Requirement, nor has either Seller received any notice that it is not in compliance with any such Legal Requirement. 4.10 LITIGATION. Except as disclosed in SCHEDULE 4.10, there is no Action pending or, to the best knowledge of Sellers, threatened (nor, to the best knowledge of Sellers, does any reasonable factual basis exist therefor) (a) against either Seller or any of the Assets, (b) against any Affiliate of either Seller and involving any of the Assets or (c) which seeks rescission of, seeks to enjoin the consummation of or questions the validity of this Agreement or any of the transactions contemplated hereby. No judgment, decree or order of any Governmental Authority or any arbitrator has been issued against (a) either Seller or (b) to the best knowledge of Sellers, any Person other than Sellers that, in the case of this clause (b), could have an adverse effect on any of the Assets. 4.11 ENVIRONMENTAL MATTERS. As a result of the transactions contemplated by this Agreement and the License Agreement, Buyer shall be subject to no liability arising from Sellers' conduct, duty to act or failure to act at or prior to the Closing under any Environmental Laws. 4.12 EMPLOYEE MATTERS. With respect to Sellers' employees who are or were involved in the Mariner Business (the "MARINER EMPLOYEES"): (a) Neither of the Sellers is a party to any collective bargaining agreements. (b) Sellers have withheld all amounts required by any Legal Requirement, contract or agreement to be withheld from the wages of all current and 19 former Mariner Employees and are not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. (c) There are no pending unfair labor practice charges or discrimination complaints relating to race, color, national origin, sex, sexual orientation, religion, age, marital status, ancestry, disability, status as a Vietnam-era or a special disabled veteran, or status in any group protected by federal, state or local law against any Seller before any Governmental Authority nor, to the best knowledge of Sellers, does any basis therefor exist. (d) SCHEDULE 4.12(d) sets forth the annual salary for each Mariner Employee as of January 15, 1996. Since such date, Sellers have not agreed to increase the salary or other compensation payable to or to become payable to any of its employees or, except as set forth in SCHEDULE 4.12(d), declared, paid or committed to pay any bonus or other additional salary or compensation to any Person except for bonuses earned by such Mariner Employees in 1995 which were paid by Sellers to such Mariner Employees no earlier than January 31, 1996 and no later than the Closing Date. (e) There are no disputes or controversies existing between either Seller, on the one hand, and any of the Mariner Employees, on the other, which has had or is reasonably likely to have a material adverse effect upon the Assets or the Mariner Business nor, to the best knowledge of Sellers, does any basis therefor exist. None of the Mariner Employees is represented by a labor union and, to the best knowledge of Sellers', there is no labor organizing activity presently pending by or among any such Mariner Employees. 4.13 EMPLOYEE BENEFITS PLANS, ETC. (a) Sellers have not maintained or contributed to any "pension plan" as defined in the Employment Pension Plans Act or any "employee pension plan" as defined in Section 3(2) of ERISA. (b) SCHEDULE 4.13 lists all (i) "employee benefit plans", as defined in Section 3 of ERISA, maintained or contributed to by either Seller, (ii) "employee welfare plans", as defined in Section 3 of ERISA, maintained or contributed to by either Seller and (iii) all employment, compensation and consulting contracts, and bonus, deferred compensation, excess benefits, pension, retirement, profit sharing, stock bonus, stock option, stock purchase, life and health insurance, hospitalization, savings, holiday, vacation, severance pay, sick pay, sick leave, disability, dependent care assistance, death benefit, tuition refund, service award, company car, scholarship, relocation, patent awards, fringe benefits and other contracts or practices of either Seller or any of its Affiliates providing employee or executive benefits to any of the Mariner Employees 20 of Sellers (the items described in the preceding clauses (i), (ii) and (iii) are collectively referred to herein as "PLANS"). (c) Buyer will not become liable for any past, present or future benefit under or any other obligation under or otherwise with respect to any Plan by virtue of the transactions contemplated hereby, either under the terms of any Plan or by operation of any applicable Legal Requirement. (d) No facts exist which would give any Person the right under any applicable Legal Requirement to assert a Lien upon any of the Assets to secure liabilities in connection with any Plan. 4.14 AT&T AGREEMENTS. There exist no obligations required to be fulfilled by Buyer to AT&T Corp. as of the Closing nor will any such obligations exist at any time in the future under the Software License and Development Agreement dated January 31, 1995 between AT&T Corp. and NCD or Amendment No. 1 dated September 1, 1995 to such agreement (collectively referred to as the "AT&T AGREEMENTS") and, except through any act or omission of Buyer, Buyer will not as a result of the consummation of the transactions contemplated hereby or otherwise, assume, or otherwise become subject to any liability under, the AT&T Agreements. 4.15 RESTRICTIVE DOCUMENTS. Neither of the Sellers is subject to, or a party to, any Lien, lease, license, sublicense, permit, agreement, contract, instrument, judgment or decree, or any other restriction of any kind or character, which materially adversely affects the Assets or the Mariner Business as presently conducted by Sellers. 4.16 RELATIONSHIPS. Sellers' current relationships with the Mariner Employees and the suppliers, distributors, dealers, sales representatives, customers and others having business relationships with Sellers, related to the Mariner Business, are good, and neither of Sellers has any knowledge, information or belief of any actual, pending or threatened termination, cancellation or limitation of, or any materially adverse modification or change in, the business relationship of Sellers with any of such Persons including, without limitation, as a result of the transactions contemplated hereby. 4.17 NO BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf either Seller or any Affiliate of either Seller is, or shall be, entitled to any commission or broker's or finder's fees from either Seller or from any Affiliate of either Seller in connection with any of the transactions contemplated hereby. 4.18 INSURANCE. SCHEDULE 4.18 sets forth all existing insurance policies held by either Seller specifically relating to the Mariner Business, Assets or Mariner Employees. Each such policy is in full force and effect, is with responsible insurance carriers and is in an amount and scope customary for Persons engaged in businesses 21 and having assets similar to those of Sellers. All claims arising under such policies and all premiums that are due and payable thereunder have been paid in full. 4.19 BOOKS AND RECORDS. All of the books, records and accounts included in the Assets are in all material respects accurate and complete and maintained in accordance with good business practice. 4.20 AFFILIATED TRANSACTIONS. Except as disclosed on SCHEDULE 4.20, neither of the Sellers is party to or bound by any contract or agreement with any of its shareholders or any of its Affiliates relating to the Mariner Business. 4.21 NO INSOLVENCY. Neither Seller will be rendered insolvent by the sale, transfer and assignment of the Assets pursuant to the terms of this Agreement. 4.22 REPRESENTATIONS COMPLETE. None of the representations or warranties made by Sellers (as modified by the Disclosure Schedule), nor any statement made in any Exhibit or certificate furnished by either Seller pursuant to this Agreement, contains any untrue statement of a material fact, or, to the best knowledge of Sellers, omits any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made not misleading. There is no fact, circumstance or condition of any kind or nature whatsoever known to either Seller which reasonably would be expected to have a material adverse effect on either Seller or the Assets that has not been set forth in this Agreement, except those facts concerning general economic, legislative, regulatory or other matters such as may generally impact all businesses of the type operated by Sellers. 4.23 ACCRUED VACATION LIABILITIES. SCHEDULE 2.3(a) sets forth a true and complete list of all Accrued Vacation Liabilities as of the Closing Date. 4.24 GOVERNMENTAL PERMITS. SCHEDULE 4.24 is a complete list of all of the licenses, permits, filings, authorizations, approvals or indicia of authority by any Governmental Authority required for the Mariner Business as presently conducted by the Sellers, including the Transferable Governmental Permits (collectively, "GOVERNMENTAL PERMITS"). ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER In order to induce Sellers to enter into and perform this Agreement and to sell and transfer the Assets, Buyer hereby represents and warrants to Sellers as follows: 22 5.1 ORGANIZATION; POWER AND STANDING. Buyer is a corporation duly organized, validly existing and in good standing under the laws of The Commonwealth of Massachusetts. Buyer has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and each Ancillary Document to which it is a party and to consummate the transactions contemplated hereby and thereby. 5.2 AUTHORIZATION AND ENFORCEABILITY. The execution, delivery and performance by Buyer of this Agreement and each Ancillary Document to which it is a party and the consummation by Buyer of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer and its shareholders. This Agreement has been duly executed and delivered by Buyer and constitutes, and, upon execution and delivery by Buyer of each Ancillary Document to which it is party, such Ancillary Document shall constitute, a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general equitable principles. 5.3 CONFLICTS, ETC. Neither the execution and delivery by Buyer of this Agreement or any Ancillary Document to which it is a party nor the consummation by Buyer of the transactions contemplated hereby or thereby does or will (i) conflict with or violate any provision of any Organizational Document of Buyer, (ii) constitute, result in or give rise to, nor has any other event occurred nor does any other condition exist which, whether through the giving of notice or the lapse of time or otherwise, does or will constitute, result in or give rise to, except where it would not have a material adverse effect on the Buyer's ability to perform its obligations hereunder, a breach of or a default under any material contract, agreement, deed, mortgage, lease, license, other instrument, commitment, undertaking, arrangement or understanding to which Buyer is a party, or (iii) violate or give rise to any violation or default, except where it would not have a material adverse effect on the Buyer's ability to perform its obligations hereunder, under any Legal Requirement applicable to Buyer. 5.4 CONSENTS. No approval, consent, waiver, authorization or other order of, and no notice to or declaration, filing, registration, qualification or recording with, any Governmental Authority or other Person is required to be obtained or made by or on behalf of Buyer in connection with the execution, delivery or performance of this Agreement or any Ancillary Document to which it is a party or the consummation of the transactions contemplated hereby or thereby. 5.5 NO BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf of Buyer or any of its Affiliates is, or shall be, entitled to any commission or broker's or finder's fees from Buyer or from any of its Affiliates in connection with any of the transactions contemplated hereby. 23 ARTICLE 6. CERTAIN AGREEMENTS OF THE PARTIES 6.1 PAYMENT OF TAXES AND OTHER EXPENSES. Buyer shall pay any sales or use taxes which may be imposed on the acquisition by Buyer of the Assets pursuant to this Agreement; PROVIDED, HOWEVER, that Sellers shall pay any sales or use taxes which may be imposed on the transactions contemplated by this Agreement as a result of any other transactions involving Sellers. Each of Buyer and Sellers shall prepare and file, and shall cooperate with the others with respect to the preparation and filing of, any returns and other filings related to any such taxes as may be required by applicable Legal Requirements. Buyer and Sellers shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective attorneys, accountants, financial advisors or other representatives. 6.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated in its entirety among the Assets in accordance with the allocation set forth on SCHEDULE 6.2, which SCHEDULE 6.2 shall be reasonably agreed upon by Sellers and Buyer and attached to this Agreement within one month from the Closing Date. Buyer and Sellers shall file all information and tax returns (and any amendments thereto) in a manner consistent with the allocation set forth in SCHEDULE 6.2. If, contrary to the intent of the parties as expressed in this Section 6.2, any taxing authority makes or proposes an allocation different from that contained in SCHEDULE 6.2, Buyer and Sellers shall cooperate with each other in good faith to contest such taxing authority's allocation (or proposed allocation); PROVIDED, HOWEVER, that, after consultation with all parties adversely affected by such allocation (or proposed allocation), any other party hereto may file such protective claims or returns as may reasonably be required to protect its interests. Each party requesting cooperation shall reimburse the cooperating party for its reasonable out-of-pocket expenses incurred in rendering such cooperation. 6.3 EMPLOYEE MATTERS. (a) Buyer shall offer employment, commencing as of the Closing, to certain of the Mariner Employees as it shall choose in its sole discretion. Buyer shall have no obligation whatsoever regarding any of the Mariner Employees not chosen for employment by Buyers. Offers to the Mariner Employees shall include cash compensation packages substantially similar to the levels of cash compensation currently received by such employees and such employees shall be accorded benefits Buyer normally makes available to its employees (including participation is Buyer's stock incentive plans), in all cases without credit for service with Sellers. Sellers shall render all reasonable assistance to encourage such employees to accept such offers in accordance with their terms. The Mariner Employees to whom Buyer extends an offer 24 of employment and who accept Buyer's employment offer are referred to as "BUYER EMPLOYEES." (b) Prior to the Closing Date, Sellers and Buyer shall have offered in writing to each of the Buyer Employees the option to either: (i) be credited by Buyer, effective as of the Closing, with all or a portion, as such employee elects in writing, of the actual number of days of such employee's accrued and unused vacation time as of the Closing (not to exceed a maximum of 10 days), in which case (A) NCD shall pay Buyer at the Closing (pursuant to a reduction in the purchase price for the Assets under Section 2.4 hereof) an aggregate amount sufficient to pay out each such employee in full for the full amount of such employee's accrued vacation to be so credited (determined based upon such Buyer Employee's salary with NCD or NCD Software); (B) Buyer will credit such employee with such amount of accrued and unused vacation ("ACCRUED VACATION LIABILITIES"); and (C) NCD shall pay such employee in full for all of such employee's accrued and unused vacation time in excess of 10 days; or (ii) accept a cash payment in lieu of carrying forward all or any portion of such employee's accrued and unused vacation time, in which case NCD shall pay such employee in full for all such accrued and unused vacation with respect to which the employee elects to accept a cash payment. (c) Each Buyer Employee must have delivered to Buyer and NCD written notice of such employee's election with respect to the foregoing options regarding accrued vacation time at least 5 business days before the Closing or such employee will be deemed to have chosen the option set forth in subparagraph 6.3(b)(ii) above. (d) On or promptly after the Closing Date, NCD shall settle with or pay to each Buyer Employee all salaries, commissions, bonuses and other amounts that are or may become payable to or receivable by such Buyer Employee for all periods prior to the Closing. 6.4 ASSERTION OF OTHER SELLERS' PATENTS AGAINST BUYER. Sellers agree that as to any Sellers' patent or patent application based on technology contained in or directly or indirectly related to the Products as of the date of Closing and the items listed on SCHEDULE 2.1(a), neither Seller will assert such patent against Buyer's manufacture, use, sale, or importation of the Technology. 6.5 SUPPORT OBLIGATIONS. After the Closing, Sellers agree to provide third level technical support to Buyer as follows: (i) Sellers shall conduct one training class conducted at Buyer's facilities in Andover, Massachusetts for up to ten engineers (and 25 Buyer shall pay the reasonable travel expenses of Seller's trainer in connection with the training session) and (ii) Sellers shall provide sufficient, knowledgeable technical staff to answer technical support questions about the Products for three months from the Closing Date. 6.6 CROSS-GUARANTEE. Except as may be limited by Article 9 hereof, NCD and NCD Software jointly, severally and unconditionally guarantee all of the obligations of the other under this Agreement, the License Agreement and the Ancillary Documents to Buyer and shall promptly fulfill any obligation or pay any amount that is required under the Agreement, the License or the Ancillary Documents that is not fulfilled, paid or handled by the other for any reason, subject to any defenses of the entity whose performance is guaranteed. ARTICLE 7. CONFIDENTIALITY; NONCOMPETITION Sellers acknowledge that, having sold to Buyer the Assets relating to the Mariner Business and all of the goodwill associated therewith, the success of Buyer in conducting the Mariner Business (after giving effect to the sale and transfer to Buyer at the Closing of the Assets) depends upon both the absence of competition from Sellers as specified herein and the continued preservation of the confidentiality of certain information possessed by Sellers, that an absence of such competition as specified herein and the preservation of the confidentiality of such information is an essential premise of the bargain among Sellers and Buyer, and that Buyer would be unwilling to enter into this Agreement in the absence of this Article 7. Accordingly, Sellers hereby agree with Buyer as follows: 7.1 CONFIDENTIALITY. Sellers acknowledge that the Assets shall, upon the Closing, become the exclusive property of Buyer. Sellers hereby acknowledge and agree that all proprietary and confidential information included within the Assets (collectively, the "PROPRIETARY INFORMATION") shall, upon the Closing, become confidential and proprietary trade secrets of Buyer which are of substantial value to Buyer. Each Seller agrees that it will not, and will use its best efforts, consistent with industry practice, to assure that its employees, contractors, agents or Affiliates do not, at any time from and after the Closing, directly or indirectly, without the prior written consent of Buyer, disclose or use in any way any Proprietary Information, whether such information is now existing or hereafter arising; PROVIDED, HOWEVER, that such information shall not include any information known generally to the public (other than as a result of disclosure in violation hereof by either Seller or any of their employees, contractors, agents or Affiliates) made available by Buyer hereafter to others without restriction on confidentiality, independently developed by Sellers after the Closing 26 without violation of the restriction in Section 7.3, or which constitutes Residual Information (as defined below); PROVIDED, FURTHER, that the provisions of this Section 7.1 shall not prohibit any disclosure required by law in connection with any final judicial or administrative order. Except as otherwise agreed to in writing by Buyer, Sellers shall not create or attempt to create or permit others to attempt to create, on Sellers' behalf, the Software or any part thereof. Each Seller agrees to promptly notify Buyer if such party becomes aware of any unauthorized possession or use of any Proprietary Information. 7.2 RESIDUALS. Use by Sellers' engineers of information which relates to the Mariner Business and which such engineers recall from memory (without any special effort to memorize any such information) from their prior involvement with the Mariner Business ("RESIDUAL INFORMATION") shall not be deemed a misappropriation of trade secrets of Buyer so long as the individuals involved have not had access, subsequent to the Closing, to materials containing Buyer trade secrets including any engineering notebooks or other similar notes or materials. 7.3 NONCOMPETITION. (a) Sellers agree not to develop, take any steps toward developing, or market for one year following the Closing Date, for any Microsoft Windows platform, a stand-alone: (i) browser or (ii) single application that enables more than four of the following functions: Telnet, mail, Gopher, FTP, chat and browser; provided that Sellers may market third party products that fall within clauses (i) or (ii) above, if necessary in Seller's reasonable judgment to meet specific customer requirements not satisfied by the most current version of the Product offered by Buyer. Prior to any such marketing, however, Sellers shall consult with Buyer to determine whether such customer requirements can be satisfied with the current version of the Product offered by Buyer. Sellers, upon written notification to Buyer, may remove the restrictions set forth in this Section 7.3(a); provided that Sellers' right to distribute and sell binary code as set forth in Section 2.3 of the License Agreement and Sellers' right to remove restrictions on use of source code set forth in Section 2.2 of the License Agreement shall be terminated, effective as of such notification. (b) Notwithstanding Sellers' right to remove the restrictions set forth in Section 7.3(a), Sellers agree that, for a period of one year from the Closing, such Seller will not cause its engineers who were involved in the development of the Products to develop for Sellers or their Affiliates products that fall within Section 7.3(a) above. 7.4 ENFORCEMENT. Each of the parties hereto acknowledges and agrees that, because the legal remedies of the other parties may be inadequate in the event of a breach of, or other failure to perform, any of the covenants and obligations set forth in this Article 7, any such other party may, in addition to obtaining any other remedy or 27 relief available to it (including, without limitation, consequential and other damages at law), enforce this Article 7 by injunction, specific performance and other equitable remedies. ARTICLE 8. CONDITIONS TO CLOSING 8.1 CONDITIONS TO BUYER'S OBLIGATIONS. Buyer and Sellers agree to simultaneously execute the Agreement and to consummate the transactions contemplated hereby. The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction, or waiver by Buyer, at or before the Closing, of each of the following conditions: (a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) All representations and warranties of Sellers contained in this Agreement shall be, in all material respects, true and correct at and as of the Closing, and each Seller shall have performed, in all material respects, all agreements and covenants required hereby to be performed by such Person prior to or at the Closing in accordance with this Agreement, and (ii) Buyer shall have received at the Closing, from each Seller, a certificate, dated the Closing Date and signed by a senior executive officer of such Person, to the effect that the conditions set forth in subsection (i) above have been satisfied. (b) CONSENTS AND RELEASES. All consents, approvals, waivers and releases from all Governmental Authorities and other Persons necessary to permit Sellers and Buyer to effect the transactions contemplated by this Agreement shall have been obtained and shall be reasonably satisfactory in form and substance to Buyer and its counsel. (c) CORPORATE ACTION. Buyer shall have received from each Seller a copy, certified as true and complete by its Secretary or comparable officer, of all resolutions adopted by the board of directors of such party authorizing and approving the execution, delivery and performance of this Agreement and the Ancillary Documents and consummation of the transactions contemplated hereby and thereby. (d) AGREEMENTS WITH EMPLOYEES. Buyer shall have entered into employment arrangements with such Mariner Employees as Buyer deems necessary, upon terms satisfactory to Buyer and its counsel. (e) NO LITIGATION OR INJUNCTIONS. No action or proceeding shall have been instituted or threatened before or by any Governmental Authority to restrain or prohibit any of the transactions contemplated hereby, no preliminary or permanent 28 injunction or other order by any court of competent jurisdiction in the United States which prevents the consummation of the transactions contemplated hereby or which adversely affects the right of Buyer to own the Assets or to operate the Mariner Business of Sellers, shall have been issued and remain in effect, and no Legal Requirement shall have been enacted by any Governmental Authority that makes the consummation of the transactions contemplated hereby illegal. (f) PROCEEDINGS. All proceedings taken at or prior to the Closing in connection with the transactions contemplated by this Agreement, and all documents incident hereto, shall be satisfactory in form and substance to Buyer and its counsel, and Buyer shall have received copies of all such documents and other evidences as it or its counsel may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith. (g) OPINION OF COUNSEL. Sellers shall have furnished Buyer with favorable opinions, dated the Closing Date, of their counsel in substantially the form of EXHIBIT F. (h) CERTIFICATES. Buyer shall have received such other certificates of the officers of Sellers and others to evidence compliance with the conditions set forth in this Section 8.1 as may be reasonably requested by Buyer. (i) LICENSE AGREEMENT. Sellers shall have executed and delivered to Buyer a License Agreement substantially in the form of EXHIBIT G (the "LICENSE AGREEMENT"). 8.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction, or waiver by Sellers, at or prior to the Closing, of each of the following conditions: (a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) All representations and warranties of Buyer contained in this Agreement shall be, in all material respects, true and correct at and as of the Closing, and Buyer shall have performed, in all material respects, all agreements and covenants required hereby to be performed by Buyer prior to or at the Closing in accordance with this Agreement and (ii) Sellers shall have received at the Closing from Buyer a certificate, dated the Closing Date and signed by a senior executive officer of Buyer, to the effect that the conditions set forth in subsection (i) above have been satisfied. (b) CONSENTS AND RELEASES. All consents, approvals, waivers and releases from all Governmental Authorities and other Persons necessary to permit Sellers and Buyer to effect the transactions contemplated by this Agreement shall have 29 been obtained and shall be reasonably satisfactory in form and substance to Sellers and their counsel. (c) CORPORATE ACTION. Sellers shall have received from Buyer a copy, certified as true and complete by its Clerk, of all resolutions adopted by the board of directors of Buyer authorizing and approving the execution, delivery and performance of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby. (d) NO LITIGATION OR INJUNCTIONS. No action or proceeding shall have been instituted or threatened before or by any Governmental Authority to restrain or prohibit any of the transactions contemplated hereby, no preliminary or permanent injunction or other order by any court of competent jurisdiction in the United States which prevents the consummation of the transactions contemplated hereby shall have been issued and remain in effect, and no Legal Requirement shall have been enacted by any Governmental Authority that makes the consummation of the transactions contemplated hereby illegal. (e) PROCEEDINGS. All proceedings taken at or prior to the Closing in connection with the transactions contemplated by this Agreement, and all documents incident hereto, shall be satisfactory in form and substance to Sellers and their counsel, and Sellers shall have received copies of all such documents and other evidences as they or their counsel may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith. (f) OPINION OF COUNSEL. Buyer shall have furnished Sellers with a favorable opinion, dated the Closing Date, of its General Counsel in substantially the form of EXHIBIT H. (g) CERTIFICATES. Sellers shall have received such other certificates of the officers of Buyer and others to evidence compliance with the conditions set forth in this Section 8.2 as may be reasonably requested by Sellers. (h) LICENSE AGREEMENTS. Buyer shall have executed and delivered to Sellers the License Agreement. ARTICLE 9. INDEMNIFICATION 9.1 INDEMNIFICATION BY SELLERS. Sellers, jointly and severally, hereby agree to indemnify and hold Buyer and its Affiliates and the officers, directors, employees, 30 agents and representatives of Buyer and its Affiliates, and any person claiming by or through any of them, harmless from, against and in respect of the following: (a) Losses arising from or related to the ownership or operation of the Mariner Business associated with the Assets, or the ownership, possession, operation or use of the Assets, by Sellers at or prior to the Closing, other than Losses arising from or related to the Assumed Liabilities; (b) the Excluded Liabilities and Losses arising from or related to any of the Excluded Liabilities; (c) Losses arising from or related to the ownership, possession, operation or use of the Excluded Assets; (d) Losses arising from or related to any breach of or inaccuracy in any representation or warranty made by or on behalf of either Seller in this Agreement or in any Ancillary Document, whether or not such breach or inaccuracy was or should have been known by Buyer; (e) Losses arising from or related to any breach or violation by either Seller of any of its covenants and agreements contained in this Agreement or in any Ancillary Document; (f) Losses arising from or related to any of the matters described on SCHEDULE 9.1. 9.2 INDEMNIFICATION BY BUYER. Buyer hereby agrees to indemnify and hold Sellers and their Affiliates and the officers, directors, employees, agents and representatives of each of Sellers and their Affiliates, and any person claiming by or through any of them, harmless from, against and in respect of the following: (a) Losses arising from or related to the ownership, possession, operation or use by Buyer of the Assets after the Closing; (b) The Assumed Liabilities and Losses arising from or related to any of the Assumed Liabilities; (c) Losses arising from or related to any breach of or inaccuracy in any representation or warranty made by or on behalf of Buyer in this Agreement or in any Ancillary Document, whether or not such breach or inaccuracy was or should have been known by Sellers; and 31 (d) Losses arising from or related to any breach or violation by Buyer of any of its covenants and agreements contained in this Agreement or in any Ancillary Document. 9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. (a) The representations and warranties of each Seller contained herein or in any Ancillary Document shall survive the Closing for a period of two years from the Closing Date, except that: (i) all representations and warranties that relate to federal, state and local taxes, including, without limitation, the representations and warranties set forth in Section 4.4(c), shall survive until the expiration of the applicable statutes of limitations for such taxes (including any extensions thereof); and (ii) all representations and warranties that relate to environmental matters, including, without limitation, the representations and warranties set forth in Section 4.11, shall be perpetual; PROVIDED, HOWEVER, that representations and warranties with respect to which a claim is made within the applicable survival period shall survive until such claim is finally determined and paid. (b) The representations and warranties of Buyer made in this Agreement or in any Ancillary Document shall survive the Closing for a period of two years following the Closing Date; PROVIDED, HOWEVER, that representations and warranties with respect to which a claim is made within such period shall survive until such claim is finally determined and paid. (c) No claim for indemnification may be made pursuant to this Article 9 with respect to a representation or warranty after the expiration of the applicable survival period, other than claims based on fraud. 9.4 NOTIFICATION OF CLAIMS. A party seeking indemnification under this Article 9 (an "INDEMNIFIED PARTY") shall, promptly after the receipt of notice of the assertion of any claim or commencement of any Action (but in no event later than 10 days prior to the date any response or answer is due in any proceeding) in respect of which indemnity may be sought from a party against whom an indemnity obligation is asserted pursuant to this Article 9 (an "INDEMNIFYING PARTY") on account of the indemnity agreement contained above, notify the Indemnifying Party in writing of the receipt of such claim or the commencement of such Action. The omission of an Indemnified Party so to notify an Indemnifying Party of any such claim or Action shall not relieve the 32 Indemnifying Party from any liability in respect of such claim or Action which it may have to the Indemnified Party (except, however, that the Indemnifying Party shall be relieved of liability to the extent that the failure so to notify (a) shall have caused prejudice to the defense of such claim or Action or (b) shall have increased the costs or liability of the Indemnifying Party by reason of the inability or failure of the Indemnifying Party (because of the lack of prompt notice from the Indemnified Party) to be involved in any investigations or negotiations regarding any such claim or Action), nor shall it relieve the Indemnifying Party from any other liability which it may have to the Indemnified Party. In case any such claim shall be asserted or Action commenced against an Indemnified Party and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate in the negotiation or administration thereof and, to the extent it may wish, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party, and, after notice from the Indemnifying Party to the Indemnified Party of its election so to assume the defense thereof, which notice shall be given within 30 days of its receipt of such notice from such Indemnified Party, the Indemnifying Party shall not be liable to the Indemnified Party hereunder for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. If an Indemnifying Party does not wish to assume the defense, conduct or settlement of any claim or Action, the Indemnified Party shall not settle such claim or Action without the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. 9.5 LIMITATIONS ON INDEMNIFICATION. (a) Except for claims made for breaches of Sellers' representations and warranties set forth in Sections 4.4(a), 4.6(b), 4.6(g)(excluding Trade Rights), 4.7(d), 4.7(e) and 4.11 for which there shall be no limit on indemnification payments under this Article 9, Sellers shall not be liable for indemnification payments to Buyer under this Article 9 to the extent such aggregate indemnification payments by Sellers exceed the Purchase Price. Buyer shall not be liable for indemnification payments to Sellers to the extent such aggregate indemnification payments by Buyer exceed $2,500,000. (b) No Indemnifying Party shall be liable to any Indemnified Party (i) in respect of any individual claim involving Losses of less than $25,000, or (ii) until the aggregate amount of all Losses under all individual claims aggregate $75,000 (the "Threshold Amount"); PROVIDED, HOWEVER, when such Losses reach the Threshold Amount the Indemnifying Party shall be liable to the Indemnified Party for all Losses, including the Threshold Amount. 33 ARTICLE 10. MISCELLANEOUS 10.1 ASSIGNMENT. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party hereto without the prior written consent of the other parties hereto, except that Buyer may assign any of its rights hereunder to any of its Affiliates provided that Buyer guaranties the obligations of such Affiliate(s) hereunder. 10.2 NOTICES. Unless otherwise provided herein, any notice, request, instruction or other document or communication to be given hereunder by any party to the others shall be in writing and shall be deemed given when delivered personally or mailed by certified or registered mail, postage prepaid (such mailed notice to be effective on the date which is three business days after the date of mailing), sent by telefax (such notice sent by telefax to be effective when sent, if confirmed), or sent by a nationally recognized overnight courier (such notice to be effective on the next business day after the date when sent) as follows: If to Sellers, addressed to: Network Computing Devices, Inc. 350 North Bernardo Avenue Mountain View, California 94043-5007 Fax No.: (415) 961-7711 Attention: General Counsel Copy to: Dennis C. Sullivan, Esq. Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, California 94301 Fax No.: (415) 327-3699 If to Buyer, addressed to: FTP Software, Inc. 100 Brickstone Square, 5th Floor Andover, Massachusetts, U.S.A. 01810 Fax No.: (508) 684-6162 Attention: General Counsel 34 Copy to: Allen L. Morgan, Esq. Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Fax No.: (415) 493-6811 or to such other address as any party hereto may designate as to itself by written notice to the other parties hereto. 10.3 CHOICE OF LAW. This Agreement shall be governed by and construed in accordance with domestic substantive laws of the State of California, without regard for any choice or conflict of laws rule or principle that would result in the application of the domestic substantive law of any other jurisdiction, except that, with respect to matters of law concerning the internal corporate affairs of any party to this Agreement, the laws of the jurisdiction of formation of such party shall govern. 10.4 ENTIRE AGREEMENT. This Agreement, the License Agreement and the Master Agreement contain the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties hereto with respect to such subject matter, including the Letter of Intent, except for those certain nondisclosure agreements described in Section 10.9. 10.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.6 BINDING EFFECT; THIRD PARTIES. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the parties hereto (including, without limitation, any employee or stockholder of Sellers) or, as applicable, their respective successors and permitted assigns, any rights, remedies, obligations or liabilities (including, without limitation, any right of employment), or otherwise constitute any other Person a third party beneficiary, under or by reason of this Agreement. 10.7 SEVERABILITY. If any one or more of the provisions contained in this Agreement or in any other agreement or instrument referred to herein shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or other such agreement or instrument. 35 10.8 HEADINGS. The Section headings are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 10.9 PUBLICITY; CONFIDENTIALITY. (a) Each of the parties hereto shall consult with the others before issuing any press release or otherwise making any public statements with respect to this Agreement or any of the transactions contemplated hereby and shall not issue any such press release or make any such public statement except as all of the parties hereto may mutually agree or to the extent required by applicable law or the applicable rules of any stock exchange or securities association. (b) Each Seller agrees that all information obtained by it regarding Buyer prior to the date hereof and from and after the date hereof is and shall be subject to those certain nondisclosure agreements between Buyer and NCD effective as of August 1, 1995, all of the provisions of which are hereby incorporated herein by reference. 10.10 AMENDMENTS; WAIVERS. This Agreement may not be amended or modified except by an instrument in writing signed by all of the parties hereto. Any of the provisions of this Agreement may be waived in writing by the party or parties entitled to the benefits thereof. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver by such party of any subsequent breach. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 10.11 FURTHER ASSURANCES. At any time and from time to time, each party hereto, without further consideration, shall take such further action and execute and deliver such further instruments and documents as may be reasonably requested by any other party or parties in order to carry out the provisions and purposes of this Agreement and to transfer possession of all rights and interests in and title to the Assets, including, without limitation, by executing one or more further assignments covering any of the Assets constituting Intellectual Property Rights in form acceptable for recordation. The parties hereto acknowledge and agree that the remedy at law for any breach of this Section 10.11 would be inadequate, and hereby agree that temporary and permanent injunctive and other relief, including specific performance, may be granted without proof of actual damage or inadequacy of legal remedy, and without the need for posting any bond, in any proceedings which may be brought to enforce any of the provisions of this Section 10.11. 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their behalf by their respective representatives, thereunto duly authorized, as of the date first above written. FTP SOFTWARE, INC. NETWORK COMPUTING DEVICES, INC. By: /S/ DOUGLAS F. FLOOD By: /s/ JACK BRADLEY --------------------------------- ------------------------------------- Name: Douglas F. Flood Name: JACK BRADLEY ------------------------------ ----------------------------------- Title: Senior Vice President Title: CHIEF EXECUTIVE OFFICER ----------------------------- ----------------------------------- NCD SOFTWARE CORPORATION By: /s/ JACK BRADLEY ------------------------------------- Name: JACK BRADLEY ----------------------------------- Title: CHIEF EXECUTIVE OFFICER ---------------------------------- EXHIBITS - - -------- Exhibit A -- Form of Bill of Sale and Conveyance to Buyer Exhibit B -- Form of Assignment and Assumption Agreement Exhibit C -- Form of Assignment of Copyrights Exhibit D -- Form of Assignment of Trademarks Exhibit E -- Form of Assignment of Patent Rights Exhibit F -- Form of Opinion of Counsel to Sellers Exhibit G -- Form of License Agreement Exhibit H -- Form of Opinion of Counsel to Buyer SCHEDULES - - --------- Schedule 1.2 -- Products Schedule 1.3 -- Outside Directors Schedule 2.1(a) -- Certain Excluded Assets Schedule 2.1(d) -- Exceptions to Trade Rights Schedule 2.1(e) -- Contracts Schedule 2.1(g) -- Transferable Governmental Permits Schedule 2.1(i)(a) -- Tangible Personal Property Schedule 2.1(i)(b) -- Non-Transferred Tangible Personal Property Schedule 2.3(a)(1) -- Assumed Liabilities Schedule 2.3(a)(2) -- Accrued Employee Liabilities Schedule 4.3 -- Sellers' Consents and Approvals Schedule 4.4(a) -- Liens and Location of Assets Schedule 4.4(b) -- Certain Liabilities Schedule 4.5 -- Contractual Obligations Schedule 4.6(g) -- Ownership and Title Schedule 4.7(a) -- Software Schedule 4.7(c) -- Certain Enhancements Schedule 4.7(d) -- Certain Development Matters Schedule 4.7(f) -- Disclosure of Source Code(s) Schedule 4.8(a) -- Net Revenue Information Schedule 4.8(b) -- Customer Lists Schedule 4.8(c) -- Backlog Schedule 4.10 -- Litigation Schedule 4.12(d) -- Current Annual Salary for Each Mariner Employee of Sellers and Related Matters Schedule 4.13 -- Employee Benefit Plans Schedule 4.18 -- Insurance Policies Schedule 4.20 -- Affiliated Transactions Schedule 4.24 -- Governmental Permits Schedule 6.2 -- Allocation of Purchase Price Schedule 9.1 -- Certain Indemnification Obligations of Sellers 2 EX-10.2 3 EXHIBIT 10.2 LICENSE AGREEMENT THIS License Agreement ("Agreement") is made as of February 20, 1996 (the "Effective Date") by and between FTP Software, Inc., a Massachusetts corporation ("FTP"), and Network Computing Device, Inc., a California corporation, and NCD Software Corporation, a California corporation and wholly-owned subsidiary of Network Computing Devices, Inc. (collectively "NCD"). BACKGROUND NCD has assigned certain rights in the Mariner Product Line to FTP pursuant to a Asset Purchase Agreement between the parties. Under this Agreement, FTP licenses certain rights in the Mariner Product Line back to NCD, and NCD licenses to FTP certain rights in certain modules contained in the Mariner product that are derived from its Z-mail product. NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the parties hereto agree as follows: I. DEFINITIONS 1.1 "AUTOPILOT PATENT APPLICATION" shall mean the patent application number 08/401-183, entitled "Integrated Network Access User Interface System and Method." 1.2 "AUTOPILOT PATENT RIGHTS" shall mean any shall mean any and all rights in and to the AutoPilot Patent Application; any foreign counterparts of such application; any patents issuing on the foregoing application; any divisions, substitutions, re-examinations, and continuations thereof; and all reissues, renewals and extensions thereof. Continuations-in-part of the foregoing application and patents issuing on such continuations-in-part, patents of addition, and all reissues, renewals and extensions of such patents and patents of addition, shall also be within the AutoPilot Patent Rights, to the extent the same claim subject matter that was disclosed in the foregoing application or any foreign counterparts thereof. 1.3 "BINARY CODE" shall mean that form of computer software suitable for direct execution by a computer without intervening steps of assembly or compilation. 1.4 "BINARY SOFTWARE" shall mean the Mariner Product in Binary Code form only. 1.5 "MARINER PRODUCT" shall have the meaning set forth for Products in the Asset Purchase Agreement among Network Computing Devices, Inc., NCD Software Corporation and FTP Software, Inc. of even date herewith. 1.6 "SOURCE CODE" shall mean that form of computer software suitable to be read and written by programmers and which must be converted to Binary Software prior to execution by a computer. 1.7 "SOURCE SOFTWARE" shall mean the Source Code for the Mariner Product as it exists on the Effective Date, including both the commercially released version and work-in-process. 1.8 "TERMINALS" shall mean a hardware device that does not execute a user accessible operating system and is lacking any practical use (except for device configuration and diagnostic functions) unless connected to a local or wide area network, excluding devices capable of running application programs stored on customary removable media, rotating storage, and the like. 1.9 "Z-MAIL MODULES" shall mean those modules that are part of NCD's Z- mail product and identified in Schedule 2.1(a) of the Asset Purchase Agreement. II. GRANT 2.1 LICENSE TO FTP. NCD grants to FTP a worldwide, royalty-free, non- exclusive, perpetual, irrevocable license, including the right to sublicense, to use, display, copy, modify, import, export, sell and distribute the Z-Mail Modules, and create derivative works based thereon. 2.2 SOURCE CODE LICENSE TO NCD. FTP grants to NCD, a royalty-free, non- exclusive, perpetual, non-transferable (except as set forth in Section 8.1 below), non-assignable (except as set forth in Section 8.1 below), worldwide license to use, display and modify the Source Software, and sell, distribute and sublicense derivative works thereof in Binary Code format only; provided that NCD may only use such rights and licenses in the following manner: 2.2.1 Subject to Section 8.1, NCD may use such rights and license to develop derivative works of the Source Software and sell and distribute such derivative works in binary form only, and only if such software is bundled with a Terminal manufactured by or for NCD, NCD's parent, or any entity forty percent (40%) or more of which is owned by NCD (collectively "NCD or Affiliate") under the brand name of NCD or Affiliate or NCD's or Affiliate's customer, or any other product as to which FTP consents, which consent shall not be unreasonably withheld. 2.2.2 NCD may embed the Source Software or derivative works thereof in other software applications developed by NCD, provided that: (a) NCD shall not distribute any application in which more than twenty-five percent (25%) of the Source Software (as measured in lines of Source Code) or derivative works of more than twenty-five percent (25%) of the Source Software (as measured in lines of Source Code) is embedded; (b) the Source Software or derivatives thereof comprises less than fifteen percent (15%) of the lines of Source Code in any application in which it is embedded; and (c) NCD shall not use components of the Source Software that perform functionality covered by claims of the AutoPilot Patent Application. 2.2.3 NCD may use the Source Software to create modified versions of the Binary Software provided by FTP in the event such Binary Software contains an error (as reasonably agreed by the parties) and FTP, after written notification by NCD, is unwilling to modify the Binary Code in a time frame reasonably acceptable to NCD; provided that NCD shall provide and assign the rights to all such modifications to FTP as soon as reasonably practical after completion thereof. 2.2.4 Any time after the first anniversary of the Effective Date, and until the second anniversary of the Effective Date, NCD may remove the restrictions set forth in Section 2.2.1, 2.2.2 and 2.2.3 above for a one time payment of two million dollars ($2,000,000). 2.3 BINARY CODE. FTP grants to NCD a perpetual, non-exclusive, world- wide, fully paid, license to use, publicly perform, publicly display, copy, sell and distribute, the Binary Software; provided that NCD shall be allowed to sell and distribute the Binary Software only if the Binary Software is bundled with NCD software that has significant added value. For the purposes of this Section 2.3 "significant added value" shall mean software that has a list price of at least fifty percent (50%) of the list price of the Mariner Product. 2.3.1 FTP and NCD will use commercially reasonable efforts to reach agreement on specifications and a delivery schedule for APIs for the Binary Software. In the event the parties are unable to reach a reasonable agreement on the specifications or delivery schedule with respect to any item, FTP will hire an independent contractor to complete such work at FTP's offices. Such independent contractor shall promptly provide to NCD, at NCD's request, reports on the status of the work, including but not limited to reports on costs and expenses incurred to date, projections of costs and expenses for future work and estimates of the percentage of work completed. NCD, in NCD's sole discretion, upon ten (10) days written notice to FTP may decline to contribute its share of costs for such contractor and FTP may then terminate the engagement of the contractor or fund the development itself, in which case NCD shall have no further obligation for costs incurred after such ten (10) day period and FTP shall have no further obligation to complete such work. NCD shall be responsible for all costs and expenses related to such work; provided that FTP will reimburse NCD for fifty percent (50%) of such costs and expenses, up to a maximum of twenty-five thousand dollars ($25,000). In the event the parties reach agreement on the specifications and delivery schedule and FTP advises NCD that it will be unable to meet such specifications (unless it is unfeasible to meet such specifications, or, if George Cowsar and David Korn have not joined FTP (either as a consultant or employee) or are not at FTP six (6) months after the Effective Date, or will miss such delivery schedule by more than thirty (30) days, FTP will hire an independent contractor to complete such work and will be responsible for reasonable costs and expenses. 2.3.2 FTP will use commercially reasonable efforts to deliver updated Binary Code to NCD in accordance with the specifications and delivery schedule agreed to by the parties in 2.3.1 above. Upon delivery, such updates shall become part of the Binary Software. 2.3.3 During the 1996 calendar year, FTP will provide to NCD all bug fixes, error corrections, and enhancements developed by FTP, which FTP, in its sole discretion makes generally available to its other customers, which will become part of the Binary Software upon delivery, provided that FTP will in its sole discretion either: a) Remove all segments of code that FTP does not have the right to license to NCD; provided that nothing shall obligate FTP to acquire such license for NCD; or b) License to NCD a product that contains some or all third party technology licensed by FTP, at a reasonable price to be determined by FTP in its sole discretion. If NCD chooses not to obtain such a license, FTP shall provide an update as set forth in 2.3.3(b) above. 2.3.4 During the 1996 calendar year, FTP will provide level three technical support (as standardly provided by FTP to its other OEM customers) to NCD for the Binary Software, however, NCD shall be solely responsible for providing customer support to its customers (at the level normally provided by FTP's OEM customers). 2.3.5 NCD shall have no right to reverse assemble or decompile the Binary Software or updates thereto. 2.3.6 FTP will offer technical support (at least at the level described in 2.3.4 above) and upgrades to NCD after 1996 at FTP's then current rates for so long as NCD purchases technical support without interruption. 2.4 AUTOPILOT PATENT RIGHTS 2.4.1 After the first anniversary of the Effective Date, FTP will grant to NCD a worldwide, fully-paid, royalty free, perpetual, irrevocable, non-exclusive license, with no right to sublicense, under the AutoPilot Patent Rights to use, make, have made, import, sell and distribute, products that are covered by a claim set forth in the AutoPilot Patent Application. 2.4.2 NCD agrees that it will not develop, distribute or sell any software that is covered by a claim of the AutoPilot Patent Application before the first anniversary of the Effective Date, other than as permitted by the license granted under Section 2.3 above. 2.4.3 If FTP enters into an agreement with a third party, in which FTP licenses the third party under the AutoPilot Patent Rights, and where NCD has played a significant role in bringing the third party business opportunity to FTP's attention, then NCD shall be entitled to a fee equal to five percent (5%) of FTP's net revenues from such transaction. III. CONSIDERATION. 3.1 SOURCE LICENSE. In consideration of the rights and licenses granted to NCD in Section 2.2 above, NCD shall pay to FTP a license fee of one and one half million dollars ($1,500,000) on the Effective Date. 3.2 BINARY LICENSE. In consideration of the rights and licenses granted to NCD in Section 2.3 above, NCD shall pay to FTP a license fee of one million dollars ($1,000,000) on the Effective Date. IV. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION. 4.1 NCD. NCD represents and warrants that: (i) the Z-Mail Modules do not infringe the copyright or trade secrets of any third party; (ii) to the best knowledge of NCD, the Z-Mail Modules do not infringe any third party patent or trademark; (iii) NCD has the right and authority to enter into this Agreement and grant the rights and licenses hereunder; (iv) NCD has not granted, and neither will grant in the future, any rights in the Z-Mail Modules that are inconsistent with the rights and licenses granted to FTP herein; and (v) NCD will not assert against FTP's use, manufacture or sale of products derived from the Z-mail modules any rights in any patent or patent application, the claims of which would cover the Z-Mail Modules and hereby licenses FTP the non-exclusive right under such patents to make, have made, use, import, export, distribute and sell such products but without any express, implied or statutory warranty of non-infringement. 4.2 FTP. FTP represents and warrants that: (i) software and code provided by FTP to NCD pursuant to this Agreement, including but not limited to updates, bug fixes, error corrections, and enhancements, do not infringe the copyright or trade secrets of any third party, except to the extent that such infringement arises out of or results from software or code provided by NCD to FTP pursuant to this Agreement or the Asset Purchase Agreement; (ii) to the best knowledge of FTP, software and code provided by FTP to NCD pursuant to this Agreement, including but not limited to updates, bug fixes, error corrections, and enhancements, do not infringe any third party patent or trademark, except to the extent that such infringement arises out of or results from software or code provided by NCD to FTP pursuant to this Agreement or the Asset Purchase Agreement or specifications provided by NCD; (iii) it has the right and authority to enter into this Agreement and grant the rights and licenses hereunder; and (iv) FTP has not granted, and neither will grant in the future, any rights in the Source Software or Binary Software that are inconsistent with the rights and licenses granted to NCD herein. 4.3 INDEMNIFICATION BY NCD. NCD agrees to defend, indemnify, and hold FTP harmless against any loss, liability, and expense (including reasonable attorneys' fees) arising from any breach of the representations and warranties set forth in Section 4.1 above. FTP agrees to provide NCD with (i) prompt written notice of such claim or action, (ii) control and authority over the defense or settlement of such claim or action, and (iii) proper and full information and reasonable assistance to defend and/or settle any such claim or action. 4.4 INDEMNIFICATION BY FTP. FTP agrees to defend, indemnify, and hold NCD harmless against any loss, liability, and expense (including reasonable attorneys' fees arising from any breach of the representations and warranties set forth in Section 4.2 above. NCD agrees to provide FTP with (i) prompt written notice of such claim or action, (ii) control and authority over the defense or settlement of such claim or action, and (iii) proper and full information and reasonable assistance to defend and/or settle any such claim or action. 4.5 DISCLAIMER. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE SOURCE CODE, BINARY CODE AND Z-MAIL MODULES ARE PROVIDED "AS-IS". NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OTHER THAN THOSE EXPRESSLY STATED IN THIS AGREEMENT, AND SPECIFICALLY, OTHER THAN AS SET FORTH IN THIS SECTION 4, DISCLAIMS THE EXPRESS, STATUTORY OR IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. V. CONFIDENTIAL INFORMATION 5.1 GENERAL. The parties may, from time to time, in connection with this Agreement, disclose to each other Confidential Information. "Confidential Information" shall mean any information disclosed in writing by a party to this Agreement to any of the other parties to this Agreement, and marked by the disclosing party with the legend "CONFIDENTIAL" or other similar legend sufficient to identify such information as confidential proprietary information of the disclosing party. Neither party shall use any Confidential Information of the other party except as expressly authorized under this Agreement, and each party will use best efforts to prevent the disclosure of the other party's Confidential Information to third parties; provided that the parties may disclose Confidential Information, with similar protections in place, to the extent reasonably necessary to exploit the rights and license granted to such party hereunder (including the rights to grant and authorize sublicenses); and provided further that the recipient party's obligations under this Article V shall not apply to Confidential Information that: 5.1.1 is disclosed orally; provided, however, that the recipient party's obligations under this Article V shall apply to information disclosed orally if such information is confirmed in writing as "CONFIDENTIAL" by the disclosing party within thirty (30) days after disclosure thereof; 5.1.2 is in the recipient party's possession at the time of disclosure thereof; 5.1.3 is or later becomes part of the public domain through no fault of the recipient party; 5.1.4 is received from a third party having no obligations of confidentiality to the disclosing party; 5.1.5 is developed independently by the recipient party without reliance upon or use of the disclosing party's Confidential Information; or 5.1.6 is required by law or regulation to be disclosed; provided, however, that the party subject to such disclosure requirement has provided written notice to the other party promptly to enable such other party to seek a protective order or otherwise prevent disclosure of such Confidential Information. 5.2 SECURITY. NCD agrees to use the Source Software under carefully controlled conditions for the purposes set forth in this Agreement, and to inform all employees who are given access to the Source Software by NCD that such materials are confidential trade secrets of FTP and are licensed to NCD as such. NCD shall restrict access to the Source Software to those employees and Contractors of NCD who have agreed to be bound by a confidentiality obligation which incorporates the protections and restrictions substantially as set forth herein, and who have a need to know in order to carry out the purposes of this Agreement. NCD will either store the Source Software in a locked room or otherwise restrict access to such materials to persons specifically authorized by NCD and having a specific need to access such Source Software to perform their assigned tasks, provided that such safeguards shall in no event be less than reasonable or less than the industry standard. NCD agrees to make a reasonable effort to log access to the Source Software. Upon request by FTP, NCD shall provide FTP with the names of all individuals who have accessed such materials, and shall take all actions reasonably required to recover any such materials in the event of loss or misappropriation, or to otherwise prevent their unauthorized disclosure or use. NCD shall be fully responsible for the conduct of all its employees, Contractors, agents and representatives who may in any way breach this Agreement. 5.3 INJUNCTIVE RELIEF. Each party acknowledges that any breach of any of its obligations under this Article V is likely to cause or threaten irreparable harm to the other party, and, accordingly, each party agrees that in such event the non-breaching party shall be entitled to seek equitable relief to protect its interests, including but not limited to, preliminary and permanent injunctive relief, as well as money damages. VI. TERM. 6.1 TERM. This Agreement shall commence on the Effective Date and remain in effect in perpetuity unless terminated under Section 6.2 below. 6.2 TERMINATION. FTP may terminate this Agreement in full or in part upon: (A) thirty (30) days notice in the event of any material default in, or material breach of, any of the terms and conditions of Sections 2.2, 2.3 or 2.4 of this Agreement by NCD if such breach is not cured within such thirty (30) day period; (B) the commencement of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to NCD of its debts under any bankruptcy, insolvency, corporation or other similar law now or hereafter in effect, that authorizes the reorganization or liquidation of NCD or its debt or the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property; (C) NCD's consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it; or (D) NCD's making a general assignment for the benefit of creditors; or either party's becoming insolvent; or either party taking any corporate action to authorize any of the foregoing. 6.3 SURVIVAL. Sections 2.1, 4, 5, 6, 7 and 8 shall survive any termination of this Agreement. Termination of NCD's rights shall not affect the rights of NCD's end user sublicenses rightfully sublicensed during the term hereof. VII. LIMITATION ON LIABILITY UNDER NO CIRCUMSTANCES, OTHER THAN AS PROVIDED FOR IN SECTIONS 4.3, 4.4 AND 5 ABOVE, SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOST DATA, LOST PROFITS, BUSINESS INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. NOTWITHSTANDING THE FOREGOING, THE MAXIMUM LIABILITY OF EITHER PARTY TO THE OTHER FOR DAMAGES, OTHER THAN UNDER SECTIONS 4.3, 4.4 AND 5, FOR ANY AND ALL OTHER CAUSES WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, SHALL BE LIMITED TO NET PURCHASE PRICE SET FORTH IN THE ASSET PURCHASE AGREEMENT. VIII. GENERAL 8.1 ASSIGNMENT AND SUBLICENSING. NCD's licenses with respect to the Source Software and Binary Software granted under Sections 2.2 and 2.3 above may not be assigned or sublicensed to a third party except in connection with a merger, acquisition, sale of substantially all assets related to a product line, or other such similar transaction, provided that any such assignment during the first year after the Effective Date shall be subject to FTP's consent which shall not be unreasonably withheld. This Section 8.1 shall not limit NCD's sale or sublicense of NCD applications that contain less than five percent (5%) of the Source Software. 8.2 PATENT MARKING. NCD agrees to mark permanently and legibly all products and associated documentation used or sold by NCD that are covered by the AutoPilot Patent Rights, with such patent notice as may be permitted or required under Title 35, United States Code. 8.3 COMPLETE AGREEMENT. This Agreement, the exhibits attached hereto, and the Asset Purchase Agreement, constitute the entire understanding and only agreement between the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, representations, agreements, and understandings, written or oral, that the parties may have reached with respect to the subject matter hereof. No agreements altering or supplementing the terms hereof may be made except by means of a written document signed by the duly authorized representatives of each of the parties hereto. 8.4 FORCE MAJEURE. In the event either party hereto is prevented from or delayed in the performance of any of its obligations hereunder by reason of acts of God, war, strikes, riots, storms, fires, or any other cause whatsoever beyond the reasonable control of the party, the party so prevented or delayed shall be excused from the performance of any such obligation to the extent and during the period of such prevention or delay. 8.5 NOTICES. Any payment, notice or other communication this Agreement requires or permits either party to give must be in writing to the appropriate address given below, or to such other address as one party designates by written notice to the other party. The parties deem payment, notice or other communication to have been properly given and to be effective (a) on the date of delivery if delivered in person; (b) on the fourth day after mailing if mailed by first-class mail, postage paid; (c) on the second day after delivery to an overnight courier service such as Federal Express, if sent by such a service; or (d) upon confirmed transmission by facsimile. The parties' addresses are as follows: To NCD: Network Computing Device, Inc. 350 N. Bernado Avenue Mountain View, CA 94043 Fax: (415) 961-7711 Attn: General Counsel Copy to: Dennis C. Sullivan, Esq. Gray, Cary, Ware & Freidenrich 400 Hamilton Avenue Palo Alto, CA 94301 Fax: (415) 327-3699 To FTP: FTP Software, Inc. 100 Brickstone Square, 5th Floor Andover, MA 01810 Fax: (508) 659-6162 Attn: General Counsel 8.6 GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of California, without regard for any choice or conflict of laws rule or principle that would result in application of the domestic substantive law of any other jurisdiction, except that, with respect to matters of law concerning the internal corporate affairs of any party to this Agreement, the law of the jurisdiction of formation of such party shall govern; and provided further that all questions with respect to validity of any patents or patent applications shall be determined in accordance with the laws of the respective country in which such patents or patent applications shall have been granted or filed, as applicable. 8.7 NO WAIVER. A waiver, express or implied, by either party of any right under this Agreement or of any failure to perform or breach hereof by the other party hereto shall not constitute or be deemed to be a waiver of any other right hereunder or of any other failure to perform or breach hereof by such other party, whether of a similar or dissimilar nature thereto. 8.8 HEADINGS. Headings included herein are for convenience only, do not form a part of this Agreement and shall not be used in any way to construe or interpret this Agreement. 8.9 SEVERABILITY. If any provision of this Agreement shall be found by a court of competent jurisdiction to be void, invalid or unenforceable, the same shall be reformed to comply with applicable law or stricken if not so reformable, so as not to affect the validity or enforceability of the remainder of this Agreement, provided that the reformation complies with the intent of the parties. 8.10 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement. Network Computing Devices, Inc. ("NCD") FTP Software, Inc. ("FTP") By: /s/ JACK BRADLEY By: /S/ DOUGLAS F. FLOOD ---------------------------------- ---------------------------------- Name: JACK BRADLEY Name: DOUGLAS F. FLOOD -------------------------------- -------------------------------- Title: CHIEF EXECUTIVE OFFICER Title: SENIOR VICE PRESIDENT ------------------------------- ------------------------------- NCD Software Corporation By: /s/ JACK BRADLEY ---------------------------------- Name: JACK BRADLEY -------------------------------- Title: CHIEF EXECUTIVE OFFICER ------------------------------- EX-11.1 4 EXHIBIT 11.1 NETWORK COMPUTING DEVICES, INC. Exhibit 11.1 Statement Regarding Computation of Shares Used in Earnings per Share Computations (in thousands, except per share amounts) Three Months Ended March 31, ---------------------------- 1996 1995 ----------- ----------- Primary: Weighted average common shares outstanding during the period 16,260 15,659 Common share equivalents: Dilutive effect of stock options -- 916 ---------- ---------- Total 16,260 16,575 ---------- ---------- ---------- ---------- Net income (loss) $ (260) $ 304 ---------- ---------- ---------- ---------- Primary income (loss) per share $ (0.02) $ 0.02 ---------- ---------- ---------- ---------- Fully Diluted: Weighted average common shares outstanding during the period 16,260 15,659 Common share equivalents: Dilutive effect of stock options, including contingently issuable performance shares -- 1,420 ---------- ---------- Total 16,260 17,079 ---------- ---------- ---------- ---------- Net income (loss) $ (260) $ (1,002) ---------- ---------- ---------- ---------- Fully diluted income (loss) per share $ (0.02) $ (0.06) ---------- ---------- ---------- ---------- Note: The difference between net income used for primary and fully diluted earnings per share calculations for the three-month period ended March 31, 1995, is a result of the assumption that all financial performance objectives have been achieved, the maximum number of the remaining Performance Shares have been issued, and the maximum amount of remaining cash contingently payable has been paid, with a significant portion of the cash and the value of the Performance Shares allocated to in-process research and development and charged to operations. EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 16,865 16,684 30,726 1,993 19,702 87,871 24,546 17,873 99,031 29,430 756 0 0 64,658 4,187 99,031 30,439 0 22,100 0 16,186 0 (439) (449) (189) (260) 0 0 0 (260) (0.02) (0.02)
-----END PRIVACY-ENHANCED MESSAGE-----