<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Network General Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[NETWORK GENERAL LOGO]
July __, 1995
Dear Stockholder:
This year's annual meeting of stockholders will be held on Friday,
August 18, 1995 at 11:00 a.m. local time, at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California. You are cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN, AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our stockholders is important.
A copy of the Company's Annual Report to Stockholders is also enclosed for
your information. At the annual meeting we will review Network General's
activities over the past year and our plans for the future.
The Board of Directors and management look forward to seeing you at the
annual meeting.
Very truly yours,
LESLIE G. DENEND
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
- - --------------------------------------------------------------------------------
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING POST-PAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
- - --------------------------------------------------------------------------------
<PAGE>
NETWORK GENERAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 18, 1995
TO THE STOCKHOLDERS:
Please take notice that the annual meeting of the stockholders of Network
General Corporation, a Delaware corporation (the "Company"), will be held on
August 18, 1995, at 11:00 a.m., local time, at the Hotel Sofitel, 223 Twin
Dolphin Drive, Redwood City, California, for the following purposes:
1. To elect two Class II directors to hold office for three-year terms
and until their respective successors are elected and qualified.
2. To consider and vote upon a proposal to amend the Article VI and
Article IX of the Company's Certificate of Incorporation (the
"Certificate") to reduce the affirmative vote of stockholders
required to amend or repeal Articles V, VI, VIII and IX of the
Certificate and to adopt, amend or repeal any provision of the Bylaws
from 80% to 66-2/3%.
3. To consider and vote upon a proposal to ratify the appointment of
Arthur Andersen & Co. as the Company's independent public accountants
for the fiscal year ending March 31, 1996.
4. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on June 19, 1995, are
entitled to notice of, and to vote at, this meeting and any adjournment or
postponement thereof. For ten days prior to the meeting, a complete list of the
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose relating to the meeting during ordinary
business hours at the concierge's desk at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California.
By order of the Board of Directors
JAMES T. RICHARDSON
SECRETARY
Menlo Park, California
July __, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
SOLICITATION AND VOTING OF PROXIES . . . . . . . . . . . . . . . . . . . . . 1
INFORMATION ABOUT NETWORK GENERAL. . . . . . . . . . . . . . . . . . . . . . 1
Stock Ownership of Certain Beneficial Owners and Management . . . . . . 1
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
EXECUTIVE COMPENSATION AND OTHER MATTERS . . . . . . . . . . . . . . . . . . 6
Stock Options Granted During the Fiscal Year Ended March 31, 1995 . . . 8
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . 11
Employment, Severance and Change in Control Arrangements. . . . . . . . 11
Certain Transactions with Management. . . . . . . . . . . . . . . . . . 11
Compliance with Section 16(a) of the Exchange Act.. . . . . . . . . . . 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION . . . . . . . 13
COMPARISON OF STOCKHOLDER RETURN . . . . . . . . . . . . . . . . . . . . . . 16
ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE NETWORK GENERAL
CORPORATION CERTIFICATE OF INCORPORATION . . . . . . . . . . . . . . . . . . 18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Vote Required and Board of Directors' Recommendation. . . . . . . . . . 20
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. . . . . . . . 21
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING . . . . . . . . 21
TRANSACTION OF OTHER BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . 21
i
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
NETWORK GENERAL CORPORATION
4200 Bohannon Drive
Menlo Park, California 94025
The accompanying proxy is solicited by the Board of Directors of Network
General Corporation, a Delaware corporation ("Network General" or the
"Company"), for use at its annual meeting of stockholders to be held on
August 18, 1995, or any adjournment or postponement thereof, for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders. The
date of this Proxy Statement is July __, 1995, the approximate date on which
this Proxy Statement and the accompanying form of proxy were first sent or given
to stockholders.
SOLICITATION AND VOTING OF PROXIES
This solicitation of proxies is made on behalf of the Board of Directors of
the Company and the cost of soliciting proxies will be borne by the Company.
The Company has retained Georgeson & Company Inc. to assist in the solicitation
of proxies for a fee not to exceed $6,500, plus customary out-of-pocket
expenses. In addition, the Company will solicit stockholders by mail through
its regular employees, and will request banks and brokers, and other custodians,
nominees and fiduciaries, to solicit their customers who have stock of the
Company registered in the names of such persons and will reimburse them for
their reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors, and others to solicit proxies, personally or by telephone,
without additional compensation.
On June 19, 1995, the Company had outstanding ______________ shares of its
Common Stock, par value $0.01 per share, all of which are entitled to vote with
respect to all matters to be acted upon at the annual meeting. Each stockholder
of record as of that date is entitled to one vote for each share of Common Stock
held by him or her. The Company's Bylaws provide that a majority of all of the
shares of the stock entitled to vote, whether present in person or represented
by proxy, shall constitute a quorum for the transaction of business at the
meeting.
All valid proxies received before the meeting will be exercised. All
shares represented by a proxy will be voted, and where a stockholder specifies
by means of his or her proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her proxy
at any time before the time it is exercised by delivering to the Secretary of
the Company a written instrument revoking the proxy or a duly executed proxy
with a later date, or by attending the meeting and voting in person.
INFORMATION ABOUT NETWORK GENERAL
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of April 30, 1995 (except as noted in the
footnotes to the table), certain information with respect to the beneficial
ownership of the Company's Common Stock by (i) all persons known by the Company
to be the beneficial owners of more than 5% of the outstanding Common Stock of
the Company, (ii) each director and director-nominee of the Company, (iii) the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company as of March 31, 1995, as well as former officers of the
Company, and (iv) all executive officers and directors of the Company as of
April 30, 1995, as a group.
1
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT NETWORK GENERAL
AND NATURE COMMON STOCK
NAME OF BENEFICIAL OWNER (1) OF SHARES OUTSTANDING
- - ---------------------------- --------- -----------
<S> <C> <C>
FMR Corp. (2). . . . . . . . . . . . . . . . 1,796,100 8.07%
82 Devonshire Street
Boston, MA 02109
Pilgrim Baxter Grieg & Associates. . . . . . 1,587,800 7.14
1255 Drummer Lane, Suite 200
Wayne, PA 19087
Harry J. Saal (3). . . . . . . . . . . . . . 1,160,000 5.21
Leonard J. Shustek . . . . . . . . . . . . . 1,169,114 5.26
AIM Capital Management . . . . . . . . . . . 1,124,300 5.05
P.O. Box 4333
Houston, TX 77210
Charles J. Abbe (4). . . . . . . . . . . . . 6,333 *
Leslie G. Denend (5) . . . . . . . . . . . . 98,722 *
Gregory M. Gallo (6) . . . . . . . . . . . . 41,000 *
Howard Frank (7) . . . . . . . . . . . . . . 40,000 *
Laurence R. Hootnick (8) . . . . . . . . . . 31,000 *
Janet L. Hyland. . . . . . . . . . . . . . . 0 *
Richard H. Lewis (9) . . . . . . . . . . . . 9,046 *
James T. Richardson (10) . . . . . . . . . . 24,166 *
Michael H. Kremer (11) . . . . . . . . . . . 13,321 *
Karen J. Willem (12) . . . . . . . . . . . . 2,666 *
James L. Pante (13). . . . . . . . . . . . . 0 *
Bruce Fram (14). . . . . . . . . . . . . . . 11,333 *
All executive officers and
directors as a group (12 persons) (15) . . . 2,592,702 11.65%
--------- -----
<FN>
* Less than 1%
(1) The persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them, subject to community property laws where applicable and
to the information contained in the footnotes to this table. Unless
</TABLE>
2
<PAGE>
otherwise indicated, the business address of each of the beneficial
owners listed is 4200 Bohannon Drive, Menlo Park, California 94025.
(2) Based on a Schedule 13G filed by FMR Corp. ("FMR") with the Securities
and Exchange Commission (the "SEC") on February 9, 1995, FMR Corp.
beneficially owns 1,796,100 shares of the common stock of Network
General Corporation. This number includes 1,671,400 shares
beneficially owned by Fidelity Management & Research Company, as a
result of its serving as investment advisor to various investment
companies and funds, and 124,700 shares beneficially owned by Fidelity
Management Trust Company, as a result of its serving as trustee or
managing agent for various private investment accounts and other
funds.
The ownership of one investment company, Fidelity Magellan Fund,
amounted to 1,173,600 shares of common stock of Network General
Corporation.
FMR Corp. has sole voting power with respect to 123,000 shares and
sole dispositive power with respect to 1,796,100 shares.
(3) Does not include shares held by Dr. Shustek on behalf of Dr. Saal's
children or shares held directly by the children.
(4) Includes 5,833 shares subject to options exercisable within 60 days of
April 30, 1995.
(5) Includes 97,083 shares subject to options exercisable within 60 days
of April 30, 1995.
(6) Includes 1,000 shares held by the Gallo Family Trust, for which Mr.
Gallo and his wife are trustees, and 40,000 shares subject to options
exercisable within 60 days of April 30, 1995.
(7) Includes 40,000 shares subject to options exercisable within 60 days
of April 30, 1995.
(8) Includes 1,000 shares held by the Laurence R. Hootnick Trust dated
4/22/76, for which Mr. Hootnick and his wife are trustees, and 30,000
shares subject to options exercisable within 60 days of April 30,
1995.
(9) Includes 3,833 shares subject to options exercisable within 60 days of
April 30, 1995 and 200 shares owned in joint tenancy by Mr. Lewis'
wife and mother-in-law.
(10) Includes 24,166 shares subject to options exercisable within 60 days
of April 30, 1995.
(11) Includes 12,166 shares subject to options exercisable within 60 days
of April 30, 1995.
(12) Includes 2,666 shares subject to options exercisable within 60 days of
April 30, 1995.
(13) Based on a Form 4 filed with the SEC for the month of August 1994.
Mr. Pante ceased to be an executive officer of the Company in April
1994.
(14) Includes 11,333 shares subject to options exercisable within 60 days
of April 30, 1995. Mr. Fram ceased to be an executive officer of the
Company in August 1994.
(15) Includes 253,081 shares subject to options exercisable within 60 days
of April 30, 1995, but does not include shares held by Bruce Fram or
James L. Pante.
3
<PAGE>
MANAGEMENT.
DIRECTORS. This section sets forth for the current directors,
including the Class II nominees to be elected at this meeting, information
concerning their age and background.
<TABLE>
<CAPTION>
POSITION DIRECTOR
NAME WITH THE COMPANY AGE SINCE
- - ---- ---------------- --- --------
<S> <C> <C> <C>
CLASS I DIRECTORS WHOSE TERMS EXPIRE AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS:
Harry J. Saal Chairman of the Board and Director 51 1986
Howard Frank Director 54 1991
Charles J. Abbe Director 54 1994
CLASS II NOMINEES FOR ELECTION AT THE 1995 ANNUAL MEETING OF STOCKHOLDERS:
Gregory M. Gallo Director 53 1989
Janet L. Hyland Director 39 1995
CLASS III DIRECTORS WHOSE TERMS EXPIRE AT THE 1996 ANNUAL MEETING OF STOCKHOLDERS:
Leslie G. Denend President, Chief Executive Officer 54 1993
and Director
Laurence R. Hootnick Director 53 1989
</TABLE>
Dr. Saal, a founder of the Company, has served as President of Smart
Valley, Inc., a trade association involved with establishing the information
superhighway, since September 1993. He served as President and Chief Executive
Officer of the Company from its inception in May 1986 until June 1993, and has
served as Chairman of the Board of Directors since inception. He was also the
Company's Chief Financial Officer from May 1986 until November 1987. Dr. Saal
is also a director of Personal Computer Products, Inc. and serves as a director
of several privately-held companies and non-profit associations.
Mr. Frank was elected a director of the Company in September 1991. Since
January 1985, Mr. Frank has served as President of Howard Frank Associates, a
consulting company. Since May 1990, Mr. Frank has served as a Senior Fellow at
the Wharton School of Business. From September 1987 until July 1991, Mr. Frank
also served as Chairman of the Board of Directors of Network Management, Inc.
Mr. Abbe was elected a director of Network General in April 1994. He has
served as Senior Vice President, Corporate Development of Raychem Corporation,
an electronics components company, since August 1993 and previously served in
various other management capacities for Raychem from September 1989 through
August 1993. Prior to joining Raychem, Mr. Abbe was a director-partner at
McKinsey & Company, a management consulting company, from June 1982 to September
1989.
Ms. Hyland was elected by the Board of Directors of the Company to
become a director in June 1995. Since January 1995, she has served as the
President and sole proprietor of eMagine, a consulting firm. Ms. Hyland
served as the Director of Network Strategy Research of Forrester Research,
Inc., a technology research firm, from November 1990 to December 1994. Prior
to that time, from May 1985 to November 1990, Ms. Hyland served as the
Networks Market Development Manager of Digital Equipment Corp.
4
<PAGE>
Mr. Gallo was elected a director of the Company in April 1989. He is a
member of Gray Cary Ware & Freidenrich, A Professional Corporation, the
Company's outside legal counsel, where he has been employed since 1973. He is
also a director of Maxtor Corporation and General Magic, Inc.
Mr. Denend was elected a director of the Company in June 1993. Mr. Denend
is the President and Chief Executive Officer of the Company and has held those
positions since June 1993. He was also the Company's Senior Vice President of
Products from February 1993 to June 1993. Prior to joining Network General, he
was President of Vitalink, a manufacturer of internetworking products, from
November 1990 to December 1992. From January 1989 to October 1990, Mr. Denend
served in a variety of positions at 3Com Corporation, a global data networking
company, most recently as Executive Vice President for Product Operations. From
August 1983 to January 1989, he was a principal with McKinsey & Company, a
management consulting firm. Mr. Denend is also a director of Rational Software
Inc., a software company.
Mr. Hootnick was elected a director of Network General in April 1989.
Since May 1995, Mr. Hootnick has served as a self-employed consultant. From
August 1994 to May 1995 Mr. Hootnick served as the Chief Operation Officer of
NetManage, Inc., a software company. From May 1991 to August 1994, Mr. Hootnick
served as President and Chief Executive Officer of Maxtor Corporation. He was
employed by Intel Corporation from 1973 until 1991, most recently as Senior Vice
President.
MEETINGS OF THE BOARD OF DIRECTORS. During the fiscal year ended March 31,
1995, the Board of Directors of the Company held eight (8) meetings. During
that period the Audit Committee of the Board held four (4) meetings, the
Compensation Committee of the Board held ten (10) meetings, and the Nominating
Committee of the Board held one (1) meeting. No director attended fewer than
75% of the aggregate of the total number of meetings of the Board and all of the
committees of the Board on which such director was serving held during that
period.
The members of the Audit Committee at various times during the fiscal year
ended March 31, 1995, were Messrs. Hootnick, Frank and Gallo. The functions of
the Audit Committee include: recommending to the Board, subject to stockholder
approval, the retention of independent public accountants; reviewing and
approving the planned scope, proposed fee arrangements and results of the
Company's annual audit; reviewing the adequacy of accounting and financial
controls; reviewing the independence of the Company's independent public
accountants; approving all assignments to be performed by the Company's
independent public accountants; and instructing the Company's independent public
accountants, as deemed appropriate, to undertake special assignments.
The members of the Compensation Committee at various times during the
fiscal year ended March 31, 1995 were Messrs. Hootnick, Frank, Abbe and Gallo,
although Mr. Gallo resigned in April 1994. The Compensation Committee reviews
and determines the salary and bonus criteria of all of the Company's officers.
For additional information about the Compensation Committee, see "REPORT OF THE
COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION" and "EXECUTIVE COMPENSATION
AND OTHER MATTERS" below.
The members of the Nominating Committee during the fiscal year ended
March 31, 1995 were Messrs. Saal, Shustek, Abbe and Gallo. The Nominating
Committee considers and recommends action to the Board regarding nominations to
the Board of Directors. Pursuant to the Company's Bylaws, nominations for the
election of directors may be made by any stockholder entitled to vote in the
election of directors if such nomination is received by the Secretary of the
Company not less than 120 calendar days in advance of the date the Company's
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company as of March 31, 1995, as well as
two former officers of the Company, whose total salary and incentive
compensation for the fiscal year ended March 31, 1995 exceeded $100,000, for
services in all capacities to the Company, during the fiscal years ended
March 31, 1995, March 31, 1994, and March 31, 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------------------ ----------------
Name and Principal Fiscal All Other
Position Year Salary(1) Bonus(2) Options (Shares) Compensation(3)
- - ------------------------- ------ ---------- --------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Leslie G. Denend 1995 $265,008 $190,598 50,000 $7,043
President/Chief Executive 1994 220,292 148,594 200,000(4) 2,936
Officer 1993 33,000 2,750 100,000(5)
Richard H. Lewis 1995 243,113 35,623 23,000 45,863
Senior Vice President, 1994 177,347 31,595 40,000(6) 9,838
Worldwide Field 1993 153,076 11,080 49,000(7) 6,913
Operations
James T. Richardson 1995 184,808 74,523 85,000 39,032
Senior Vice President 1994 -- -- -- --
and Chief Financial Officer 1993 -- -- -- --
Michael H. Kremer 1995 138,333 59,756 28,000 1,251
Vice President of 1994 100,987 23,653 30,000(8) 1,191
Engineering 1993 28,439 --- 15,000 356
Karen J. Willem 1995 125,000 46,186 16,000 1,966
Vice President and 1994 106,046 35,276 11,668 1,900
Controller 1993 89,985 22,686 6,666 1,606
FORMER OFFICERS:
James L. Pante(9) 1995 203,127 7,247 -- 119,600
Former Vice President, 1994 183,739 32,060 10,000(10) 73,441
European Operations 1993 206,114 5,505 40,000 58,369
Bruce Fram(11) 1995 204,350 30,561 16,000 2,098
Former Vice President of 1994 114,450 41,850 50,000 1,893
Asia Pacific 1993 102,500 6,835 6,666 1,640
<FN>
- - -------------------------
(1) Includes commissions earned for Mr. Lewis of $93,113, $58,597 and $68,276,
for Mr. Pante of $4,667, $48,746 and $77,631, and for Mr. Fram of $109,350,
$0 and $0, in fiscal 1995, 1994, and 1993, respectively.
(2) Bonuses are based on performance. See "REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION."
6
<PAGE>
(3) Amounts include 401(k) employer matching funds, car allowance, payment for
attendance at Presidents Club, payment of expatriate taxes, relocation
expenses and certain living and travel expenses. Mr. Denend's amounts
include 401(k) employer matching funds in fiscal 1995 and 1994 of $2,451
and $2,936, respectively and payments for attendance at Presidents Club in
fiscal 1995 of $4,592. Mr. Lewis' amounts include 401(k) employer matching
funds in fiscal 1995, 1994 and 1993 of $2,295, $2,273 and $2,113,
respectively; car allowance of $4,800 in each of fiscal 1995, 1994 and
1993; payment for attendance at Presidents Club in fiscal 1995 and 1994 of
$3,030 and $2,765, respectively; and payment of certain living and travel
expenses in fiscal 1995 of $35,739. Mr. Richardson's amounts include
401(k) employer matching funds in fiscal 1995 of $750; and payment of
certain living and travel expenses in fiscal 1995 of $38,282. Mr. Kremer's
amounts include 401(k) employer matching funds in fiscal 1995, 1994 and
1993 of $1,251, $1,191, and $356, respectively. Ms. Willem's amounts
include 401(k) employer matching funds in fiscal 1995, 1994, and 1993 of
$1,966, $1,900, and $1,606, respectively. Mr. Pante's amounts include
401(k) employer matching funds in fiscal 1995, 1994 and 1993 of $1,800,
$2,191 and $2,160, respectively; payment of expatriate taxes in fiscal 1995
and 1994 of $111,964 and $71,250, respectively; and relocation expenses in
fiscal 1995 and 1993 of $5,835 and $56,209, respectively. Mr. Fram's
amounts include 401(k) employer matching funds in fiscal 1995, 1994 and
1993 of $2,098, $1,893, and $1,640 respectively.
(4) Includes an option to purchase 100,000 shares granted on June 21, 1993,
replacing and thus eliminating an option for an identical number of shares
granted in fiscal 1993.
(5) Represents an option to purchase 100,000 shares that was repriced and thus
eliminated on June 21, 1993. See footnote 4 above.
(6) Includes an option to purchase 12,000 shares granted on June 21, 1993,
replacing and eliminating an option for an identical number of shares
granted in fiscal 1993.
(7) Includes an option to purchase 12,000 shares that was repriced on June 21,
1993 and an option to purchase 37,000 shares granted on August 21, 1992
that replaced and eliminated an option for an identical number of shares
granted in 1990. See footnote 6 above.
(8) Includes an option to purchase 15,000 shares granted on June 21, 1993,
replacing and eliminating an option for an identical number of shares
granted in fiscal 1993.
(9) In April 1994, Mr. Pante ceased to be an executive officer of Network
General.
(10) Includes an option to purchase 10,000 shares granted on June 21, 1993,
replacing and eliminating an option for an identical number of shares
granted in fiscal 1993.
(11) In August 1994, Mr. Fram ceased to be an executive officer of Network
General.
</TABLE>
7
<PAGE>
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MARCH 31, 1995.
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
March 31, 1995, to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants in Last Fiscal Year for Option Term(1)
- - ----------------------------------------------------------------------------------------------------- ---------------------------
% of Total
Options
Granted to
Options Employees
Granted in Fiscal Exercise Expiration
(Shares) Year (Price)(3) Date 5% 10%
Name (2)
- - ----------------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend 50,000 2.98% $19.00 10/19/04 $597,450 $1,514,055
Richard H. Lewis 23,000 1.37 19.00 10/19/04 274,827 696,465
James T. Richardson 80,000 4.76 17.375 4/5/04 874,164 2,215,302
5,000 0.29 19.00 10/19/04 59,745 151,406
Michael H. Kremer 28,000 1.67 19.00 10/19/04 334,572 847,871
Karen J. Willem 16,000 0.95 19.00 10/19/04 191,184 484,498
James L. Pante -- -- -- -- -- --
Bruce Fram 16,000 0.95 19.00 10/19/04 191,184 484,498
<FN>
- - ---------------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the Common Stock, overall market conditions and the optionholders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved. One share of stock purchased
at $17.375 in 1995 would yield profits of $10.93 at 5% appreciation over 10
years, or $27.69 per share at 10% appreciation over the same period. One
share of stock purchased at $19.00 in 1995 would yield profits of $ 11.95
at 5% appreciation over 10 years, or $30.28 per share at 10% appreciation
over the same period.
(2) Options granted prior to July 19, 1993 under the Company's 1989 Stock
Option Plan generally vest either over, or at the end of, a three year
period from the date of grant and are exercisable only to the extent
vested. Initial grants of such options to new hires and new officers
generally vest over a three year period at the rate of one-third on each
anniversary of the date of grant for each full year of the optionee's
continuous employment with the Company. Subsequent grants generally vest
fully at the end of a three year period from the date of grant. After
July 19, 1993, initial grants for new hires and initial grants for new
officers generally vest at the rate of one-quarter at the end of one year,
and then 1/48 per month thereafter for each full month of the optionee's
continuous employment with the Company until fully vested at the end of
four years. Subsequent option grants generally vest monthly at a rate of
1/48 per month for each full month of the optionee's continuous employment
with the Company until full vested at the end of four
8
<PAGE>
years. Under the 1989 Stock Option Plan, the Board retains discretion to
modify the terms of outstanding options, subject to the provisions of that
plan. For additional information regarding options, see "Employment,
Severance and Change of Control Arrangements" below.
(3) All options were granted at market value on the date of grant.
</TABLE>
9
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES FOR THE FISCAL YEAR ENDED MARCH 31, 1995.
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in the fiscal year ended
March 31, 1995, and unexercised options held as of March 31, 1995, by the
persons named in the Summary Compensation Table.
AGGREGATE OPTION EXERCISES AND FISCAL
YEAR-END VALUES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised In-the-
Shares Options at 3/31/95 Money Options at 3/31/95(3)
Acquired on Value --------------------------------- --------------------------------
Name Exercise Realized(1) Exercisable(2) Unexercisable Exercisable(3) Unexercisable
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend 5,000 $ 88,750 62,708 182,292 $1,051,039 $2,902,087
Richard H. Lewis 11,000 168,250 2,395 97,605 22,753 1,446,498
James T. Richardson -- -- 520 84,480 4,940 932,560
Michael H. Kremer 5,000 44,375 5,416 47,584 58,327 585,173
Karen J. Willem 17,000 158,375 1,666 32,668 15,827 471,598
James L. Pante 45,000 565,813 -- -- -- --
Bruce Fram 25,333 328,505 10,333 61,000 125,664 740,331
<FN>
- - -------------------------
(1) Values realized by the optionee prior to the payment of taxes.
(2) Company stock options granted in fiscal 1995 generally vest either over a
four year period from the date of grant, and are exercisable only to the
extent vested. See also "OPTION GRANTS IN LAST FISCAL YEAR" table.
(3) The value of the unexercised in-the-money options is based on the closing
sales price of the Company's Common Stock on March 31, 1995 ($28.50/share).
</TABLE>
10
<PAGE>
COMPENSATION OF DIRECTORS.
During the fiscal year ended March 31, 1995, the Company's non-employee
directors received $1,000 for each meeting of the Board of Directors they
attended, $500 for each committee meeting they attended and a $1,000 per month
retainer. Non-employee directors who travel more than four hours to attend
Board meetings receive an additional $2,000 per meeting. The Company's non-
employee directors also received options under the Company's 1989 Outside
Directors Stock Option Plan (the "Directors Plan"). Since November 1, 1993, an
option to purchase 20,000 shares of Common Stock has been granted upon a non-
employee director's initial eligibility under the Directors Plan, with an
additional option to purchase 5,000 shares granted at the completion of each
year of service. Mr. Frank is also reimbursed for out-of-pocket travel expenses
related to Board meetings. The Company's directors who are also officers of the
Company did not receive any compensation for their services as members of the
Board of Directors.
EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS.
Options granted to officers of Network General under its 1989 Stock Option
Plan (the "Option Plan") will become immediately exercisable and vested under
certain circumstances, as explained below, upon a "change of control" as defined
under the Option Plan. In the event of a transfer of control of Network
General, the Board shall provide that the unexercisable and/or unvested portions
of any outstanding option shall become immediately exercisable and vested as of
a date prior to the transfer of control if the acquiring or successor
corporation does not elect to either assume the options or provide substitute
options for such outstanding options. Any outstanding options which are not
exercised, assumed or replaced will terminate effective as of the date of the
transfer of control.
Since the beginning of fiscal 1994, the Company has entered into agreements
with several former officers of the Company in connection with their resignation
as officers of the Company. The Company has entered into such agreements with
Valerie Lasker and James L. Pante in April 1994 and June 1994, respectively.
These agreements provide for continued payment of salary, continued provision
of the Company's standard health and life insurance and other benefits and
continued or accelerated vesting of stock options for a period of time after
their resignation as officers of the Company. Pursuant to these agreements,
Mr. Pante and Ms. Lasker receive $17,917 per month (for 8 months) and $11,677
per month (for 12 months), respectively, in continued salary after their
resignation as officers of the Company.
In April 1994, the Company entered into employment agreements with three
key executive officers: Leslie G. Denend, James T. Richardson and Richard H.
Lewis. These agreements provide that, in the event the officer is terminated,
including a "constructive termination" by demoting or reducing the salary of the
officer, within two years after a "change of control" of the Company, the
officer would be entitled to continued salary, bonus and commission payments and
immediate acceleration of all options to purchase shares of the Company's Common
Stock granted to that officer prior to the "change of control." In the event of
such termination, Mr. Denend would be entitled to continuation of his salary,
bonus and commission payments until the date two years after such termination;
the remaining officers would be entitled to such continuation until the date one
year after such termination (respectively, the "Severance Periods"). Each
executive would be entitled to continued medical coverage by the Company during
the Severance Period, unless the executive is covered by another employer's
group health plan.
CERTAIN TRANSACTIONS WITH MANAGEMENT.
The Company entered into employment agreements with Messrs. Denend,
Richardson and Lewis in April 1994, which have certain provisions that become
effective upon a change of control, as set forth in "Employment, Severance and
Change in Control Arrangements."
11
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and persons who beneficially own more than 10% of the Company's Common
Stock were complied with, except that one transaction that should have been
reported on a statement of changes in beneficial ownership for Edward Snyder was
not timely reported; one statement of changes in beneficial ownership reporting
three related transactions for James Pante was not timely filed; the initial
indirect holdings of Richard Lewis were not correctly reported on his initial
statement of beneficial ownership or on the corresponding annual statement of
beneficial ownership; and one transaction effected indirectly by Mr. Lewis was
not timely reported on a statement of changes in beneficial ownership or the
corresponding annual statement of beneficial ownership.
12
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
During fiscal 1995, the Compensation Committee (the "Committee") was
comprised of four non-employee directors of the Board of Directors, Messrs.
Hootnick, Frank, Abbe and Gallo. Mr. Gallo resigned from the Committee in April
1994. The Committee is responsible for setting and administering policies
governing compensation of executive officers. The Committee reviews the
performance and compensation levels for executive officers, and sets salary and
bonus levels and makes option grants under the Company's Option Plan.
COMPENSATION POLICIES GENERALLY
The goals of the Company's executive officer compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align executive officer compensation with the Company's performance
and to motivate executive officers to achieve the Company's business objectives.
The Company uses salary, participation in the Company's profit sharing plan,
executive officer bonuses and stock options to achieve these goals. The
Company's Human Resources staff provides the Committee with compensation surveys
which are obtained from compensation consultants and other data to enable the
Committee to compare the Company's compensation package with that of similarly-
sized high technology companies in the Company's geographic area.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company has considered the amendments to Section 162(m) of the Internal
Revenue Code, as amended (the "Code"), and related proposed regulations of the
Internal Revenue Service that restrict the deductibility for federal income tax
purposes of executive compensation paid to the chief executive officer and each
of the four other most highly compensated executive officers at the end of any
fiscal year to the extent such compensation exceeds $1,000,000 for any of such
officers in any year and does not qualify for an exemption under the statute or
proposed regulations. The Committee concluded in June 1994 that it would be
advisable to establish certain restrictions on the granting of options under the
Option Plan to enable compensation recognized in connection with the exercise of
options to qualify for exemption from the deductibility limitation as
"performance-based compensation." These restrictions were approved at the 1994
Annual Meeting of Stockholders. The Committee does not believe that other
components of the Company's compensation in the aggregate will be likely to
exceed $1,000,000 for any executive officer in any year in the foreseeable
future, and therefore concluded that no further action with respect to
qualifying such compensation for federal income tax deductibility was necessary
at this time. In the future, the Committee will continue to evaluate the
advisability of qualifying its executive compensation for such deductibility.
The Committee's policy is to qualify its executive compensation for
deductibility under applicable tax laws as practicable.
COMPENSATION COMPONENTS
Salaries are set for each executive officer with reference to a range of
salaries for comparable positions among high technology companies of similar
size and location. Annual salary adjustments take into account individual
executive officers' achievements during the prior fiscal year towards key
Company-wide objectives set annually by the Board of Directors, as well as the
executive officers' performance of their individual responsibilities. In fiscal
1994, the Company's sales exceeded $100 million for the first time. As a
result, the Compensation Committee surveyed comparable companies with sales of
$100 million to $200 million and the Committee set executive officer base
salaries for fiscal 1995 at approximately the median of salaries for similar
positions among comparable companies. Consistent with this policy, the
Committee approved an increase in the base salary of Leslie G. Denend, its
President and Chief Executive Officer, to maintain it at approximately the
average level of salaries for chief executive officers in similarly-sized high
technology companies in the Company's geographic proximity, based on a recently
completed survey by the Company's compensation consultants. Because the
Company's sales
13
<PAGE>
revenues have continued to increase, the Committee expects that the base
salaries will increase toward 75% of salaries for similar positions at
comparable companies.
Cash incentive compensation is provided through participation in the
Company's profit sharing plan and the executive bonus plan. In accordance with
the Committee's goal to have a substantial overall proportion of executive
compensation as variable compensation based on Company performance, in fiscal
1995, variable compensation for executive officers other than the Chief
Executive Officer through these plans was targeted at approximately one-fifth to
one-third of executive officer total cash compensation if predetermined
corporate targets and objectives were achieved. The Committee compares the
Company's operating profits (excluding profit sharing) to the Company's
operating plan semi-annually, and distributes a comparable percentage of a
predetermined bonus pool to all employees, including executive officers, through
the Company's profit sharing plan.
The Committee also determines distributions to executive officers under the
executive bonus plan on a semi-annual basis. The Committee determines the total
amount of the semi-annual bonus with reference to a predetermined bonus pool,
with half of the bonus awarded based on the Committee's analysis of the
Company's achievement of corporate earnings per share targets, which must exceed
fiscal 1994 earnings per share in order for the executives to be eligible to
receive the half of their bonus based on Company performance, and Company-wide
objectives set annually by the Board of Directors. In fiscal 1995, the primary
Company-wide objective was operating profits, and other Company-wide objectives
were revenue from the Distributed Sniffer System monitoring product line,
international revenue, operating expenses and new product introductions. The
other half of the bonus pool is based on the achievement of individual officer
objectives. The bonuses are allocated among the individual executive officers
with reference to responsibilities, performance and goal achievement of
individual executive officers. During fiscal 1995 the Committee determined that
the Company met or exceeded its corporate targets and Company-wide objectives
and the Committee evaluated the achievements of individual officer goals.
Consistent with this policy, Mr. Denend received an aggregate 1995 bonus of 113%
of his target bonus because, in the Committee's determination, the Company met
or exceeded its corporate targets and Company-wide objectives and the Committee
determined that Mr. Denend had significant responsibility for the Company's
performance, and met or exceeded his individual objectives. Bonuses to
executive officers (not including officers who left the Company during the year)
under the bonus plan ranged from 110 to 125% of bonuses targeted under the plan,
except that one person who is no longer an executive officer received 76% of his
target bonuses.
The Committee strongly believes that equity ownership by executive officers
provides incentives to build stockholder value and align the interests of
executive officers with the stockholders. Initial equity grants to executive
officers are subject to four year vesting. The size of the initial grant has
been determined with reference to comparable equity compensation offered by
similarly-sized high technology companies for similar positions, the
responsibilities and expected future contributions of the executive officer, as
well as recruitment considerations. The Committee has awarded thereafter a
refresher grant annually. In determining the size of refresher grants the
Committee has considered the individual executive officers' performance during
the previous fiscal year and expected contributions during the coming year, as
well as the relative position and responsibilities of each executive officer and
previous option grants to such executive officers. Generally, refresher option
grants vest monthly over a four year period from the date of grant. The
Committee believes that refresher options have provided strong incentives for
executive officers to remain with the Company.
In light of this policy, the Committee also considered the grant of new
stock options to Mr. Denend and concluded that it was advisable to grant
Mr. Denend further equity compensation to provide additional strong incentives
tied to the Company's performance and stockholder value. Therefore in October
1994, after a review of the average option grant to CEOs of similarly sized
companies with similar capitalization, the Committee approved the grant to Mr.
Denend of an option to purchase an additional 50,000 shares, subject to four
year vesting, which the Committee believed would provide Mr. Denend with equity
incentives comparable to those of CEOs in similar companies.
14
<PAGE>
EMPLOYMENT AGREEMENTS
In April 1994, the Committee considered methods to incentivize senior
management to maximize stockholder value. The Committee determined that
agreements with severance provisions triggered under certain circumstances
following a change of control would encourage management to remain with the
Company during the negotiation of a merger, providing both the strongest
possible negotiating team and strong management to make a successful transition,
and would allow management to negotiate the terms of a merger without being
distracted by concerns over the loss of their personal livelihood. Accordingly,
the Committee authorized the Company to enter into employment agreements with
severance provisions with the Chief Executive Officer and certain other
executive officers who would be critical in negotiating the terms of any merger
and in the transition after a merger. See "Employment, Severance and Change in
Control Arrangements."
COMPENSATION COMMITTEE
Laurence R. Hootnick
Howard Frank
Charles J. Abbe
15
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's ("NGC") Common Stock with the
cumulative total return of the Center for Research in Securities Prices ("CRSP")
Total Return Index for the Nasdaq Stock Market (U.S. Companies) ("NASDAQ") and
the Hambrecht & Quist Index for Technology Companies ("H&Q") for the period
commencing on March 30, 1990(1) and ending on March 31, 1995.(1)
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MARCH 30, 1990(1)
THROUGH MARCH 31, 1995:(2)
[GRAPH]
<TABLE>
<CAPTION>
3/30/90(2) 3/29/91 3/31/92 3/31/93 3/31/94 3/31/95
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NGC $100.00 $ 68.68 $149.48 $ 95.99 $144.47 $230.28
NASDAQ $100.00 $114.62 $146.11 $167.89 $181.25 $202.03
H&Q $100.00 $115.07 $135.44 $148.58 $166.03 $212.57
<FN>
(1) The Company's fiscal year ends on March 31. March 30, 1990 was the last
trading day in fiscal 1990, and March 29, 1991 was the last trading day in
fiscal 1991.
(2) Assumes that $100.00 was invested in the Company's Common Stock and each
index on March 30, 1990 at the closing sales price of the Company's Common
Stock and each index and that all dividends were reinvested. No dividends
have been declared on the Company's Common Stock. Stockholder returns over
the indicated period should not be considered indicative of future
stockholder returns.
</TABLE>
16
<PAGE>
ELECTION OF DIRECTORS
Network General has a classified Board of Directors consisting of three
Class I directors (Harry J. Saal, Howard Frank and Charles J. Abbe), three
Class II directors (Janet L. Hyland, Gregory M. Gallo and Leonard J. Shustek,
who will be retiring from the Board of Directors and will not be standing for
re-election), and two Class III directors (Leslie G. Denend and Laurence R.
Hootnick) who will serve until the annual meetings of stockholders to be held
in 1997, 1995 and 1996, respectively, and until their respective successors are
duly elected and qualified. At each annual meeting of stockholders, directors
are elected for a term of three years to succeed those directors whose terms
expire at the annual meeting dates.
The terms of the Class II directors will expire on the date of the
upcoming annual meeting. Effective immediately prior to the 1995 Annual
Meeting of Stockholders, Class II will be reduced in size to two directors,
and the Board of Directors shall consist of seven directors. Accordingly, two
persons are to be elected to serve as Class II directors of the Board of
Directors at the meeting. Leonard Shustek's term as a Class II director
expires immediately prior to the date of the 1995 Annual Meeting of
Stockholders, and Mr. Shustek is not standing for reelection because of other
commitments. Management's nominees for election by the stockholders to those
two positions are Gregory M. Gallo and Janet L. Hyland both of whom are
current Class II members of the Board of Directors. Please see "INFORMATION
ABOUT NETWORK GENERAL--Management" above for information concerning the
nominees. If elected, the nominees will serve as directors until the
Company's annual meeting of stockholders in 1998 and until their successors
are elected and qualified. If any of the nominees declines to serve or
becomes unavailable for any reason, or if a vacancy occurs before the
election (although the Company knows of no reason to anticipate that this
will occur), the proxies may be voted for such substitute nominees as the
Company may designate.
If a quorum is present and voting, the two nominees for Class II director
receiving the highest number of votes will be elected as Class II directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present for purposes of determining if a
quorum is present.
17
<PAGE>
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE NETWORK GENERAL
CORPORATION CERTIFICATE OF INCORPORATION
GENERAL
The Company's Certificate of Incorporation, as currently in effect (the
"Certificate"), provides that the affirmative vote of the holders of at least
eighty percent (80%) of the then-outstanding shares of the capital stock of the
Company entitled to vote generally in the election of directors, voting together
as a single class, is required to amend or repeal Articles V, VI, VIII and IX of
the Certificate (as described below). In addition, Article VI of the
Certificate and Article IX of the Company's Bylaws prescribe a similar 80%
affirmative stockholder vote requirement for the adoption, amendment or repeal
of any provision of the Company's Bylaws by the stockholders. Collectively,
these provisions are referred to as the "Supermajority Voting Requirements."
The Board of Directors has unanimously approved amendments to the Company's
Certificate set forth in EXHIBIT A to revise and reduce the foregoing
Supermajority Voting Requirements to provide that the affirmative vote of at
least 66-2/3% of the then-outstanding shares is required to amend or repeal the
above-specified Articles of the Certificate or for the stockholders to adopt,
amend or repeal any provision of the Bylaws. The Board of Directors has also
amended Article IX of the Bylaws to reduce the Supermajority Voting Requirements
in Article IX from 80% to 66-2/3%, effective upon the filing of the Restated
Certificate of Incorporation (the "Restated Certificate"). This amendment of
the Bylaws does not require stockholder approval.
REASONS FOR THE AMENDMENT AND RESTATEMENT
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to reduce the Supermajority Voting Requirements
from 80% to 66-2/3%. Some institutional investors have investment policies
which restrict their investment in companies with anti-takeover provisions that
require greater than 66-2/3% of the outstanding shares to vote in favor of
amendment or repeal of their charter documents. The Board of Directors believes
that reducing the voting requirement from 80% to 66-2/3% may therefore increase
the Company's attractiveness to such institutional investors and therefore lead
to a broader stockholder base.
The Board of Directors proposes to restate the Certificate, rather than
simply amend the provisions setting forth the Supermajority Voting Requirements,
in order to integrate into a single instrument all of the provisions of its
Certificate which are currently in effect and operative, as well as to implement
the proposed amendment.
EFFECT OF AMENDMENT
The Supermajority Voting Requirements apply to any amendment or repeal of
the provisions of the Certificate (contained in Articles VI, VIII and IX) and
Bylaws described in paragraphs (i) through (vi) under "Anti-Takeover Provisions"
below. In addition, the Supermajority Voting Requirements apply to Article V of
the Company's Certificate, which provides that a director of the Company shall
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent permitted by
the Delaware General Corporation law, as currently in effect. If this proposal
is approved, the Supermajority Voting Requirements will be reduced from 80% to
66-2/3%.
Following the proposed amendment, Articles V, VI, VIII and IX of the
Certificate and the Bylaws could be amended with the approval of at least 66-
2/3% (rather than 80%) or more of the combined voting power of the stockholders.
As of April 30, 1995, directors and executive officers of the Company, as a
group, had an aggregate beneficial ownership of approximately 11.65% of the
outstanding shares of the Company's Common Stock (including, as if outstanding,
shares that directors and officers could obtain
18
<PAGE>
by exercise of options exercisable within sixty days of April 30, 1995). See
"Stock Ownership of Certain Beneficial Owners and Management." Thus, even after
the proposed amendment, if management voted together against any proposal
subject to the Supermajority Voting Requirements, management might be able to
obstruct the adoption of such a proposal even if the proposal were desired by
the holders of a majority of the shares.
ANTI-TAKEOVER PROVISIONS
As permitted by Delaware law, the Company has adopted certain measures,
described below, designed to make the corporation less vulnerable to a hostile
takeover bid. The Company is also governed by certain provisions of Delaware
law related to business combinations. For example, Section 203 of the Delaware
General Corporation Law ("Section 203") prevents an "Interested Stockholder" of
a corporation (generally defined to mean any beneficial owner of more than 15%
of the corporation's voting stock) from engaging in any "business combination"
(as defined in Section 203) with the corporation for a period of three years
following the date on which such Interested Stockholder became an Interested
Stockholder, subject to certain exceptions. The Board of Directors of the
Company has also adopted a stock purchase rights plan which entitles each
stockholder of the Company other than an acquiror to purchase stock in the
Company or an acquiror of the Company at a discounted price in the event of
certain hostile efforts to acquire control of the Company. The Company is not
aware of any proposed attempt to acquire control of the Company.
These various measures have the principal purpose and effect of making it
more difficult for an entity to effect an acquisition of the Company without the
cooperation of the Board. The Board believes that the remaining anti-takeover
measures still afford significant benefit to the Company and therefore should be
maintained, with the reduced Supermajority Voting Requirements as proposed.
Provisions which will continue under the Restated Certificate and Bylaws and
which are designed to deter such hostile takeover attempts include the
following:
(i) maintaining a classified Board, permitting the number of
directors to be fixed only by the directors, permitting vacancies on the Board
to be filled only by the directors and allowing removal of directors only for
cause and only if approved by a majority of the outstanding shares;
(ii) eliminating the right of stockholders to take action except at a
meeting of stockholders;
(iii) eliminating the right of stockholders to call a special meeting
of stockholders;
(iv) requiring advance notice of stockholder nominations for directors
and of stockholder proposals for business to be brought before annual or special
stockholders' meetings;
(v) permitting the Board of Directors to consider factors other than
price in evaluating a tender or exchange offer or other business combination;
and
(vi) permitting amendment of certain provisions of the Certificate of
Incorporation and any provision of the Bylaws only by a vote of 66-2/3% (or a
vote of 80%, if the proposed amendment is not approved) of the combined voting
power of the stockholders, or, with respect to the Bylaws, also by a vote of the
directors.
The Board of Directors is also authorized to provide for the issuance of
shares of Preferred Stock in series, to establish the number of shares to be
included in each series, and to fix the designation, powers, preferences and
rights of the shares of each series and the qualifications, limitations or
restrictions thereon.
OTHER ANTI-TAKEOVER MEASURES. In addition to the above takeover
deterrents, the Company's 1989 Stock Option Plan and certain employment
agreements with key executive officers have provisions that
19
<PAGE>
may triggered by, or upon the occurrence of certain events after, a "change of
control." See "EXECUTIVE COMPENSATION AND OTHER MATTERS -- Employment,
Severance and Change in Control Arrangements."
The Board believes that, in order to attract additional institutional
investors and to provide additional flexibility for the Company to be able to
amend or repeal the provisions subject to the Supermajority Voting Requirements
in the future, the Supermajority Voting Requirements should be reduced from the
current requirement of 80% to 66-2/3%.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of eighty percent (80%) of the outstanding shares of
common stock of the Company, either in person or by proxy, is required for
approval of this proposal. Abstentions and "broker non-votes" will each be
counted as present for purposes of determining the presence of a quorum.
Abstentions and "broker non-votes" will have the same effect as a negative vote.
The Board of Directors believes that the proposed amendment to the
Certificate set forth as EXHIBIT A is in the best interests of the Company and
the stockholders for the reasons stated above. THEREFORE, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL TO AMEND
AND RESTATE THE COMPANY'S CERTIFICATE OF INCORPORATION TO REDUCE THE VOTING
STOCK OF THE COMPANY REQUIRED TO AMEND OR REPEAL ARTICLES V, VI, VIII AND IX OF
THE CERTIFICATE FROM 80% TO 66-2/3% AND TO ALLOW 66-2/3% OF THE VOTING STOCK TO
ADOPT, AMEND OR REPEAL THE BYLAWS OF THE COMPANY.
20
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Arthur Andersen & Co. as
the independent public accountants to audit the financial statements of the
Company for the fiscal year ending March 31, 1996. Arthur Andersen & Co. has
acted in such capacity since its appointment in fiscal year 1987. A
representative of Arthur Andersen & Co. is expected to be present at the annual
meeting with the opportunity to make a statement if the representative desires
to do so, and is expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the annual meeting
of stockholders, at which a quorum representing a majority of all outstanding
shares of Common Stock of the Company is present and voting, either in person or
by proxy, is required for approval of this proposal. Abstentions and "broker
non-votes" will each be counted as present for purposes of determining the
presence of a quorum, but will not be counted as having been voted on the
proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPOINTMENT OF ARTHUR ANDERSEN & CO. AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1996.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 4200 Bohannon Drive, Menlo Park, California 94025, no later than
March 6, 1996, and satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment or postponement thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
JAMES T. RICHARDSON
SECRETARY
July __, 1995
21
<PAGE>
EXHIBIT A
AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION:
If the proposal to amend and restate the Company's Certificate of
Incorporation is adopted, Articles VI and IX of the Certificate will be amended
to read in full as follows:
"SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders.
1. The number of directors shall initially be five and,
thereafter, shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board for adoption). The directors shall be divided into
three classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the annual meeting of
stockholders held in 1991, the term of office of the second class to expire
at the annual meeting of stockholders held in 1992 and the term of office
of the third class to expire at the annual meeting of stockholders held in
1993. At each annual meeting of stockholders following such initial
classification and election, directors shall be elected to succeed those
directors whose terms expire for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. All
directors shall hold office until the expiration of the term for which
elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director. The directors
of the Corporation need not be elected by written ballot unless the Bylaws
so provide.
2. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorship resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement, removal
from office, disqualification or other cause may be filled only by a
majority vote of the directors then in office, through less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of all of then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
("Voting Stock") voting together as a single class.
4. The Board of Directors is expressly empowered to adopt,
amend, or repeal the Bylaws of the Corporation. Any adoption, amendment,
or repeal of the Bylaws of the Corporation by the Board of Directors will
require the approval of a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders will also
have power to adopt, amend, or repeal the Bylaws of the Corporation. Any
adoption, amendment or repeal of Bylaws of the Corporation by the
Stockholders shall require, in addition to any vote of the holders of any
class or series of stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of at least sixty-six
and two-thirds percent (66 2/3%) of the Voting Stock, voting together as a
single class.
A-1
<PAGE>
5. Special meetings of stockholders of the Corporation may be
called only (a) by the Board of Directors or (b) by the President of the
Corporation.
6. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
7. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authorities expressly conferred upon them by statute or by this
Certificate of Incorporation or by the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation; subject,
nevertheless, to the provisions of the statutes of the State of Delaware,
to the provisions of this Certificate of Incorporation, and to any Bylaws
from time to time made by the stockholders or the directors; provided,
however, that no Bylaws so made shall invalidate any prior act of the
directors which would have been valid if such Bylaw had not been made."
* * *
"NINTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; PROVIDED, HOWEVER, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at lease sixty-six and two-thirds percent
(66 2/3%) of the then-outstanding shares of the Voting Stock, voting together as
a single class, shall be required to amend or repeal this Article NINTH, Article
FIFTH, Article SIXTH or Article EIGHTH."
A-2
<PAGE>
NETWORK GENERAL CORPORATION
4200 BOHANNON DRIVE
MENLO PARK, CA 94025
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leslie G. Denend and James T. Richardson as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares of
common stock of Network General Corporation held of record by the undersigned on
June 19, 1995, at the Annual Meeting of Stockholders to be held on August 18,
1995, or any adjournment thereof.
(Continued and to be signed on reverse side.)
<PAGE>
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/ / __________________ __________________
ACCOUNT NUMBER COMMON
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1. ELECTION OF CLASS II DIRECTORS
/ / FOR nominees listed / / WITHHOLD AUTHORITY (INSTRUCTION: TO WITHHOLD
below (except as marked to vote for nominees AUTHORITY TO VOTE FOR
to the contrary below) listed below NOMINEE, WRITE NOMINEE'S
NAME IN THE SPACE
PROVIDED BELOW)
Gregory M. Gallo _________________________
Janet L. Hyland
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2. TO AMEND ARTICLE VI AND ARTICLE IX OF THE NETWORK GENERAL CORPORATION
CERTIFICATE OF INCORPORATION TO REDUCE THE AFFIRMATIVE VOTE OF STOCKHOLDERS
REQUIRED (i) TO AMEND OR REPEAL ARTICLES V, VI, VIII AND IX OF THE CERTIFICATE
AND (ii) TO ADOPT, AMEND OR REPEAL ANY PROVISION OF THE BYLAWS FROM 80% TO
66 2/3%.
FOR AGAINST ABSTAIN
/ / / / / /
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3. TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN & CO. AS THE INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 1996.
FOR AGAINST ABSTAIN
/ / / / / /
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4. AT THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
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Please sign exactly as name appears to
the left. When shares are held in joint
tenancy, all of such persons should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
Dated: ___________________, 1995
___________________________________
Signature
___________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS TAKEN THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
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