<PAGE>
[NETWORK GENERAL LOGO]
July , 1996
Dear Stockholder:
This year's annual meeting of stockholders will be held on Friday, August 9,
1996 at 10:00 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
<PAGE>
NETWORK GENERAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 9, 1996
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 9, 1996, at 10:00 a.m., local time, at the Hotel Sofitel, 223 Twin
Dolphin Drive, Redwood City, California, for the following purposes:
1. To elect two Class III directors to hold office for three-year terms
and until their respective successors are elected and qualified.
2. To amend the Company's Restated Certificate of Incorporation to
increase the number of shares of Common Stock authorized to be issued
to one hundred million (100,000,000) from fifty million (50,000,000).
3. To amend the Company's 1989 Stock Option Plan to increase the maximum
aggregate number of shares of the Company's Common Stock thereunder
from 14,000,000 to 16,000,000.
4. To amend the Company's 1989 Employee Stock Purchase Plan to increase
the maximum aggregate number of shares of Company's Common Stock
thereunder from 1,400,000 to 1,500,000.
5. To amend the Company's 1989 Outside Directors Stock Option Plan to
increase the maximum aggregate number of shares of the Company's
Common Stock issuable thereunder from 920,000 to 1,020,000.
6. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending March 31,
1997.
7. To transact such other business as may properly come before the
meeting.
UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE INFORMATION HAS BEEN
ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100% STOCK
DIVIDEND EFFECTIVE MAY 28, 1996.
Stockholders of record at the close of business on June 17, 1996 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 desk at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California.
By Order of the Board of Directors
Jill E. Fishbein
SECRETARY
Menlo Park, California
July , 1996
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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, 1996........................................ 7
Option Exercises and Year-End Values for the Fiscal Year Ended March 31, 1996............................ 8
Compensation of Directors................................................................................ 8
Employment, Severance and Change in Control Arrangements................................................. 9
Certain Transactions..................................................................................... 9
Changes to Benefit Plans................................................................................. 9
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION............................................. 11
COMPARISON OF STOCKHOLDER RETURN........................................................................... 14
ELECTION OF DIRECTORS...................................................................................... 15
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK.................................................................................... 15
Vote Required and Board of Directors' Recommendation..................................................... 16
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION 1989 STOCK OPTION PLAN............................ 16
Introduction............................................................................................. 16
Summary of the Provisions of the Option Plan............................................................. 17
Summary of Federal Income Tax Consequences of the Option Plan............................................ 19
Vote Required and Board of Directors' Recommendation..................................................... 20
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION 1989 EMPLOYEE STOCK PURCHASE PLAN................. 20
Summary of Provisions of the Purchase Plan, as Amended................................................... 20
Summary of Federal Income Tax Consequences of the Purchase Plan.......................................... 22
Vote Required and Board of Directors' Recommendation..................................................... 22
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL INFORMATION 1989 OUTSIDE DIRECTORS STOCK OPTION PLAN.......... 23
Introduction............................................................................................. 23
Summary of the Provisions of the Directors Plan, as Amended.............................................. 23
Summary of Federal Income Tax Consequences of the Directors Plan......................................... 24
Vote Required and Board of Directors' Recommendation..................................................... 24
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 25
STOCKHOLDER PROPOSALS TO BE PRESENTED...................................................................... 25
TRANSACTION OF OTHER BUSINESS.............................................................................. 25
</TABLE>
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
9, 1996, 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 , 1996, the approximate date on which this Proxy
Statement and the accompanying form of proxy were first sent or given to
stockholders. UNLESS OTHERWISE INDICATED, ALL SHARE AND PER SHARE INFORMATION
HAS BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100%
STOCK DIVIDEND EFFECTIVE MAY 28, 1996.
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 17, 1996, 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, 1996 (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
1
<PAGE>
Executive Officer, the four other most highly compensated executive officers of
the Company as of March 31, 1996 and one former officer of the Company and (iv)
all executive officers and directors of the Company as of April 30, 1996, as a
group.
<TABLE>
<CAPTION>
PERCENT OF
NETWORK
GENERAL
AMOUNT COMMON
AND NATURE STOCK
NAME OF BENEFICIAL OWNER (1) OF SHARES OUTSTANDING
- --------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Twentieth Century Companies, Inc. ..................................................... 3,200,000 6.96%
4500 Main Street
P.O. Box 418210
Kansas City, MO 64141-9210
Pilgrim Baxter Grieg & Associates ..................................................... 3,175,600 6.90%
1255 DrummerLane, Suite 200
Wayne, PA 19087
AIM Management Group Inc. (3) ......................................................... 2,657,000 5.77%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
RCM Capital Management (4) ............................................................ 2,577,000 5.60%
Four Embarcadero Center
Suite 3000
San Francisco, CA 94111
FMR Corp. (5) ......................................................................... 2,373,480 5.16%
82 Devonshire Street
Boston, MA 02109
Harry J. Saal.......................................................................... 2,070,400 4.50%
Leslie G. Denend (6)................................................................... 262,444 *
Laurence R. Hootnick (7)............................................................... 82,000 *
Gregory M. Gallo (8)................................................................... 62,000 *
Howard Frank (9)....................................................................... 60,000 *
Michael H. Kremer (10)................................................................. 53,970 *
James T. Richardson (11)............................................................... 38,122 *
Charles J. Abbe (12)................................................................... 22,666 *
Jill E. Fishbein (13).................................................................. 18,668 *
Karen J. Willem (14)................................................................... 15,790 *
Richard H. Lewis (15).................................................................. 13,336 *
Bernard J. Whitney (16)................................................................ 12,500 *
Janet L. Hyland (17)................................................................... 10,000 *
Douglas C. Chance...................................................................... 2,000 *
All executive officers and directors as a group (14 persons) (18)...................... 2,711,896 6.13%
</TABLE>
- ------------------------
* 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
2
<PAGE>
laws where applicable and to the information contained in the footnotes to
this table. Unless 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 Twentieth Century Companies, Inc. with the
Securities and Exchange Commission (the "SEC") on February 13, 1996.
(3) Based on a Schedule 13G filed by AIM Management Group Inc. with the SEC on
February 12, 1996.
(4) Based on a Schedule 13G filed by RCM Capital Management on February 6,
1996.
(5) Based on a Schedule 13G filed by FMR Corp. ("FMR") with the SEC on February
14, 1996, FMR Corp. beneficially owns 2,373,480 shares of the common stock
of Network General Corporation. This number includes 1,667,400 shares
beneficially owned by Fidelity Management & Research Company, as a result of
its serving as investment advisor to various investment companies and funds,
and 706,080 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. FMR Corp. has sole voting power with
respect to 336,280 shares and sole dispositive power with respect to
2,373,480 shares.
(6) Includes 259,166 shares subject to options exercisable within 60 days of
April 30, 1996.
(7) Includes 2,000 shares held by the Laurence R. Hootnick Trust, for which Mr.
Hootnick and his wife are trustees, and 80,000 shares subject to options
exercisable within 60 days of April 30, 1996.
(8) Includes 2,000 shares held by the Gallo Family Trust, for which Mr. Gallo
and his wife are trustees, and 60,000 shares subject to options exercisable
within 60 days of April 30, 1996.
(9) Includes 60,000 shares subject to options exercisable within 60 days of
April 30, 1996.
(10) Includes 50,622 shares subject to options exercisable within 60 days of
April 30, 1996.
(11) Includes 38,122 shares subject to options exercisable within 60 days of
April 30, 1996.
(12) Includes 21,666 shares subject to options exercisable within 60 days of
April 30, 1996.
(13) Includes 18,124 shares subject to options exercisable within 60 days of
April 30, 1996.
(14) Includes 15,790 shares subject to options exercisable within 60 days of
April 30, 1996.
(15) Includes 11,124 shares subject to options exercisable within 60 days of
April 30, 1996.
(16) Includes 12,500 shares subject to options exercisable within 60 days of
April 30, 1996.
(17) Includes 10,000 shares subject to options exercisable within 60 days of
April 30, 1996.
(18) Includes 637,114 shares subject to options exercisable within 60 days of
April 30, 1996.
3
<PAGE>
MANAGEMENT
DIRECTORS. This section sets forth for the current directors, including the
Class III 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 52 1986
Charles J. Abbe Director 55 1994
Howard Frank Director 55 1991
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 1988 ANNUAL MEETING OF STOCKHOLDERS:
Douglas C. Chance Director 54 1995
Gregory M. Gallo Director 54 1989
Janet L. Hyland Director 40 1995
CLASS III NOMINEES TO BE ELECTED AT THE 1996 ANNUAL MEETING OF STOCKHOLDERS:
Leslie G. Denend President, Chief Executive Officer and Director 55 1993
Laurence R. Hootnick Director 54 1989
</TABLE>
Dr. Saal, a founder of the Company, has served as Chairman of the Board of
Directors since its inception. Dr. Saal served as President of Smart Valley,
Inc., a trade association involved with establishing the information
superhighway, from September 1993 until December 1995. He served as President
and Chief Executive Officer of the Company from its inception in May 1986 until
June 1993. 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.,
Borland International, Inc. and Global Net Systems, Ltd., and serves as a
director of several privately-held companies and non-profit associations.
Mr. Abbe became a director of Network General in April 1994. Since April
1996, Mr. Abbe has served as a Vice President and General Manager of Optical
Coating Laboratory, Inc., an optical thin film manufacturing company. He served
as Senior Vice President, Corporate Development of Raychem Corporation, an
electronics components company, from May 1995 until December 1995 and previously
served in various other management capacities for Raychem from September 1989
through August 1993.
Dr. Frank became a director of the Company in September 1991. Since January
1985, Dr. Frank has served as President of Howard Frank Associates, a consulting
company. Since May 1990, Dr. Frank has served as a Senior Fellow at the Wharton
School of Business. From September 1987 until April 1990, Dr. Frank also served
as Chairman of the Board of Directors of Network Management, Inc.
Mr. Chance became a director of the Company in August 1995. He has served as
the Chief Executive Officer of Wyse Technology, a video display manufacturer,
since October 1994. From November 1993 through October 1994 Mr. Chance was a
self-employed consultant and from October 1990 through November 1993 he was
Chief Executive Officer of Octel Communications Corporation, a developer of
voicemail systems. Mr. Chance is also a director of Optical Coating
Laboratories.
Mr. Gallo became 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
General Magic, Inc.
4
<PAGE>
Ms. Hyland became a director in June 1995. Since January 1995, she has
served as the President and sole proprietor of eMagine, a marketing 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.
Mr. Denend became a director 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. Mr. Denend is also
a director of Rational Software Inc., McAfee Associates, Inc. and Proxim, Inc.
Mr. Hootnick became a director of Network General in May 1989. Since
December 1995, Mr. Hootnick has served as the Senior Vice President of Finance
and Operations of Power Computing Incorporated, a computer hardware company.
From May 1995 to November 1995, Mr. Hootnick served as a self-employed
consultant. From August 1994 to May 1995, Mr. Hootnick served as the Chief
Operations Officer of NetManage, Inc., a software company. From May 1991 to June
1994, Mr. Hootnick served as President and Chief Executive Officer of Maxtor
Corporation, a manufacturer of disk drives. He was employed by Intel Corporation
from 1973 until 1991, most recently as Senior Vice President. Mr. Hootnick is
also a director of Consilium, Inc.
MEETINGS OF THE BOARD OF DIRECTORS. During the fiscal year ended March 31,
1996, 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 four (4) meetings, the Nominating Committee of the
Board held one (1) meeting and the Strategic Issues 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 of the committees of the Board on
which such director was serving, since the time the director was elected to the
Board.
The members of the Audit Committee at various times during the fiscal year
ended March 31, 1996, were Messrs. Hootnick, Frank, Chance 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, 1996 were Messrs. Hootnick, Frank and Abbe and Ms. Hyland.
The Compensation Committee reviews and determines the salary and bonus criteria
of all of the Company's officers and awards option grants. 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, 1996 were Messrs. Saal, Shustek, Abbe, Gallo and Denend (ex officio). 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, 1996, as well as a
former executive officer of the Company, whose total salary and incentive
compensation for the fiscal year ended March 31, 1996 exceeded $100,000, for
services in all capacities to the Company, earned during the fiscal years ended
March 31, 1996, March 31, 1995, and March 31, 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL ---------------------- ---------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (2) OPTIONS (SHARES) COMPENSATION (3)
- ---------------------------------------- ------ ---------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Leslie G. Denend 1996 $ 300,000 $ 252,883 340,000 $ 7,285
President and Chief 1995 265,008 190,598 100,000 7,043
Executive Officer 1994 220,292 148,594 400,000(4) 2,936
Richard H. Lewis 1996 241,973 29,976 50,000 46,705
Senior Vice President, 1995 243,113 35,623 46,000 45,863
Worldwide Field Operations 1994 177,347 31,595 80,000(5) 9,838
James T. Richardson 1996 203,000 81,653 50,000 39,658
Senior Vice President and 1995 184,808 74,523 170,000 39,032
Chief Financial Officer 1994 -- -- -- --
Michael H. Kremer 1996 178,000 87,707 60,000 1,100
Senior Vice President, 1995 138,333 59,756 56,000 1,251
Product Development 1994 100,987 23,653 60,000(6) 1,191
Jill E. Fishbein 1996 120,000 33,173 10,000 1,969
Vice President and General 1995 59,712 -- 40,000 719
Counsel 1994 -- -- -- --
FORMER OFFICER:
Karen J. Willem (7) 1996 159,478 28,883 25,000 2,136
Vice President and Controller 1995 125,000 46,186 32,000 1,966
1994 106,046 35,276 23,336 1,800
</TABLE>
- ------------------------
(1) Includes commissions earned for Mr. Lewis of $88,413, $93,113 and $58,597 in
fiscal years 1996, 1995 and 1994, respectively, and commissions earned for
Ms. Willem of $34,942 in fiscal year 1996.
(2) Bonuses are based on performance. See "REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION."
(3) Amounts include 401(k) employer matching funds, car allowance, payment for
attendance at Presidents Club, relocation expenses and certain living and
travel expenses. Mr. Denend's amounts include 401(k) employer matching funds
in fiscal 1996, 1995 and 1994 of $1,985, $2,451 and $2,936, respectively,
and payments for attendance at Presidents Club in fiscal 1996 and 1995 of
$5,300 and $4,592, respectively. Mr. Lewis' amounts include 401(k) employer
matching funds in fiscal 1996, 1995 and 1994 of $2,250, $2,295 and $2,273,
respectively; car allowance of $4,800 in each of fiscal 1996, 1995 and 1994;
payment for attendance at Presidents Club in fiscal 1996, 1995 and 1994 of
$4,752, $3,030 and $2,765, respectively; and payment of certain living and
travel expenses in fiscal 1996 and 1995 of $34,903 and $35,738,
respectively. Mr. Richardson's amounts include 401(k) employer matching
funds in fiscal year 1996 and 1995 of $1,574 and $750, respectively; and
payment of certain living and travel expenses in fiscal 1996 and 1995 of
$38,084 and
6
<PAGE>
$38,282, respectively. Mr. Kremer's amounts include 401(k) employer matching
funds in 1996, 1995 and 1994 of $1,100, $1,251 and $1,191, respectively. Ms.
Fishbein's amounts include 401(k) employer matching funds in fiscal 1996 and
1995 of $1,969 and $719, respectively. Ms. Willem's amounts include 401(k)
employer matching funds in fiscal 1996, 1995 and 1994 of $2,136, $1,966, and
$1,900, 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) 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.
(6) 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.
(7) On April 28, 1995, Ms. Willem ceased to be an executive officer of the
Company, but she continues to serve as the Company's Vice President of
Worldwide Sales Operations.
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MARCH 31, 1996
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, 1996, to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN LAST FISCAL YEAR
- -------------------------------------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
OPTIONS ASSUMED ANNUAL RATES OF STOCK
GRANTED TO PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES TERM (1)
GRANTED IN FISCAL EXERCISE EXPIRATION -----------------------------
NAME (SHARES) (2) YEAR PRICE (3) DATE 5% 10%
- -------------------------------- ------------- ----------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend................ 340,000(4) 10.62% $ 20.00 10/30/05 $ 4,276,500 $ 10,837,500
Richard H. Lewis................ 50,000 1.56 20.00 10/30/05 628,900 1,593,700
James T. Richardson............. 50,000 1.56 20.00 10/30/05 628,900 1,593,700
Michael H. Kremer............... 60,000 1.87 20.00 10/30/05 754,700 1,912,500
Jill E. Fishbein................ 10,000 0.31 20.00 10/30/05 125,800 318,700
FORMER OFFICER:
Karen J. Willem................. 25,000 0.78 16.31 12/19/95 256,500 649,900
</TABLE>
- ------------------------
(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 option holders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved. One share of stock purchased at
$16.31 in 1996 would yield profits of $26.57 at 5% appreciation over 10
years, or $42.30 per share at 10% appreciation over the same period. One
share of stock purchased at $20.00 in 1996 would yield profits of $32.58 at
5% appreciation over 10 years, or $51.87 per share at 10% appreciation over
the same period.
(2) 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
7
<PAGE>
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 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 in Control Arrangements" below.
(3) All options were granted at market value on the date of grant.
(4) Mr. Denend's options vest over four years, with 100,000 shares vesting on
the two-year anniversary of the grant and the remaining 240,000 shares
vesting at the rate of 10,000 shares per month over the next two years. Mr.
Kremer's option for 50,000 shares vests monthly over four years and his
option for 10,000 shares vests on October 30, 1997.
OPTION EXERCISES AND YEAR-END VALUES FOR THE FISCAL YEAR ENDED MARCH 31, 1996
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, 1996, and unexercised options held as of March 31, 1996, 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 3/31/96 MONEY OPTIONS AT 3/31/96 (3)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE (2) UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE
- ----------------------- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend....... 60,000 $ 830,000 190,416 579,584 $ 2,577,181 $ 3,267,195
Richard H. Lewis....... 89,332 1,192,403 6,166 154,502 10,059 1,347,455
James T. Richardson.... 60,000 687,250 25,414 134,586 225,704 1,010,546
Michael H. Kremer...... 10,000 131,250 35,040 120,960 326,986 771,639
Jill E. Fishbein -- -- 15,206 34,794 148,743 271,257
FORMER OFFICER:
Karen J. Willem........ 23,998 269,620 2,228 67,442 12,753 641,395
</TABLE>
- ------------------------
(1) Value realized by the optionee prior to the payment of taxes.
(2) Company stock options granted in fiscal 1996 generally vest 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 and the footnotes
thereto.
(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, 1996 ($20.00 share).
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1996, 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 40,000 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 10,000 shares granted at the completion of each year of
service. In addition, Mr. Hootnick also received an additional $5,000 travel fee
for attending certain meetings
8
<PAGE>
in the United Kingdom, and Mr. Frank and Ms. Hyland were reimbursed for
out-of-pocket travel expenses related to Board and Committee meetings. The
Company's director who is also an officer of the Company did not receive any
compensation for his services as a member of the Board of Directors.
EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
Options granted to certain executive 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.
In April 1994, the Company entered into employment agreements with key
executive officers Leslie G. Denend, James T. Richardson and Richard H. Lewis.
In August 1995 the Company entered in to a similar employment agreement with
Michael H. Kremer. 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 such 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
In December 1994, the Company committed to make charitable donations in the
amount of one million dollars ($1,000,000) in value of goods, services and
grants over three years to the Santa Clara and San Mateo Counties schools in
connection with the Smart Valley Challenge 2000. Dr. Saal, Chairman of the Board
of Directors, served as President of Smart Valley, Inc. from September 1993
until December 1995. The disinterested directors of the Board unanimously
ratified the charitable donations.
CHANGES TO BENEFIT PLANS
The Company has proposed amendments to increase the number of shares
available for issuance under the Company's Purchase Plan, Option Plan and
Outside Directors Plan (defined below). The following table sets forth the
options that may be granted automatically to nonemployee directors as of March
1991, under the Outside Directors Plan in the fiscal year ending March 31, 1997
and the grants of options under the Option Plan and purchases of shares under
the Purchase Plan during the fiscal year ended March 31, 1996 by (1) the persons
named in the Summary Compensation Table; (2) all executive officers, as of March
31, 1996, as a group; (3) non-employee directors as a group; and (4) all
employees, including all officers who are not executive officers, as a group.
9
<PAGE>
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1989 OUTSIDE DIRECTORS 1989 EMPLOYEE
STOCK OPTION PLAN (1) 1989 STOCK PURCHASE PLAN(2) STOCK OPTION PLAN (3)
-------------------------- --------------------------
EXERCISE --------------------------- EXERCISE
PRICE NUMBER OF PURCHASE PRICE NUMBER OF PRICE NUMBER OF
NAME AND PRINCIPAL POSITION PER SHARE SHARES PER SHARE SHARES PER SHARE SHARES
- ------------------------------ ------------- ----------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend ............. -- -- $ 20.00 340,000
President and Chief
Executive Officer
Richard Lewis ................ -- -- $ 20.00 50,000
Senior Vice President
Worldwide Field Operations
James T. Richardson .......... -- -- $ 20.00 50,000
Senior Vice President
and Chief Financial Officer
Michael H. Kremer ............ -- -- $ 20.00 60,000
Vice President of
Senior Product Development
Jill E. Fishbein ............. -- -- $ 20.00 10,000
Vice President and
General Counsel
Karen Willem ................. $ 16.31 25,000
Vice President and
Controller
All Executive Officers as a
Group (10 persons)........... -- --
All Outside Directors as a
Group (7 persons)............ (4) (5) -- -- -- --
All Non-Executive Officer
Employees as a Group......... -- --
</TABLE>
- ------------------------
(1) Only nonemployee directors of the Company are eligible to participate in the
Outside Directors Plan.
(2) Only employees of the Company are eligible to participate in the Purchase
Plan. Purchases of stock under the Purchase Plan are made at the discretion
of participants. Accordingly, future purchases under the Purchase Plan are
not determinable. No one purchased an aggregate of five percent or more of
the total shares acquired under the Purchase Plan in fiscal 1996.
(3) Only employees, consultants and prospective employees and consultants of the
Company are eligible to participate in the Option Plan. Grants of options
under the Option Plan are made at the discretion of the Compensation
Committee. Accordingly, future grants under the Option Plan are not
determinable. No other person received grants aggregating at least five
percent of total grants under the Option Plan in fiscal 1996.
(4) Exercise prices are unknown as they are equal to the fair market value of
the Common Stock on the date of grant.
10
<PAGE>
(5) Represents automatic annual grants of 10,000 shares each to five nonemployee
directors during fiscal 1996 on the anniversary of their appointment or
election to the Board of Directors and automatic initial grants of 40,000
each to two non-employee directors upon his election to the Board of
Directors. No other person received grants aggregating at least five percent
of total grants under the Directors Plan in fiscal 1996.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
At the commencement of fiscal 1996, the Compensation Committee (the
"Committee") was composed of three non-employee directors of the Board of
Directors, Messrs. Hootnick, Frank and Abbe. In August 1995, the Board
reconstituted the Committee to consist of Messrs. Hootnick and Abbe and Ms.
Hyland. 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.
Beginning Fiscal 1997, the Company has discontinued its profit sharing plan.
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 regulations 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 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 and sales
continued to increase through fiscal 1995 in excess of expectations. As a
result, the Compensation Committee in fiscal 1996 targeted executive officer
base salaries at
11
<PAGE>
approximately 75% of salaries for similar positions among comparable companies
with sales of $100 million to $200 million. Consistent with this policy, the
Committee approved an increase in the base salary of Leslie G. Denend, its
President and Chief Executive Officer, to approach a target of approximately 75%
of the highest 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
sales revenues are expected to exceed $200 million for the first time in fiscal
1997, the Committee expects that base salaries will increase further as they are
to meet similar positions among comparable companies with sales of $200 million
to $500 million.
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, variable
compensation for executive officers other than the Chief Executive Officer
through these plans was targeted in fiscal 1996 at approximately 10% to 30% of
executive officer total cash compensation if predetermined corporate targets and
objectives were achieved. Mr. Denend's variable compensation was targeted at
approximately 43% of total cash compensation if such 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 (i) corporate earnings per share targets, which must
exceed the prior fiscal year's earnings per share in order for the executives to
be eligible to receive the half of their bonus based on Company performance, and
(ii) Company-wide objectives set annually by the Board of Directors. In fiscal
1996, the primary Company-wide objective was operating profits, with a
discretionary award available if the Company's operating profits greatly
exceeded the plan. 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. Mr. Denend's primary objectives
were for the Company to meet its planned operating profits each quarter and for
him to continue to develop and maintain a strategic plan for the Company. During
fiscal 1996, the Committee determined that the Company exceeded its corporate
targets and Company-wide objectives and the Committee evaluated the achievements
of individual officer goals. Consistent with this determination, Mr. Denend
received an aggregate 1995 bonus of 120% of his target executive bonus because,
in the Committee's determination, Mr. Denend had significant responsibility for
the Company's performance and met or exceeded his individual objectives. Bonuses
to executive officers under the bonus plan ranged from 114% to 129% of bonuses
targeted under the plan.
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 stock option grants to
executive officers are subject to four year vesting. The size of the initial
grant has been determined with reference to comparable stock option 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, although the
vesting of
12
<PAGE>
Mr. Denend's grant is described below and Mr. Kremer's two grants vest as
follows: 50,000 shares vest
monthly over four years and 10,000 shares vest on October 30, 1997. 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 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 1995, 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 340,000 shares, subject to four year vesting,
with 100,000 shares vesting on the two-year anniversary of the grant and the
remaining 240,000 shares vesting at the rate of 10,000 per month over the
following 24 months, which the Committee believed would provide Mr. Denend with
equity incentives comparable to those of CEOs in similar companies.
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. The Company entered into a similar
agreement in August 1995 with an additional key executive officer, as ratified
by the Committee. See "Employment, Severance and Change in Control
Arrangements."
COMPENSATION COMMITTEE
Charles J. Abbe
Laurence R. Hootnick
Janet L. Hyland
13
<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 31, 19911 and ending on March 31, 1996. (1)
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MARCH 31, 1991 (1) THROUGH MARCH 31,
1996 (2):
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
03/31/91 03/31/92 03/31/93 03/31/94 03/31/95 03/31/96
<S> <C> <C> <C> <C> <C> <C>
Network General Corp. 100 218 140 210 335 471
NASDAQ Stocl Market 100 127 147 158 176 239
Hambrecht & Quist Index 100 118 129 144 185 254
for Technology Companies
</TABLE>
<TABLE>
<CAPTION>
3/31/91 (1) 3/31/92 (1) 3/31/93 3/31/94 3/31/95 3/31/96
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Network General Corp.................................. $ 100 $ 218 $ 140 $ 210 $ 335 $ 471
NASDAQ Stock Market (U.S.)............................ $ 100 $ 127 $ 147 $ 158 $ 176 $ 239
Hambrecht & Quist Index for Technology Companies...... $ 100 $ 118 $ 129 $ 144 $ 185 $ 254
</TABLE>
- ------------------------
(1) The Company's fiscal year ends on March 31. March 29, 1991 was the last
trading day in fiscal 1991 and March 29, 1996 was the last trading day in
fiscal 1996.
(2) Assumes that $100.00 was invested in the Company's Common Stock and each
index on March 31, 1991 at the closing sales price of the Company's Common
Stock on March 29, 1991 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.
14
<PAGE>
ELECTION OF DIRECTORS
Network General has a classified Board of Directors consisting of three
Class I directors (Harry J. Saal, Charles J. Abbe and Howard Frank), three Class
II directors (Douglas C. Chance, Janet L. Hyland, and Gregory M. Gallo, 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, 1998 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 III directors will expire on the date of the upcoming
annual meeting. Accordingly, two persons are to be elected to serve as Class III
directors of the Board of Directors at the meeting. Management's nominees for
election by the stockholders to those two positions are Leslie G. Denend and
Laurence R. Hootnick, both of whom are current Class III 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 1999 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 III director
receiving the highest number of votes will be elected as Class III 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.
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
GENERAL
The Company's Restated Certificate of Incorporation currently authorizes the
issuance of up to fifty million (50,000,000) shares of Common Stock and two
million (2,000,000) shares of Preferred Stock. The Board of Directors proposes
that the Restated Certificate of Incorporation be amended to increase the number
of shares of Common Stock authorized to one hundred million (100,000,000).
As of May 31, 1996, approximately 46,372,109 shares of the Company's Common
Stock were outstanding and approximately 7,195,071 shares of the Company's
Common Stock were reserved for issuance upon the exercise of outstanding options
and 1,936,445 unissued shares of Common Stock were reserved for issuance under
the Company's stock option and stock purchase plans. In order to ensure that
sufficient shares of Common Stock will be available for issuance by Network
General, the Board of Directors on April 26, 1996 approved, subject to
stockholder approval, amending the Company's Certificate of Incorporation to
increase the number of shares of such common Stock authorized for issuance from
fifty million (50,000,000) to one hundred million (100,000,000). Prior to the
annual meeting of the stockholders, the Company will have sufficient authorized
stock to issue stock for all vested options, but thereafter the Company will
need to increase its authorized stock to cover future vesting of previously
granted options. The Board of Directors believes that it is prudent and
necessary to increase the authorized Common Stock to ensure that there will be
sufficient authorized but unissued Common Stock available for the Company's
stock option and stock purchase programs, corporate financing activities, and
potential merger and acquisition activities.
If the proposed amendment is approved by the stockholders, the first
paragraph of Article Fourth of Network General's Certificate of Incorporation
will be amended to read as follows:
"This Corporation is authorized to issue two classes of stock to
be designated, respectively, Preferred Stock and Common Stock. The
total number of shares of Preferred Stock this Corporation shall
have authority to issue is two million
15
<PAGE>
(2,000,000), par value one cent ($.01) per share, and the total
number of shares of Common Stock this Corporation shall have
authority to issue is one hundred million (100,000,000), par value
one cent ($.01) per share."
The additional shares of Common Stock to be authorized pursuant to the
proposed amendment will have a par value of $.01 per share and be of the same
class of Common Stock as is currently authorized under the Certificate of
Incorporation. There are no outstanding preemptive rights relating to such
additional shares of Common Stock and the Board of Directors has no plans to
grant such rights with respect to any such shares. After the amendment of the
Certificate of Incorporation contemplated by this proposal, the Board of
Directors does not plan to seek stockholder approval in connection with any
particular issuance of the newly authorized shares unless required under
applicable law or otherwise deemed necessary or advisable by the Board. The
issuance of such newly authorized shares may reduce the voting power of holders
of Network General Common Stock and could have the effect of delaying,
deferring, or preventing a change in control of Network General. Further, the
issuance of newly authorized shares would dilute the ownership interest of
holders of Network General Common Stock. However, Network General does not have
any current intentions, plans, arrangements, commitments or understandings to
issue any shares of its capital stock except in connection with its existing
stock option and purchase plans and as stock dividends to holders of outstanding
stock.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of Common Stock
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
at the Special Meeting of Stockholders. Abstentions and broker non-votes will
have the same effect as a negative vote on this proposal.
The Board believes that the proposed amendment to the Certificate of
Incorporation 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 NETWORK GENERAL'S
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED FOR ISSUANCE BY NETWORK GENERAL FROM 50,000,000 TO 100,000,000.
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION
1989 STOCK OPTION PLAN
INTRODUCTION
The Company's Board of Directors and stockholders adopted and approved the
Network General Corporation 1989 Stock Option Plan the ("Option Plan") in
February 1989 and August 1989, respectively, and subsequent amendments thereto
from time to time. Currently, a maximum of 14,000,000 shares of Common Stock may
be issued under the Option Plan. Of that number, as of May 31, 1996, 5,672,242
options to purchase shares had been exercised, 6,770,029 options to purchase
shares were outstanding, and 1,550,729 shares remained available for future
grants. To provide an adequate reserve of shares for continued operation of the
Option Plan, the Board of Directors has amended the plan, subject approval by
the stockholders, to increase the maximum aggregate number of shares of Common
Stock issuable under the Option Plan by 2,000,000 to a total of 16,000,000
shares.
The Option Plan is intended to assist the Company in the recruitment,
retention and motivation of employees and consultants through the grant of
options to purchase Common Stock, generally at a price equal to its market value
on the date the option is granted. The Company's continued employment growth and
need for highly qualified personnel, combined with the increased competition for
the limited supply of qualified personnel, make the Option Plan essential to the
Company's ability to recruit and retain its key employees and consultants. The
Board of Directors believes that an adequate
16
<PAGE>
reserve of shares available for issuance under the Option Plan is necessary to
enable it to compete successfully with other companies to secure and retain
valuable personnel and to assist in aligning their long-term interests with
those of the stockholders.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which will be made available to
any stockholder upon written request.
The Option Plan is administered by the Board of Directors and/or a duly
appointed committee of the Board of Directors (hereinafter referred to as the
"Board"). With respect to the participation of individuals whose transactions in
the Company's equity securities are subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Option Plan must be administered
in compliance with the requirements of Rule 16b-3 under the Exchange Act.
Options granted under the Option Plan may be either incentive stock options or
nonqualified stock options. Subject to the provisions of the Option Plan, the
Board determines the persons to whom options are to be granted, the number of
shares to be covered by each option, whether an option is to be an incentive
stock option or a nonstatutory stock option, the timing and terms of
exercisability of each option, the exercise price of and the type of
consideration to be paid to the Company upon the exercise of each option, the
duration of each option, and all other terms and conditions of the options. The
Board will interpret the Option Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Option Plan or any option.
All employees (including officers and directors who are employees) and
consultants or other independent contractors of the Company and its present or
future parent and/or subsidiary corporations are eligible to participate in the
Option Plan. As of May 31, 1996, approximately 720 employees, including 14
executive officers and consultants, were eligible to participate in the Option
Plan.
As amended, the maximum aggregate number of shares of the Common Stock of
the Company that may be issued upon the exercise of options granted pursuant to
the Option Plan is 16,000,000 shares (subject to adjustment in the event of
stock dividends, stock splits, reverse stock splits, recapitalizations,
combinations, reclassifications, or like changes in the capital structure of the
Company). Such shares may be authorized but unissued shares or treasury shares
of Common Stock. To the extent that any outstanding option under the Option Plan
expires or terminates prior to exercise in full or if shares issued upon
exercise of an option are repurchased by the Company, the shares of Common Stock
for which such option is not exercised or the repurchased shares are returned to
the Option Plan and become available for future grant. The Option Plan provides
that no employee may be granted in any fiscal year options to purchase in excess
of 600,000 shares, except new employees may be granted options for up to
1,200,000 shares (such limits to be subject to adjustment in the event of stock
dividends, stock splits, reverse stock splits, combinations, reclassifications
or like changes in the capital structure of the Company). This limit on the
maximum number of shares for which options may be granted in any fiscal year is
intended to qualify all ordinary income recognized by certain executive officers
of the Company in connection with options granted under the Option Plan for full
deductibility by the Company for federal income tax purposes. All options must
be granted, if at all, not later than February 2, 1999.
Options granted under the Option Plan must have an exercise price equal to
at least 100% of the fair market value of the Common Stock of the Company, as
determined by the Board, on the date of grant. However, any option granted under
the Option Plan to an optionee who at the time of grant owns stock comprising
more than 10% of the total combined voting power or value of all classes of the
Company's stock or that of its subsidiaries (a "Ten Percent Stockholder") must
have an exercise price equal to at least 110% of the fair market value of the
Common Stock of the Company, as determined by the Board, on the date of the
grant. Notwithstanding the foregoing, options may be granted under the Option
Plan with exercise prices less than the above stated minimums if such options
are granted
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pursuant to an assumption or substitution for another option in a manner
qualifying under section 424(a) of the Code. As of May 31, 1996, the closing
price of the Company's Common Stock as reported on the Nasdaq National Market
was $23.75 per share.
The Option Plan authorizes payment of the exercise price of an option (1) in
cash, by check, or by cash equivalent, (2) by tender of shares of Common Stock
of the Company which (a) have a value, as determined by the Board (but without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price and (b) have been owned by the
optionee for more than six months or were not acquired either directly or
indirectly from the Company, (3) by the optionee's recourse promissory note, (4)
by assignment acceptable to the Company of the proceeds of a sale of some or all
of the shares being acquired through exercise of an option, or (5) by any
combination of such methods. However, the Board may at any time grant options
which do not permit all of the foregoing forms of consideration to be used in
payment of the exercise price and/or which otherwise restrict one or more forms
of consideration.
Options granted under the Option Plan become exercisable and vested at such
times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan become exercisable in installments over a
period of time specified by the Board at the time of grant, subject to the
optionee's continued service with the Company. However, the Board is also
authorized to grant options that are exercisable immediately on and after the
date of grant, subject to the right of the Company to reacquire at the
optionee's exercise price any unvested shares held by the optionee upon
termination of service or if the optionee attempts to transfer any unvested
shares. The maximum term of an option granted under the Option Plan is ten
years, except that an option granted to a Ten Percent Stockholder may have a
maximum term of five years. During the lifetime of the optionee, the option may
be exercised only by the optionee. An option may not be transferred or assigned,
except by will or the laws of descent and distribution.
If an optionee ceases to be an employee or consultant of the Company for any
reason, except death or disability, the optionee may generally exercise his or
her option (to the extent exercisable on the date of termination) within three
months after the date of termination, but in any event not later than the
termination of the option. In the event of termination due to death or
disability, an optionee (or his or her legal representative) may generally
exercise the option (to the extent exercisable on the date of the termination)
within 12 months after the date of termination, but in any event not later than
the termination of the option.
The Option Plan defines a "Transfer of Control" as (i) a sale or exchange by
the stockholders of all or substantially all of the Company's voting stock, (ii)
a merger in which the Company is a party, or (iii) the sale, exchange or
transfer (including pursuant to a liquidation or dissolution) of all or
substantially all of the assets of the Company wherein, upon any such event, the
stockholders of the Company before such event do not retain direct or indirect
beneficial ownership of at least a majority of the voting stock of the Company,
its successor, or the corporation to which the assets of the Company were
transferred. In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the rights and obligations of the Company
under outstanding options or substitute therefore options to purchase the
Acquiring Corporation's stock. However, if the Acquiring Corporation elects not
to assume or substitute new options for options outstanding under the Option
Plan in connection with a Transfer of Control described in (ii) or (iii) above,
then the Option Plan requires the Board to provide that any unexercisable or
unvested option will be immediately exercisable and vested in full as of a date
prior to the Transfer of Control. Any outstanding options that are not
exercised, assumed or replaced will terminate effective as of the date of the
Transfer of Control.
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The Board may terminate or amend the Option Plan at any time; provided,
however, that without stockholder approval, the Board may not amend the Option
Plan to increase the maximum aggregate number of shares issuable pursuant to the
Option Plan or to change the class of persons eligible to receive options under
the Option Plan.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonqualified Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disqualifying disposition of
the shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonqualified Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
NONQUALIFIED STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonqualified stock options. Nonqualified stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonqualified stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or (ii)
the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonqualified stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital
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gain or loss. A capital gain or loss will be long-term if the optionee's holding
period is more than 12 months. No tax deduction is available to the Company with
respect to the grant of a nonqualified stock option or the sale of the stock
acquired pursuant to such grant. The Company generally should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of a nonqualified stock option, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote 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, 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 will
have the same effect as a negative vote on this proposal. "Broker non-votes," on
the other hand, will have no effect on the outcome of this vote.
The Board believes that the proposed amendment to the Option Plan 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 INCREASE TO 16,000,000 THE MAXIMUM NUMBER OF SHARES ISSUABLE
UNDER THE OPTION PLAN.
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN
The Network General Corporation 1989 Employee Stock Purchase Plan (the
"Purchase Plan") provides for the purchase of the Company's Common Stock by
employees of the Company. The Board of Directors and stockholders adopted and
approved the Purchase Plan in December 1988 and August 1989, respectively, and
subsequent amendments thereto from time to time. Currently, a maximum of
1,400,000 shares of Common Stock may be issued to eligible employees pursuant to
the Purchase Plan. Of that number, as of May 31, 1996 a total of 1,054,284
shares had been issued under the Purchase Plan and 345,716 shares remained
available for future purchase. To provide an adequate reserve of shares for
continued operation of the Purchase Plan, the Board of Directors has amended the
plan, subject approval by the stockholders, to increase the maximum aggregate
number of shares of Common Stock issuable under the Purchase Plan by 100,000 to
a total of 1,500,000 shares.
The Board of Directors believes that the Purchase Plan is an important
factor in attracting and retaining qualified employees essential to the success
of the Company and that an adequate reserve of shares available for issuance
under the Purchase Plan is therefore in the best interests of the Company and
the stockholders.
SUMMARY OF PROVISIONS OF THE PURCHASE PLAN, AS AMENDED
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which will be made
available to any stockholders upon written request.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. Each participant in the Purchase Plan is
granted at the beginning of each offering under the plan (an "Offering") the
right to purchase through accumulated payroll deductions up to a number of
shares of the Common Stock of the Company (a "Purchase Right") determined on the
first day of the Offering. The Purchase Right is automatically exercised on the
last day of the Offering unless the participant has withdrawn from participation
in the Offering or in the Purchase Plan prior to such date.
The Purchase Plan is administered by the Board of Directors or a duly
appointed committee of the Board (hereinafter referred to as the "Board").
Subject to the provisions of the Purchase Plan, the Board determines the terms
and conditions of Purchase Rights granted under the plan. The Board will
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interpret the Purchase Plan and Purchase Rights granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Purchase Plan or any Purchase Rights.
As amended, an aggregate of up to 1,500,000 of the authorized but unissued
or treasury shares of the Company's Common Stock may be issued upon the exercise
of Purchase Rights under the Purchase Plan, subject to adjustment in the event
of a stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the Company's capital
structure or in the event of any merger, sale of assets or other reorganization
of the Company. If any Purchase Right expires or terminates, the shares subject
to the unexercised portion of such Purchase Right will again be available for
issuance under the Purchase Plan.
Any employee of the Company and its subsidiary corporations, including any
officer or director who is also an employee, is eligible to participate in the
Purchase Plan, as long as that employee has been continuously employed by the
Company for at least one month and is customarily employed by the Company for at
least five months in any calendar year and for at least 20 hours per week. No
person who owns or holds options to purchase or who, as a result of
participation in the Purchase Plan, would own or hold options to purchase 5% or
more of the Common Stock of the Company or of any parent or subsidiary
corporation of the Company is entitled to participate in the Purchase Plan. As
of May 31, 1996, approximately 720 employees, including 14 executive officers,
were eligible to participate in the Purchase Plan.
The Purchase Plan permits eligible employees to purchase shares of Common
Stock of the Company through payroll withholding. Generally, each offering of
Common Stock under the Purchase Plan is for a period of six months (an "Offering
Period"), and a new Offering Period commences on February 1 and August 1 of each
year. However, the Purchase Plan authorizes the Board to establish a different
term or different beginning or ending dates for one or more Offerings.
Generally, participants in the Purchase Plan purchase shares on the last day of
the Offering Period (a "Purchase Date").
The purchase price of shares acquired in any Offering Period under the
Purchase Plan is set by the Board; provided, however, that the purchase price
will generally be, and cannot be less than, 85% of the lesser of (a) the fair
market value of the shares on the first day of the Offering Period (the
"Offering Date") or (b) the fair market value of the shares on the Purchase
Date. As of May 31, 1996, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market was $23.75 per share.
Participation in an Offering under the Purchase Plan is limited to eligible
employees who authorize payroll deductions prior to the start of the Offering. A
participating employee's payroll withholding may not exceed 10% of that
employee's compensation during any pay period. No participant may purchase more
than 5,000 shares during any Offering Period or shares with a fair market value
(determined on the first day of the Offering Period) exceeding $25,000 for each
calendar year in which the participant participates in the Purchase Plan.
Generally, upon termination of participation in the Purchase Plan, all amounts
withheld on behalf of an employee for a current Offering Period are refunded to
the employee. No interest is paid on amounts withheld.
The Purchase Plan provides that in the event of a Transfer of Control, the
Board will either provide that each participant's Purchase Right will be fully
exercisable to the extent of the participant's accumulated payroll deductions
for the Offering Period as of a date prior to the Transfer of Control or arrange
with the Acquiring Corporation to assume the Company's rights and obligations
under the Purchase Plan. Any Purchase Rights that are not assumed or exercised
prior to the Transfer of Control will terminate.
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SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Generally, there are no tax consequences to an employee of either becoming a
participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years after the Offering Date or within one year after the Purchase
Date on which the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the
Purchase Date and the purchase price. Such income may be subject to withholding
of tax. Any additional gain or resulting loss recognized by the participant from
the disposition of the shares is a capital gain or loss. If the participant
disposes of shares at least two years after the Offering Date and at least one
year after the Purchase Date on which the shares are acquired, the participant
recognizes ordinary income in the year of disposition in an amount equal to the
lesser of (i) the difference between the fair market value of the shares on the
date of disposition and the purchase price or (ii) 15% of the fair market value
of the shares on the Offering Date. Any additional gain recognized by the
participant on the disposition of the shares is a capital gain. If the fair
market value of the shares on the date of disposition is less than the purchase
price, there is no ordinary income, and the loss recognized is a capital loss.
If the participant owns the shares at the time of the participant's death, the
lesser of (i) the difference between the fair market value of the shares on the
date of death and the purchase price or (ii) 15% of the fair market value of the
shares on the Offering Date is recognized as ordinary income in the year of the
participant's death.
If the exercise of a Purchase Right does not constitute an exercise pursuant
to an "employee stock purchase plan" under section 423 of the Code, the exercise
of the Purchase Right will be treated as the exercise of a nonstatutory stock
option. The participant would therefore recognize ordinary income on the
Purchase Date equal to the excess of the fair market value of the shares
acquired over the purchase price. Such income is subject to withholding of
income and employment taxes. Any gain or loss recognized on a subsequent sale of
the shares, as measured by the difference between the sale proceeds and the sum
of (i) the purchase price for such shares and (ii) the amount of ordinary income
recognized on the exercise of the Purchase Right, will be treated as a capital
gain or loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the shares
for more than 12 months and short-term if the participant holds the shares for
12 months or less. Both long-term and short-term capital gains are at present
generally subject to the same tax rates as ordinary income, except that
long-term capital gains are currently subject to a maximum tax rate of 28%.
If the participant disposes of the shares in a disqualifying disposition the
Company should be entitled to a deduction equal to the amount of ordinary income
recognized by the participant as a result of the disposition, except to the
extent such deduction is limited by applicable provisions of the Code or the
regulations thereunder. In all other cases, no deduction is allowed the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote 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, 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 will
have the same effect as a negative vote. "Broker non-votes," on the other hand,
will have no effect on the outcome of this vote.
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The Board of Directors believes that the proposed amendment to the Purchase
Plan 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 INCREASE TO 1,500,000 THE MAXIMUM NUMBER
OF SHARES ISSUABLE UNDER THE PURCHASE PLAN.
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION
1989 OUTSIDE DIRECTORS STOCK OPTION PLAN
INTRODUCTION
The Board and stockholders adopted and approved the Network General
Corporation 1989 Outside Directors Stock Option Plan (the "Directors Plan") in
April 1989 and August 1989, respectively, and subsequent amendments thereto from
time to time. The Directors Plan provides for the automatic grant of
nonqualified stock options to directors of the Company who are not employees of
the Company. Currently, a maximum of 920,000 shares of the Company's Common
Stock may be issued under the Directors Plan. Of that number, as of May 31, 1996
options to purchase 470,000 shares had been exercised, options to purchase
410,000 shares were outstanding, and 40,000 shares remained available for future
automatic grants under the Directors Plan.
The Board believes that an adequate reserve of shares available for issuance
under the Directors Plan is an important factor in attracting and retaining
qualified directors essential to the success of the Company and in aligning
their long-term interests with those of the Stockholders. Accordingly, subject
to approval by the stockholders, the Board adopted an amendment to the Directors
Plan to increase the maximum aggregate number of shares of Common Stock issuable
under the Directors Plan by 100,000 to a total of 1,020,000 shares.
SUMMARY OF THE PROVISIONS OF THE DIRECTORS PLAN, AS AMENDED
The following summary of the Directors Plan is qualified in its entirety by
the specific language of the Directors Plan, a copy of which will be made
available to any stockholder upon written request.
The Directors Plan provides for the automatic grant of nonqualified stock
options to nonemployee directors of the Company and is intended to qualify as a
"formula plan" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934. While the Directors Plan is intended to operate automatically
without discretionary administration, to the extent administration is necessary,
it will be performed by the Board or a duly appointed committee of the Board.
However, the Board has no discretion to select the nonemployee directors of the
Company who are granted options under the Directors Plan, to set the exercise
price of such options, to determine the number of shares for which or the time
at which particular options are granted or to establish the duration of such
options. The Board is authorized to interpret the Directors Plan and options
granted thereunder, and all determinations of the Board will be final and
binding on all persons having an interest in the Directors Plan or any option.
As amended, a maximum of 1,020,000 shares of the authorized but unissued
shares or treasury shares of the Common Stock of the Company may be issued upon
the exercise of options granted under the Directors Plan. Upon any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Directors
Plan, to the terms of the automatic option grants described below, and to
outstanding options. To the extent that any outstanding option under the
Directors Plan expires or terminates prior to exercise in full or if shares
issued upon the exercise of an option are repurchased by the Company, the shares
of Common Stock for which such option is not exercised or the repurchased shares
are returned to the plan and become available for future grants. All options
must be granted, if at all, not later than April 6, 1999.
Only directors of the Company who are not employees of the Company or any
present or future parent and/or subsidiary corporations of the Company (the
"Outside Directors") are eligible to
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participate in the Directors Plan. Currently, the Company has seven Outside
Directors. The Directors Plan provides that each Outside Director upon initial
election to the Board will receive an automatic one-time grant of an option to
purchase 40,000 shares. Each Outside Director is automatically granted an
additional option to purchase 10,000 shares on each anniversary of his or her
initial grant.
The exercise price of any option granted under the Directors Plan must equal
the fair market value, as determined pursuant to the plan, of a share of the
Company's Common Stock on the date of grant. Generally, the fair market value of
the Common Stock will be the closing price per share on the date of grant as
reported on the Nasdaq National Market. No option granted under the Directors
Plan is exercisable after the expiration of 10 years after the date such option
is granted, subject to earlier termination in the event the optionee's service
with the Company ceases or in the event of a Transfer of Control of the Company,
as discussed below. Initial options granted under the Directors Plan become
exercisable cumulatively in installments of 1/4 on the first anniversary of the
date of grant and 1/48 per month thereafter subject to the continued service of
the optionee. Annual options become exercisable cumulatively in installments of
1/12 per month commencing three years after the date of grant subject to the
continued service of the optionee.
Options may be exercised by payment of the exercise price in cash, by check
or in cash equivalent. During the lifetime of the optionee, the option may be
exercised only by the optionee. An option may not be transferred or assigned,
except by will or the laws of the descent and distribution. Options expire 10
years after the date of grant.
If an optionee ceases to be a director of the Company for any reason, except
death or disability, the optionee may exercise his or her options (to the extent
exercisable on the date of termination) within three months after the date of
termination, but in any event not later than the date of termination of the
option. If an optionee ceases to be a director of the Company due to death or
disability, the optionee (or his or her legal representative) may exercise the
option (to the extent exercisable on the date of termination) within six months
after the date of termination, but in any event not later than the date of
termination of the option. The portion of an option which is unexercisable as of
the date of termination will be canceled.
The Directors Plan provides that in the event of a Transfer of Control, any
unexercisable or unvested portions of the outstanding options will become
immediately exercisable and vested in full as of a date prior to the Transfer of
Control. Any options not exercised prior to a Transfer of Control will terminate
effective as of the date of the Transfer of Control.
The Board may terminate or amend the Directors Plan at any time; provided,
however, that without stockholder approval, the Board of Directors may not amend
the Directors Plan to increase the number of shares reserved for issuance
pursuant to the Directors Plan or to change the class of persons eligible to
receive options under the Directors Plan; and provided further, that the
provisions of the Directors Plan addressing eligibility to participate in the
plan and the amount, price and timing of grants of options may not be amended
more than once every six months, other than to comport to changes in the Code,
or the rules thereunder. No amendment of the Directors Plan may adversely affect
an outstanding option without the consent of the optionee.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTORS PLAN
For a description of the United States federal income tax consequences under
current law of nonqualified stock options granted under the Directors Plan,
please see the discussion above under "APPROVAL OF AMENDMENT TO THE NETWORK
GENERAL CORPORATION 1989 STOCK OPTION PLAN -- Summary of Federal Income Tax
Consequences of the Option Plan."
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote 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, either in person or by proxy, is required for
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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 will have the same effect as a negative vote on this proposal.
"Broker non-votes" will have no effect on the outcome of this vote.
The Board of Directors believes that the proposed amendment of the Directors
Plan is in the best interests of the Company and stockholders for the reasons
stated above. THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THIS PROPOSAL TO INCREASE TO 1,020,000 THE MAXIMUM NUMBER OF SHARES
RESERVED ISSUABLE UNDER THE DIRECTORS PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Arthur Andersen LLP as
the independent public accountants to audit the financial statements of the
Company for the fiscal year ending March 31, 1997. Arthur Andersen LLP has acted
in such capacity since its appointment in fiscal year 1987. A representative of
Arthur Andersen LLP 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 LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1997.
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 , 1997, 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
JILL E. FISHBEIN
SECRETARY
July , 1996
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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 17, 1996, at the Annual Meeting of Stockholders to be
held on August 9, 1996, or any adjournment thereof.
(Continued and to be signed on reverse side.)
See Reverse
Side
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<PAGE>
PLEASE MARK
/X/ YOUR CHOICES
LIKE THIS
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ACCOUNT NUMBER COMMON
Item 1. ELECTION OF CLASS III DIRECTORS
Leslie G. Denend
Laurence R. Hootnick
/ / FOR nominees listed / / WITHHOLD AUTHORITY
below (except as to vote for nominees
designated in the blank listed below
spaces hereof)
(INSTRUCTION: To withhold authority to vote for nominee, write nominee's
name in the space provided below)
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2. TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED TO BE ISSUED
TO ONE HUNDRED MILLION (100,000,000) FROM FIFTY MILLION (50,000,000).
/ / FOR / / AGAINST / / ABSTAIN
3. TO AMEND THE COMPANY'S 1989 STOCK OPTION PLAN TO INCREASE THE MAXIMUM
AGGREGATE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK THEREUNDER
FROM 14,000,000 TO 16,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. TO AMEND THE COMPANY'S 1989 EMPLOYEE STOCK PURCHASE PLAN TO INCREASE
THE MAXIMUM AGGREGATE NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
THEREUNDER FROM 1,400,000 TO 1,500,000.
/ / FOR / / AGAINST / / ABSTAIN
5. TO AMEND THE COMPANY'S 1989 OUTSIDE DIRECTORS STOCK OPTION PLAN TO
INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF THE COMPANY'S
COMMON STOCK ISSUABLE THEREUNDER FROM 920,000 TO 1,020,000.
/ / FOR / / AGAINST / / ABSTAIN
6. TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31,
1997.
/ / FOR / / AGAINST / / ABSTAIN
7. AT THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
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.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
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Signature
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Signature if held jointly
Dated: , 1996
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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, 3, 4, 5 and 6.
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FOLD AND DETACH HERE
