<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended...September 30, 1996
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to_____________
Commission file number 0-17431
NETWORK GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0115204
- ----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4200 Bohannon Drive, Menlo Park, California 94025
- ----------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (415) 473-2000
--------------
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of September 30, 1996, there were outstanding 43,316,647 shares of the
Registrant's Common Stock (par value $0.01 per share).
This report, including exhibits, consists of 91 pages. The exhibit index begins
on page 14-16.
<PAGE>
FORM 10-Q
INDEX
PAGE
----
Cover Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Income -
three and six months ended September 30, 1996 and
1995 4
Condensed Consolidated Statements of Cash Flows -
six months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements - September 30, 1996 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14 - 16
Signatures 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share data) September 30, 1996 March 31, 1996
------------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $36,548 $34,180
Marketable Securities 67,061 81,417
Accounts receivable, net 44,028 34,043
Inventories 5,191 4,863
Prepaid expenses and deferred tax assets 16,229 11,303
-------- --------
Total current assets 169,057 165,806
Property and Equipment, at cost:
Demonstration and rental equipment 11,257 9,968
Office and development equipment 30,816 27,443
Leasehold improvements 2,954 2,771
-------- --------
45,027 40,182
Less accumulated depreciation and amortization (27,901) (23,006)
-------- --------
Net property and equipment 17,126 17,176
Long-term Investments 43,257 37,139
Other Assets 7,772 3,209
-------- --------
$237,212 $223,330
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $6,053 $4,300
Accrued liabilities 16,381 14,749
Deferred revenue 24,235 20,916
-------- --------
Total current liabilities 46,669 39,965
Long-term Deferred Revenue and Taxes 3,524 3,248
Stockholders' Equity:
Common Stock
Issued -- 46,806,647 shares at September 30, 1996 and
46,068,302 shares at March 31, 1996 468 461
Additional paid-in-capital 137,119 127,482
Retained earnings 110,310 91,799
Less treasury stock, at cost -- 3,490,000 shares at September 30, 1996
2,490,000 shares at March 31, 1996 (60,878) (39,625)
-------- --------
Total stockholders' equity 187,019 180,117
-------- --------
$237,212 $223,330
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(in thousands, except per share data) September 30, September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Product $43,626 $35,436 $84,265 $67,266
Services 11,919 8,293 22,960 16,203
---------- ---------- ---------- ----------
Total Revenues 55,545 43,729 107,225 83,469
---------- ---------- ---------- ----------
Cost of Revenues:
Product 11,108 7,744 20,769 14,648
Services 2,999 2,330 6,311 4,547
---------- ---------- ---------- ----------
Total Cost of Revenues 14,107 10,074 27,080 19,195
---------- ---------- ---------- ----------
Gross profit 41,438 33,655 80,145 64,274
Operating Expenses:
Sales and marketing 17,857 15,082 34,879 28,678
Research and development 7,418 6,824 14,594 12,615
General and administrative 3,630 2,946 7,334 5,577
Acquired in-process research and development --- 7,153 --- 7,153
---------- ---------- ---------- ----------
Total Operating Expenses 28,905 32,005 56,807 54,023
---------- ---------- ---------- ----------
Income from operations 12,533 1,650 23,338 10,251
Interest Income, net 1,605 1,860 3,296 3,606
---------- ---------- ---------- ----------
Income before provision for income taxes 14,138 3,510 26,634 13,857
Provision for Income Taxes 4,312 3,200 8,123 6,356
---------- ---------- ---------- ----------
Net income $9,826 $310 $18,511 $7,501
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings Per Share $0.22 $0.01 $0.41 $0.17
---------- ---------- ---------- ----------
Weighted Average Common and Common
Equivalent Shares Outstanding 45,325 45,978 45,735 45,800
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
(in thousands) September 30,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $18,511 $7,501
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,093 3,668
Acquired in-process research & development - 7,153
Deferred taxes, net (802) 567
Net change in certain assets and liabilities (12,021) (1,181)
---------- ----------
Net cash provided by operating activities 11,781 17,708
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of held-to-maturity investments (79,858) (76,658)
Purchases of available-for-sale investments (24,461) -
Proceeds from maturities of held-to-maturity investments 87,917 81,615
Proceeds from sales/maturities of available-for-sale investments 24,816 -
Cash used to purchase AIM Technology - (6,501)
Net additions to property and equipment (6,218) (8,739)
---------- ----------
Net cash provided by (used in) investing activities 2,196 (10,283)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance costs 9,644 9,088
Repurchase of common stock (21,253) (14,424)
---------- ----------
Net cash used in financing activities (11,609) (5,336)
Net increase in cash and cash equivalents 2,368 2,089
Cash and cash equivalents at beginning of period 34,180 18,950
---------- ----------
Cash and cash equivalents at end of period $36,548 $21,039
---------- ----------
---------- ----------
Supplemental Disclosures
Cash paid during the period for :
Income taxes $8,371 $5,060
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Network General Corporation ("Network General" or the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
the unaudited condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods presented. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements, and notes thereto, for the year ended March 31, 1996
included in the Company's 1996 Annual Report on Form 10-K. The results of
operations for the three and six months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the fiscal
year ending March 31, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
B. CASH AND CASH EQUIVALENTS, MARKETABLE SECURITIES, AND LONG-TERM
INVESTMENTS
For purposes of the condensed consolidated statements of cash flows, the
Company considers certificates of deposits, commercial paper, money market
funds, and other similar financial instruments with an original maturity date
of three months or less to be cash equivalents.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE: Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities
are classified as held-to-maturity when the company has the positive intent
and ability to hold the securities to maturity. Marketable debt securities
not classified as held-to-maturity are classified as available-for-sale.
Held-to-maturity investments are stated at cost, adjusted for amortization of
premiums and accretion of discounts to maturity. Available-for-sale
securities are carried at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity, if significant.
As of September 30, 1996, the following is a summary of held-to-maturity and
available-for-sale securities:
HELD-TO-MATURITY SECURITIES
<TABLE>
<CAPTION>
(In thousands) Amortized Aggregate Unrealized
Cost Fair Value Gains
--------- ----------- ---------------
<S> <C> <C> <C>
Debt securities issued by the U.S. Treasury and
other U.S. government agencies $2,782 $2,783 $1
Debt securities issued by states of the United States
and political subdivisions of the state 76,000 76,190 190
------- ------- ----
$78,782 $78,973 $191
------- ------- ----
------- ------- ----
</TABLE>
AVAILABLE-FOR-SALE SECURITIES
<TABLE>
<CAPTION>
(In thousands) Amortized Aggregate Unrealized
Cost Fair Value Gains
--------- ----------- ---------------
<S> <C> <C> <C>
Debt securities issued by states of the United States
and political subdivisions of the state $31,439 $31,536 $97
------- ------- ----
------- ------- ----
</TABLE>
6
<PAGE>
C. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and related manufacturing overhead. Inventories
consist of:
(In thousands) September 30, 1996 March 31, 1996
------------------ --------------
Purchased parts $2,970 $2,650
Finished goods 2,221 2,213
------ ------
$5,191 $4,863
------ ------
------ ------
D. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
Fully diluted earnings per share are the same as primary earnings per share.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements within the
meaning of section 27A of the Securities and Exchange Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, which reflect the Company's current judgment on those issues.
Because such statements apply to future events, they are subject to risks and
uncertainties that could cause the actual results to differ materially.
Important factors which could cause actual results to differ materially are
described in the following paragraphs and are particularly noted under
BUSINESS RISKS on pages 12 and 13 and in the Company's reports on Forms 10-K
and 10-Q which are on file with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Revenues for the quarter ended September 30, 1996 were $55,545,000, an
increase of 27% over revenues totaling $43,729,000 for the quarter ended
September 30, 1995. For the six months ended September 30, 1996, revenues
were $107,225,000, an increase of 28% over revenues of $83,469,000 for the
six months ended September 30, 1995. Domestic revenues increased 20% to
$42,377,000 for the quarter ended September 30, 1996 compared to $35,332,000
for quarter ended September 30, 1995. For the six months ended September 30,
1996, domestic revenues were $81,277,000, an increase of 21% over the same
period ended September 30, 1995. International revenues increased 57% for
the second quarter of fiscal year 1997 compared to the second quarter of
fiscal year 1996, growing from $8,397,000 to $13,168,000 and increased 58% to
$25,948,000 for the six months ended September 30, 1996. Pacific Rim and
Latin America revenues increased 54% quarter over quarter and increased 59%
for the six months ended September 30, 1996 compared to the same period ended
September 30, 1995 while European revenues grew 61% and 57% for the quarter
and six months ended September 30, 1996, respectively. International revenues
increased to 24% of total revenues for both the three and six months ended
September 30, 1996, compared to 19% and 20%, respectively, for the three and
six months ended September 30, 1995. These increases in international
revenues resulted from increased sales volumes by the Company's exclusive
Japan distributor as well as the Company's focus on a new, revised European
sales strategy which has led to increased sales volumes in Europe.
8
<PAGE>
The following table presents the Company's revenues for each of its product
lines in absolute dollars and as a percentage of revenues for each of the
periods shown below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------ -------------
(dollars in thousands) (dollars in thousands)
SOURCES OF REVENUES 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tool Products (1) $28,092 $21,068 $55,128 $41,492
System Products (2) 15,534 14,368 29,137 25,774
------- ------- ------- -------
Subtotal Product Revenues 43,626 35,436 84,265 67,266
Services (3) 11,919 8,293 22,960 16,203
------- ------- ------- -------
Total Revenues $55,545 $43,729 $107,225 $83,469
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
PERCENTAGES OF REVENUES 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tool Products 51% 48% 52% 50%
System Products 28% 33% 27% 31%
--- --- --- ---
Subtotal Product Revenues 79% 81% 79% 81%
Services 21% 19% 21% 19%
--- --- --- ---
Total Revenues 100% 100% 100% 100%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
(1) Tool products in each of the three and six months ended September
30, 1996 and 1995 include revenues from the Sniffer-Registered
Trademark- Network Analyzer local area network (LAN) analysis products,
wide area network (WAN) analysis products, product rentals and royalties
from license agreements. In both the three and six months ended
September 30, 1995, tool products also include product rentals.
(2) System products consist of revenues from the Distributed Sniffer
System-Registered Trademark- analysis products, performance measurement
analysis products, the Foundation probe and agent remote monitoring
products, the Sharpshooter monitoring products, the DATACOM Systems, Inc.
line of network switching devices, the Netsys Technologies, Inc. line of
connectivity and performance tools and Frontier Software Development,
Inc.'s line of "Netscout" remote monitoring products.
(3) Services revenues in each of the three and six months ended
September 30, 1996 and 1995 include first-year warranty revenues as
defined by Statement of Position ("SOP") 91-1 and revenues from software
support and maintenance contracts and training and consulting services.
In both the three and six months ended September 30, 1996, services
revenues also include product rentals.
The Company's tool products revenues increased 33% to $28,092,000 for the
second quarter of fiscal year 1997 compared to $21,068,000 for the second
quarter of fiscal year 1996. For the six months ended September 30, 1996,
tool products revenues totaled $55,128,000, an increase of 33% over tool
products revenues totaling $41,492,000 for the six months ended September 30,
1995. Sniffer-Registered Trademark- Network Analyzer products accounted for
substantially all of the Company's tool products revenues in both the three
and six month periods ended September 30, 1996 and 1995. Tool products
revenues represented approximately 51% of Network General's revenues for the
second fiscal quarter ended September 30, 1996, compared to 48% for the same
period ended September 30, 1995. For the six months ended September 30,
1996, tool products represented 52% of the Company's total revenues, compared
to 50% for the same period ended September 30, 1995.
Revenues for the quarter ended September 30, 1996 included $15,534,000 in
system products revenues, an 8 % increase compared to $14,368,000 in system
products revenues for the same period in fiscal year 1996. System products
revenues increased 13 % to $29,137,000 for the six months ended September 30,
1996 compared to $25,774,000 for the same period ended September 30, 1995.
The Distributed Sniffer System-Registered Trademark- (DSS) analysis products
accounted for the majority of the Company's system products revenues in both
the three and six month periods ended September 30, 1996 and 1995. System
products revenues decreased to approximately 28% and 27% of Network General's
revenues for the three and six months ended September 30, 1996, respectively,
compared to 33% and 31% for the three and six months ended September 30,
1995, respectively, due to faster growth in tools and services revenues as
well as broadening competition for system products.
9
<PAGE>
Services revenues include revenues from software support and maintenance
contracts and training and consulting services, as well as those revenues from
the first-year warranty period of customer support which have been deferred
in accordance with SOP 91-1, "Software Revenue Recognition." For the quarter
ended September 30, 1996, services revenues increased 44% to $11,919,000,
from $8,293,000 for the same quarter in fiscal year 1996. The increase in
services revenues resulted from increases in all categories of services
revenues. Services revenues grew 42% from $16,203,000 for the six months
ended September 30, 1995 to $22,960,000 for the six months ended September
30, 1996. As a percentage of total revenues, services revenues represented
approximately 21% of Network General's revenues for the three and six months
ended September 30, 1996, an increase from 19% for the same periods ended
September 30, 1995.
Cost of revenues consists of manufacturing costs, cost of services,
royalties, and warranty expenses. Gross profit as a percentage of revenues
decreased to 75% for the quarter and six months ended September 30, 1996 from
77% for the quarter and six months ended September 30, 1995, primarily
resulting from increased pricing pressure on the company's products,
increased cost of servers for the Company's system products, promotional
pricing on one of the Company's older product platforms, and increased sales
of third party products. Gross profit and gross profit percent may vary as a
result of a number of factors, including the mix between tool products (which
include sales of third party platforms and sales of third party product
lines, which have lower margins than the Company's own products), system
products (which include sales of third party product lines, which have lower
margins than the Company's own products) and services (which have
historically lower gross margins than the Company's products margins) and the
use of indirect distribution channels to sell the Company's products, both
domestically and internationally.
Sales and marketing expenses were $17,857,000 in the second quarter of fiscal
year 1997, an increase of 18% compared to $15,082,000 in the second quarter
of fiscal year 1996. For the six months ended September 30, 1996, sales and
marketing expenses totaled $34,879,000, an increase of 22% over $28,678,000
incurred for the same period ended September 30, 1995. These increases were
primarily due to increased staffing, commission expense and promotional
activity required to support increased sales volumes. As a percentage of
revenues, sales and marketing expenses decreased to 32% from 34% for the
quarters ended September 30, 1996 and 1995, respectively, and decreased from
34% to 33% for the six months ended September 30, 1995 and 1996,
respectively, due to increased use of indirect distribution channels to sell
the Company's products and services, thereby reducing the amount of direct
selling costs related to such sales of the Company's products and services.
Research and development expenses were $7,418,000 in the second quarter of
fiscal year 1997, compared to $6,824,000 in the second quarter of fiscal year
1996 and $14,594,000 for the six months ended September 30, 1996 compared to
$12,615,000 for the same period ended September 30, 1995. As a percentage of
revenues, research and development expenses decreased to 13% for the quarter
ended September 30, 1996 compared to 16% for the quarter ended September 30,
1995 and 14% for the six months ended September 30, 1996 compared to 15% for
the six months ended September 30, 1995 due to the fact the three and six
months ended September 30, 1995 included significant expenses incurred to
support accelerated development efforts of high speed network technology
products. The increase in absolute dollar spending was a result of increased
staffing and equipment expense to support growth in the Company's breadth of
product and services offerings. The Company believes continued commitment to
research and development is required to remain competitive.
Research and development expenses are accounted for in accordance with
Statement of Financial Accounting Standards No. 86, under which the Company
is required to capitalize software development costs after technological
feasibility is established. Capitalizable software development costs incurred
to date have not been significant and, therefore, the Company has charged all
software development costs to research and development expenses in the
consolidated statements of income.
10
<PAGE>
General and administrative expenses were $3,630,000 for the quarter ended
September 30, 1996 and $2,946,000 for the quarter ended September 30, 1995.
For the six months ended September 30, 1996, general and administrative
expenses totaled $7,334,000 compared to $5,577,000 incurred for the six
months ended September 30, 1995. Increased spending for general and
administrative expenses was primarily the result of increased staffing to
support operations. General and administrative expenses as a percentage of
revenues were 7% for both quarters and six months ended September 30, 1996
and 1995.
Earnings per share for the quarter ended September 30, 1996 increased to
$0.22 compared to $0.01 per share earned in the quarter ended September 30,
1995. For the six months ended September 30, 1996, earnings per share
increased to $0.41 from $0.17 for the same period in fiscal year 1996.
Excluding the one-time charge to write-off acquired in-process research and
development related to the acquisition of AIM Technology ("AIM") earnings
per share in the three and six months ended September 30, 1995 would have
been $0.16 and $0.33, respectively. These increases were due to increased
revenues and gross margin dollars, as well as lower operating expenses as a
percentage of revenues. The number of weighted average common and common
equivalent shares outstanding decreased from 45,978,000 in the second quarter
of fiscal year 1996 to 45,325,000 in the second quarter of fiscal year 1997
due to increased repurchases of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $11,781,000 for the six months
ended September 30, 1996 and $17,708,000 the six months ended September 30,
1995. The primary source of these funds was net income, offset by net
changes in certain assets and liabilities in fiscal years 1997 and 1996.
Net cash provided by investing activities was $2,196,000 for the six months
ended September 30, 1996, compared to net cash used in investing activities
of $10,283,000 for the six months ended September 30, 1995. Net cash from
investing activities in the first six months of fiscal year 1997 reflects
proceeds from sales/maturities of held-to-maturity and available-for-sale
investments reinvested in cash and cash equivalents, net of additions to
property and equipment and purchases of held-to-maturity and
available-for-sale investments.
Net cash used in financing activities was $11,609,000 for the six months
ended September 30, 1996 and $5,336,000 for the same period ended September
30, 1995. The primary use of these funds was repurchases of common stock
totaling $21,253,000 and $14,424,000 for the six months ended September 30,
1996 and 1995, respectively. Offsetting these uses were proceeds from the
issuance of common stock totaling $9,644,000 for the six months ended
September 30, 1996 and $9,088,000 for the same period ending September 30,
1995.
As of September 30, 1996, the Company's principal sources of liquidity
included cash, cash equivalents, marketable debt securities and long-term
investments totaling $146,866,000, including $43,257,000 of long-term
investments. The Company currently has no outstanding bank borrowings and
has no established lines of credit. The Company believes cash generated from
operations, together with existing cash and investment balances, will be
sufficient to satisfy operating cash and capital expenditure requirements
through at least the next twelve months.
11
<PAGE>
BUSINESS RISKS
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market
for Network General's products is characterized by rapidly changing
technology and evolving industry standards. Included in such technology
changes is the development of switching technologies for the transmission of
data along local area and wide area networks, such as asynchronous transfer
mode ("ATM") and switched-Ethernet. Network General believes its future
success will depend, in part, on its ability to continue to develop,
introduce and sell new products. The Company is committed to continuing
investments in research and development; however, there is no assurance these
efforts will result in the development of products for the appropriate
platforms or operating systems, or the timely release or market acceptance of
new products.
The Company's results may be adversely affected by the actions of existing or
future competitors including established and emerging computer,
communications, intelligent network wiring, network management and test
instrument companies. New and competitive entrants into the field of network
fault and performance management may come from such diverse entities as
established network hardware companies which have embedded systems in their
network hardware and smaller companies which market their software products
as having "network management" functionality. There can be no assurance
Network General will be able to compete successfully in the future with
existing or future competitors. New entrants, new technology and new
marketing techniques may cause customer confusion, thereby lengthening the
sales cycle process for the Company's products, particularly the Company's
system products. Increased competition may also lead to downward pricing
pressure on the Company's products.
Network General does not carry a significant level of backlog. The majority
of the Company's revenues in each quarter are a result of shippable orders
booked in that quarter. Orders in the most recent quarters were received by
the Company later in their respective fiscal quarters than they have been in
prior quarters. It is anticipated this trend will continue into the near
future. Further, the Company has entered the most recent fiscal quarters with
a lower level of backlog as a percentage of revenue shipped within such
quarters compared to prior periods. If the trends of orders received later
in the quarter and lower levels of backlog entering the quarter continue,
there is more risk the Company may not attain quarterly revenue objectives.
Since the Company's expense levels are based on expectations of future
revenues, failure of the Company to achieve quarterly revenue objectives
would, therefore, have an adverse effect on the Company's operating results.
In addition, the Company's expansion of its indirect channels of distribution
may lead to channel conflict and downward pricing pressure and changes to the
Company's gross margins and operating margins.
The Company remains in the process of implementing a revised distribution
strategy in Europe which includes a combination of third party distributors
and direct sales and, as a result, there may be fluctuating results in
European sales efforts until the strategy is fully implemented.
Network General products may be considered by certain customers to be capital
purchases. An adverse change in general economic conditions could cause
certain of the Company's customers to reduce their capital spending, which
may adversely affect the Company's operating results.
In September 1995, the Company acquired the remaining 90% of voting interest
of AIM. The successful combination of companies in the high technology
industry may be more difficult to accomplish than in other industries. There
can be no assurance Network General will be successful in developing products
based on AIM's engineering expertise and technology, that Network General
will be successful in integrating its own distribution channels with those of
AIM, that Network General will be successful in penetrating AIM's customer
base, that Network General will be successful in selling AIM's products to
its own customer base, that the combined companies will retain their key
personnel or that Network General will realize any of the benefits
anticipated at the time of the merger.
12
<PAGE>
There has been substantial litigation regarding patent and other intellectual
property rights in the software industry. As is typical in the software
industry, the Company has received from time to time notices from third
parties alleging infringement claims. Although there are currently no
pending lawsuits against Network General regarding any possible infringement
claims, there can be no assurance infringement claims will not be asserted in
the future or that such assertions will not materially adversely affect the
Company's business, financial condition and results of operations. If any
such claims are asserted against Network General, the Company may need to
seek to obtain a license under the third party's intellectual property
rights. There can be no assurance a license will be available on reasonable
terms or at all. Failure to obtain a necessary license on commercially
reasonable terms would materially adversely affect the Company's business,
financial condition and results of operations. Network General could decide,
in the alternative, to resort to litigation to challenge such claims. Such
litigation could be expensive and time consuming and could materially
adversely affect the Company's business, financial condition and results of
operations.
For certain critical components of its products, Network General relies on a
limited number of suppliers. In addition, some of the Company's products are
designed around specific computer platforms which are only available from
certain manufacturers. As a result of product transitions by these computer
platform manufacturers, the Company has found it increasingly necessary to
purchase and inventory computer platforms for resale to its customers. Any
significant shortage of computer platforms or other critical components for
the Company's products could lead to cancellations or delays of purchases of
the Company's products which would materially adversely affect the Company's
operating results. If purchases of computer platforms or other components
exceed demand, the Company would incur expenses for disposing of the excess
inventory, which would also adversely affect the Company's operating results.
TRADEMARKS
Sniffer and Distributed Sniffer System are registered trademarks of Network
General Corporation and/or its wholly owned subsidiaries.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
From time to time the Company has been, or may become, involved in
litigation proceedings incidental to the conduct of its business. The
Company does not believe any such proceedings presently pending will
have a material adverse affect on the Company's financial position or
its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Company's annual meeting of stockholders was held on August 9,
1996. At the meeting, Leslie G. Denend and Laurence R. Hootnick were
elected as Class III members of the Company's Board of Directors,
with terms expiring at the Company's annual meeting of stockholders
in 1999 and until their successors are elected and qualified. Mr.
Denend was elected with 40,049,777 votes FOR and 38,326 votes WITHHELD.
Mr. Hootnick was elected with 40,057,549 votes FOR and 30,554 votes
WITHHELD.
Also at the same meeting, the stockholders approved five other
proposals. The first proposal was to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of common stock from 50,000,000 to 100,000,000. Approval was
obtained with 35,941,451 votes FOR, 4,066,390 votes AGAINST, 30,562
votes ABSTAINING and 49,700 Broker Non-Votes on this proposal.
The second proposal was to amend the Company's 1989 Stock Option Plan
to increase the number of shares reserved for issuance thereunder from
14,000,000 to 16,000,000. Approval was obtained with 22,107,789 votes
FOR, 17,886,132 votes AGAINST, 44,482 votes ABSTAINING and 49,700
Broker Non-Votes on this proposal.
The third proposal was to amend the Company's 1989 Employee Stock
Purchase Plan to increase the number of shares of the Company's
Common Stock reserve for issuance thereunder from 1,400,000 to
1,500,000. Approval was obtained with 39,062,692 votes FOR, 933,317
votes AGAINST, 42,394 votes ABSTAINING and 49,700 Broker Non-Votes on
this proposal.
The fourth proposal was to amend the Company's 1989 Outside Directors
Stock Option Plan and increase the number of shares reserved for the
issuance thereunder from 920,000 to 1,020,000. Approval was obtained
with 25,395,975 votes FOR, 14,588,656 votes AGAINST, 53,772 votes
ABSTAINING and 49,700 Broker Non-Votes on this proposal.
The fifth and final proposal was to ratify the appointment of Arthur
Andersen LLP as the independent accountants of the Company for the
fiscal year ending March 31, 1997. Approval was obtained with
40,018,597 votes FOR, 42,320 votes AGAINST and 27,186 votes ABSTAINING
on this proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
1) Exhibits
Exhibit
Number Exhibit Title
- ------- -------------
3.1 Third restated certificate of Incorporation of Network
General Corporation, a Delaware corporation.
3.2 Amended and Restated Bylaws of Network General
Corporation.
4.1 Registration Rights Agreement between the Company and
certain investors dated December 31, 1987, which is
incorporated by reference to Exhibit 4.2 of the
Company's Registration Statement No. 33-26107 on Form
S-1, which became effective February 2, 1989
("Form S-1").
14
<PAGE>
4.2 Rights Agreement between the Company and Chemical
Trust Company of California dated June 26, 1992, as
amended, which is incorporated by reference to
Exhibit 4.2 of the Company's Annual Report on Form
10-K for the year ended March 31, 1993.
10.1 Standard Business Lease (Net) for the Company's
principal facility dated June 18, 1991, between the
Company and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the year
ended March 31, 1991.
10.2 First Amendment to Lease dated June 10, 1992, between
the Company and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the year
ended March 31, 1992 ("1992 Form 10-K").
10.3 Standard Business Lease (Net) for the Company's
principal facility dated March 11, 1992,
between the Company and Menlo Oaks Partners, L.P.,
which is incorporated by reference to Exhibit 10.4
of the 1992 Form 10-K.
10.4 First Amendment to Lease dated June 18, 1992, between
the Company and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.5 of the 1992
Form 10-K.
10.5 Lease dated March 31, 1992, between the Company and
Equitable Life Assurance Society of the United States,
which is incorporated by reference to Exhibit 10.4 of
the 1992 Form 10-K.
10.6 Description of Company's Cash Bonus Plan, which is
incorporated by reference to Exhibit 10.6 of the
Form S-1.
10.7 Form of Director and Officer Indemnification
Agreement, which is incorporated by reference to
Exhibit 10.7 of the Form S-1.
10.8 Amended and Restated 1989 Outside Directors Stock
Option Plan and related documentation, as amended
August 9, 1996.
10.9 OEM Agreement dated August 3, 1991 between the Company
and NCR Corporation which is incorporated by
reference to Exhibit 10.18 of the Company's
Registration Statement No. 33-45580 on Form S-3
which became effective on April 6, 1992.
10.10 Employment agreement dated April 6, 1994 between the
Company and Leslie Denend, which is incorporated by
reference to Exhibit 10.21 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1994 ("June 1994 Form 10-Q").
10.11 Employment agreement dated April 6, 1994 between the
Company and James T. Richardson, which is
incorporated by reference to Exhibit 10.22 of the June
1994 Form 10-Q.
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<PAGE>
10.12 Employment agreement dated April 6, 1994 between the
Company and Richard Lewis, which is incorporated by
reference to Exhibit 10.23 of the June 1994 Form 10-Q.
10.13 Second Amendment to Lease dated February 1, 1995
between the Company and Menlo Oaks Partners, L.P.,
which is incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994 ("December 1994 Form
10-Q").
10.14 Third Amendment to Lease dated February 1, 1995
between the Company and Menlo Oaks Partners, L.P.,
which is incorporated by reference to Exhibit 10.23
of the December 1994 Form 10-Q.
10.15 Fourth Amendment to Lease dated May 31, 1995 between
the Company and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.27 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 10-Q ("June 1995 Form
10-Q").
10.16 Fifth Amendment to Lease dated June 13, 1995 between
the Company and Menlo Oaks Partners, L.P., which is
incorporated by reference to Exhibit 10.28 of the
June 1995 Form 10-Q.
10.17 Network General Corporation 1989 Employee Stock
Option Plan and related documentation, as amended
August 9, 1996.
10.18 Network General Corporation 1989 Employee Stock
Purchase Plan and related documentation, as amended
August 9, 1996.
10.19 Employment Agreement dated August 19, 1995 between
the Company and Michael Kremer, which is
incorporated by reference to Exhibit 10.22 of the
Company's Annual Report on Form 10-K for the year
ended March 31, 1996 ("1996 Form 10-K").
10.20 Lease dated July 3, 1996, between the Company and
Campbell Avenue Associates, which is incorporated by
reference to Exhibit 10-22 of the 1996 Form 10-K.
10.21 Secured Loan Agreement dated October 29, 1996 between
the Company and John Richard Stringer.
27.0 Financial Data Schedule
2) Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended September 30, 1996.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK GENERAL CORPORATION
(Registrant)
Date: November 12, 1996 by S/JAMES T. RICHARDSON
----------------- ------------------------
James T. Richardson
Senior Vice President, Corporate
Operations, Chief Financial Officer
and Assistant Secretary
(authorized officer)
Date: November 12, 1996 by S/BERNARD J. WHITNEY
----------------- ---------------------------
Bernard J. Whitney
Vice President, Controller and
Chief Accounting Officer
(authorized officer)
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<PAGE>
EXHIBIT 10.8
NETWORK GENERAL CORPORATION
1989 OUTSIDE DIRECTORS STOCK OPTION PLAN
(As Amended August 9, 1996)
1. PURPOSE. The Network General Corporation 1989 Outside Directors
Stock Option Plan (the "Plan") is established effective as of April 6, 1989
(the "Effective Date") to create additional incentive for the outside
directors of Network General Corporation and any successor corporation
thereto (collectively referred to as the "Company"), to promote the
financial success and progress of the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any
subsequent references to the Board shall also mean the committee if it has
been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the
Board granted herein, including, without limitation, the power to terminate
or amend the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law. The Board shall have no authority,
discretion, or power to select the non- employee directors of the Company
who will receive options under the Plan, to set the exercise price of the
options granted under the Plan, to determine the number of shares of common
stock to be granted under option or the time at which such options are to be
granted, to establish the duration of option grants, or alter any other
terms or conditions specified in the Plan, except in the sense of
administering the Plan subject to the provisions of the Plan. All questions
of interpretation of the Plan or of any options granted under the Plan (an
"Option") shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan and/or any
Option. All Options shall be nonqualified stock options. Any officer of
the Company shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
3. ELIGIBILITY AND TYPE OF OPTION. The Options may be granted only to
directors of the Company who are not employees of the Company or any present or
future parent and/or subsidiary corporations of the Company. Options
granted to eligible directors of the Company ("Outside Directors") shall be
nonqualified stock options; that is, options which are not treated as having
been granted under section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). For purposes of the Plan, a parent corporation and a
subsidiary corporation shall be as defined in sections 424(e) and 424(f) of
the Code.
4. SHARES SUBJECT TO OPTION. Options shall be options for the purchase
of the authorized but unissued common stock or treasury shares of common stock
of the Company (the "Stock"), subject to adjustment as provided in paragraph 8
below. The maximum number of shares of Stock which may be issued under the
Plan shall be 1,020,000 shares. In the event that
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<PAGE>
any outstanding Option for any reason expires or is terminated and/or shares
of Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased
shares, may again be subjected to an Option. Notwithstanding the foregoing,
any such shares shall be made subject to a new Option only if the grant of
such new Option and the issuance of such shares pursuant to such new Option
would not cause the Plan or any Option granted under the Plan to contravene
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and as
amended from time to time or any successor rule or regulation ("Rule 16b-3").
5. TIME FOR GRANTING OPTIONS. All Options shall be granted, if at all,
within ten (10) years from the Effective Date.
6. TERMS, CONDITIONS AND FORM OF OPTIONS. Options granted pursuant to
the Plan shall be evidenced by written agreements specifying the number of
shares of Stock covered thereby, in the two forms attached hereto as EXHIBIT A
and EXHIBIT B, respectively, and incorporated herein by reference (the "Option
Agreements"), and shall comply with and be subject to the following terms and
conditions:
(a) AUTOMATIC GRANT OF OPTIONS. Subject to execution by each Outside
Director of the appropriate Option Agreement:
(i) On the Effective Date, each Outside Director shall be
granted an Option to purchase sixty thousand (60,000) shares of Stock. Each
Outside Director who is first elected to serve on the Board after the Effective
Date shall be granted an Option to purchase sixty thousand (60,000) shares of
Stock upon such election; provided, however, that on and after November 1,
1993, such number shall be twenty thousand (20,000).
(ii) Each Outside Director shall be granted an Option to
purchase ten thousand (10,000) shares of Stock upon each Anniversary Date of
such Outside Director; provided, however, that for Anniversary Dates
occurring on and after November 1, 1993, such number shall be five thousand
(5,000).
(iii) The Anniversary Date of an Outside Director who was
elected to the Board prior to the Effective Date shall be the date which is
twelve (12) months after the Effective Date and successive anniversaries
thereof. The Anniversary Date of an Outside Director who is elected to the
Board after the Effective Date shall be the date which is twelve (12) months
after such election and successive anniversaries thereof.
(iv) Notwithstanding the foregoing, any Outside Director may
elect not to receive an Option granted pursuant to this paragraph 6(a) by
delivering written notice of such election to the Board (1) in the case of an
initial Option grant, no later than the date upon which such Outside Director
commences service on the Board, or (2) in the case of an Option grant pursuant
to paragraph 6(a)(ii), no later than six (6) months prior to the date on which
such Option would otherwise be granted.
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<PAGE>
(v) Notwithstanding any other provision of the Plan, no Option
shall be granted to an Outside Director on his Anniversary Date when he is no
longer serving as a director of the Company on such Anniversary Date.
(b) OPTION PRICE. The option price per share for an Option shall be
the fair market value, as determined by the average of the high and low prices
of a sale of a share of Stock on the National Association of Securities
Dealer's Automated Quotations System (the "NASDAQ System") or other national
securities exchange, on the date of the granting of the Option. If the date
of the granting of the Option does not fall on a day on which the Company's
Stock is trading on the NASDAQ System or other national securities exchange,
the date on which the option price per share shall be established shall be
the last day on which the Company's Stock was so traded prior to the date of
the granting of the Option. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than the minimum exercise price set
forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying with the provisions
of section 424(a) of the Code.
(c) EXERCISE PERIOD OF OPTIONS. Any Option granted hereunder shall
be exercisable for a term of ten (10) years.
(d) PAYMENT OF OPTION PRICE. Payment of the option price for the
number of shares of Stock being purchased pursuant to any Option shall be made
in cash, by check, or in cash equivalent.
(e) STOCKHOLDER APPROVAL. Any Option granted pursuant to the Plan
shall be subject to obtaining stockholder approval of the Plan at the first
annual meeting of stockholders after the Effective Date. Notwithstanding the
foregoing, stockholder approval shall not be necessary in order to grant any
Option granted on the Effective Date; provided, however, that the exercise of
any such Option shall be subject to obtaining stockholder approval of the Plan.
7. AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of the Option Agreements set forth as EXHIBIT A
and EXHIBIT B, respectively, either in connection with the grant of an
individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of such
revised or amended stock option agreements shall be in accordance with the
terms of the Plan. Such authority shall include, but not by way of
limitation, the authority to grant Options which are immediately exercisable
subject to the Company's right to repurchase any unvested shares of stock
acquired by the Optionee on exercise of an Option in the event such
Optionee's service as a director of the Company is terminated for any reason.
8. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan
and to any outstanding Options and in the option price of any outstanding
Options in the event of a stock dividend, stock split, reverse stock split,
combination, reclassification or like change in the capital structure of the
Company.
9. TRANSFER OF CONTROL. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
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<PAGE>
(a) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the Company;
(b) a merger in which the stockholders of the Company before such
merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company;
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one (1) or more
corporations where the stockholders of the Company before such sale,
exchange or transfer retain, directly or indirectly, at least a majority of
the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
In the event of a Transfer of Control, any unexercisable and/or unvested
portion of the outstanding Options shall be immediately exercisable and vested
as of a date prior to the Transfer of Control, as the Board so determines. The
exercise and/or vesting of any Option that was permissible solely by reason of
this paragraph 9 shall be conditioned upon the consummation of the Transfer of
Control. Any Options which are not exercised as of the date of the Transfer of
Control shall terminate effective as of the date of the Transfer of Control.
10. OPTIONS NON-TRANSFERABLE. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be
assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution.
11. TERMINATION OR AMENDMENT OF PLAN. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the stockholders of the
Company, there shall be (a) no increase in the total number of shares of
Stock covered by the Plan (except by operation of the provisions of
paragraph 8 above), and (b) no expansion in the class of persons eligible to
receive Options; and provided, further, that the provisions of the Plan
addressing eligibility to participate in the Plan and the amount, price and
timing of grants of Options shall not be amended more than once every six (6)
months, other than to comport to changes in the Code, or the rules thereunder.
In addition to the foregoing, the approval of the Company's stockholders
shall be sought for any amendment to the Plan for which the Board deems
stockholder approval necessary in order to comply with Rule 16b-3. In any
event, no amendment may adversely affect any then outstanding Option or any
unexercised portion thereof, without the consent of the Optionee.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Network General Corporation 1989 Outside Directors Stock
Option Plan was duly amended by the Board of Directors of the Company on the
9th day of August, 1996.
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<PAGE>
NETWORK GENERAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL GRANT)
Network General Corporation (the "Company"), granted to the individual
named below an option to purchase certain shares of common stock of the
Company, in the manner and subject to the provisions of this Option Agreement.
1. DEFINITIONS:
(a) "Optionee" shall mean_________________________________.
(b) "Date of Option Grant" shall mean________________________.
(c) "Number of Option Shares" shall mean_____________________shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
Vested Ratio
------------
On Date of Option Grant 0
On Initial Vesting Date provided the 1/4
Optionee has continuously served as a
director of the Company from the Date of
Option Grant until the Initial Vesting Date
Plus
For each full month of Optionee's 1/48
continuous service as a director of the
Company from the Initial Vesting Date
In no event shall the Vested Ratio exceed
1/1.
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(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Network General Corporation, a Delaware
corporation, and any successor corporation thereto.
(k) "Plan" shall mean the Network General Corporation 1989 Outside
Directors Stock Option Plan.
2. STATUS OF OPTION. This Option is intended to be a nonqualified stock
option and shall not be treated as an incentive stock option as described in
section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent reference herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations
imposed by law. All determinations by the Board shall be final and binding
upon all persons having an interest in the Option. Any officer of the
Company shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
(a) RIGHT TO EXERCISE. The Option shall first become exercisable on
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set
forth in paragraph 1 above less the number of shares previously acquired
upon exercise of the Option. In no event shall the Option be exercisable
for more shares than the Number of Option Shares. Notwithstanding the
foregoing, in the event that the adoption of the Plan or any amendment of
the Plan is subject to the approval of the Company's stockholders in order
for the Option to comply with the requirements of Rule 16b-3, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Option shall not be exercisable prior to such stockholder approval if
the Optionee is subject to Section 16(b) of the Exchange Act.
(b) METHOD OF EXERCISE. The Option shall be exercisable by written
notice to the Company which shall state the election to exercise the Option,
the number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and
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<PAGE>
shall be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in paragraph 6 below, accompanied by full payment of the exercise price
for the number of shares being purchased.
(c) FORM OF PAYMENT OF OPTION PRICE. Such payment shall be made in
cash, by check, or in cash equivalent.
(d) WITHHOLDING. At the time the Option is exercised, in whole or
in part, or at any time thereafter as requested by the Company, the Optionee
shall make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, or (ii) the transfer, in whole or in part, of
any shares acquired on exercise of the Option.
(e) CERTIFICATE REGISTRATION. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) RESTRICTION ON GRANT OF OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. In addition, no Option may be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect
with respect to the shares issuable upon exercise of the Option or (ii) in
the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
As a condition to the exercise of the Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
(g) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be
assigned or transferred in any manner except by will or by the laws of descent
or distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as
defined above, (b) the last date for exercising the Option following the
Optionee's termination of service as a director of the Company as described
in paragraph 7 below, or (c) upon a Transfer of Control as described in
paragraph 8 below.
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7. TERMINATION OF SERVICE AS A DIRECTOR.
(a) TERMINATION OF DIRECTOR STATUS. If the Optionee ceases to be a
director of the Company for any reason other than the Optionee's death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be a director, may be exercised by the Optionee at any time
prior to the expiration of three (3) months from the date the Optionee's
service as a director of the Company terminated, but in any event no later
than the Option Term Date. If the Optionee ceases to be a director of the
Company because of the death of the Optionee or disability of the Optionee
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date of such death or
disability, may be exercised by the Optionee (or the Optionee's legal
representative) at any time prior to the expiration of six (6) months from
the date the Optionee's service as a director of the Company terminated, but
in any event no later than the Option Term Date. The Optionee's service as
a director of the Company shall be deemed to have terminated on account of
death if the Optionee dies within one (1) month after the Optionee's
termination of service as a director of the Company.
(b) EXERCISE PREVENTED BY LAW. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's service as a director of the Company terminates unless the exercise
of the Option in accordance with this paragraph 7 is prevented by the
provisions of paragraph 4(f) above. If the exercise of the Option is so
prevented, the Option shall remain exercisable until three (3) months after
the date the Optionee is notified by the Company that the Option is
exercisable, but in any event no later than the Option Term Date.
(c) OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of service as a director of the Company, or (iii) the Option
Term Date.
8. TRANSFER OF CONTROL. An "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the stock of the Company;
(b) a merger in which the Company is a party; or
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one (1) or more
corporations where the stockholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
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A "Transfer of Control" shall mean an Ownership Change in which the
stockholders of the Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the Company.
In the event of a Transfer of Control, any unexercisable portion of the
Option shall be immediately exercisable as of a date prior to the Transfer of
Control, as the Board determines. The Option shall terminate effective as of
the date of the Transfer of Control to the extent that the Option is not
exercised as of the date of the Transfer of Control.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification or like change in the
capital structure of the Company. In the event a majority of the shares
which are of the same class as the shares that are subject to the Option are
exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"),
the Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number
of shares and the exercise price shall be adjusted in a fair and equitable
manner.
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal and/or state securities law restrictions on this Option
Agreement and/or all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company this Option Agreement and/or any and
all certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to effectuate the provisions of this
paragraph.
12. BINDING EFFECT. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
13. TERMINATION OR AMENDMENT. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at
any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee.
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Company with respect to the
subject matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the Company
other than those as set forth
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or provided for herein. To the extent contemplated herein, the provisions
of this Option Agreement shall survive any exercise of this Option and shall
remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
NETWORK GENERAL CORPORATION
By:
--------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
Date:
-------------------------------- --------------------------------
Optionee's Signature
--------------------------------
Printed Name of Optionee
6
<PAGE>
NETWORK GENERAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(SUBSEQUENT GRANT)
Network General Corporation (the "Company"), granted to the individual
named below an option to purchase certain shares of common stock of the
Company, in the manner and subject to the provisions of this Option Agreement.
1. DEFINITIONS:
(a) "Optionee" shall mean____________________________.
(b) "Date of Option Grant" shall mean_____________________.
(c) "Number of Option Shares" shall mean___________________shares of
common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $_____ per share as adjusted from
time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring thirty-seven
(37) months after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring thirty-seven
(37) months after the Date of Option Grant.
(g) Determination of "Vested Ratio":
Vested Ratio
------------
On Date of Option Grant 0
On Initial Vesting Date provided the 1/12
Optionee has continuously served as a
director of the Company from the Date of
Option Grant until the Initial Vesting Date
PLUS
For each full month of Optionee's continuous 1/12
service as a director of the Company from
the Initial Vesting Date.
In no event shall the Vested Ratio exceed
1/1.
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(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Network General Corporation, a Delaware
corporation, and any successor corporation thereto.
(k) "Plan" shall mean the Network General Corporation 1989 Outside
Directors Stock Option Plan.
2. STATUS OF OPTION. This Option is intended to be a nonqualified stock
option and shall not be treated as an incentive stock option as described in
section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent reference herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations
imposed by law. All determinations by the Board shall be final and binding
upon all persons having an interest in the Option. Any officer of the
Company shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
(a) RIGHT TO EXERCISE. The Option shall first become exercisable on
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set
forth in paragraph 1 above less the number of shares previously acquired
upon exercise of the Option. In no event shall the Option be exercisable
for more shares than the Number of Option Shares. Notwithstanding the
foregoing, in the event that the adoption of the Plan or any amendment of
the Plan is subject to the approval of the Company's stockholders in order
for the Option to comply with the requirements of Rule 16b-3, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Option shall not be exercisable prior to such stockholder approval if
the Optionee is subject to Section 16(b) of the Exchange Act.
(b) METHOD OF EXERCISE. The Option shall be exercisable by written
notice to the Company which shall state the election to exercise the Option,
the number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
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<PAGE>
Option Agreement. Such written notice shall be signed by the Optionee and
shall be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Company, prior to the termination of the Option as set
forth in paragraph 6 below, accompanied by full payment of the exercise price
for the number of shares being purchased.
(c) FORM OF PAYMENT OF OPTION PRICE. Such payment shall be made in
cash, by check, or in cash equivalent.
(d) WITHHOLDING. At the time the Option is exercised, in whole or
in part, or at any time thereafter as requested by the Company, the Optionee
shall make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, or (ii) the transfer, in whole or in part, of
any shares acquired on exercise of the Option.
(e) CERTIFICATE REGISTRATION. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) RESTRICTION ON GRANT OF OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. In addition, no Option may be exercised unless (i) a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), shall at the time of exercise of the Option be in effect
with respect to the shares issuable upon exercise of the Option or (ii) in
the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities Act.
As a condition to the exercise of the Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
(g) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised
during the lifetime of the Optionee only by the Optionee and may not be
assigned or transferred in any manner except by will or by the laws of
descent or distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as
defined above, (b) the last date for exercising the Option following the
Optionee's termination of service as a director of the
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<PAGE>
Company as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. TERMINATION OF SERVICE AS A DIRECTOR.
(a) TERMINATION OF DIRECTOR STATUS. If the Optionee ceases to be a
director of the Company for any reason other than the Optionee's death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be a director, may be exercised by the Optionee at any time
prior to the expiration of three (3) months from the date the Optionee's
service as a director of the Company terminated, but in any event no later
than the Option Term Date. If the Optionee ceases to be a director of the
Company because of the death of the Optionee or disability of the Optionee
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date of such death or
disability, may be exercised by the Optionee (or the Optionee's legal
representative) at any time prior to the expiration of six (6) months from
the date the Optionee's service as a director of the Company terminated, but
in any event no later than the Option Term Date. The Optionee's service as
a director of the Company shall be deemed to have terminated on account of
death if the Optionee dies within one (1) month after the Optionee's
termination of service as a director of the Company.
(b) EXERCISE PREVENTED BY LAW. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's service as a director of the Company terminates unless the exercise
of the Option in accordance with this paragraph 7 is prevented by the
provisions of paragraph 4(f) above. If the exercise of the Option is so
prevented, the Option shall remain exercisable until three (3) months after
the date the Optionee is notified by the Company that the Option is
exercisable, but in any event no later than the Option Term Date.
(c) OPTIONEE SUBJECT TO SECTION 16(B). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Option shall remain
exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of service as a director of the Company, or (iii) the Option
Term Date.
8. TRANSFER OF CONTROL. An "Ownership Change" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
(a) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the stock of the Company;
(b) a merger in which the Company is a party; or
4
<PAGE>
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Company's assets (other than a sale, exchange, or transfer to one (1) or more
corporations where the stockholders of the Company before such sale, exchange,
or transfer retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the corporation(s) to which the
assets were transferred).
A "Transfer of Control" shall mean an Ownership Change in which the
stockholders of the Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the Company.
In the event of a Transfer of Control, any unexercisable portion of the
Option shall be immediately exercisable as of a date prior to the Transfer of
Control, as the Board determines. The Option shall terminate effective as of
the date of the Transfer of Control to the extent that the Option is not
exercised as of the date of the Transfer of Control.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification or like change in the
capital structure of the Company. In the event a majority of the shares
which are of the same class as the shares that are subject to the Option are
exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change) shares of another corporation (the "New Shares"),
the Company may unilaterally amend the Option to provide that the Option is
exercisable for New Shares. In the event of any such amendment, the number
of shares and the exercise price shall be adjusted in a fair and equitable
manner.
10. RIGHTS AS A STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate or certificates for the shares for which the
Option has been exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above.
11. LEGENDS. The Company may at any time place legends referencing any
applicable federal and/or state securities law restrictions on this Option
Agreement and/or all certificates representing shares of stock subject to the
provisions of this Option Agreement. The Optionee shall, at the request of the
Company, promptly present to the Company this Option Agreement and/or any and
all certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to effectuate the provisions of this
paragraph.
12. BINDING EFFECT. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
13. TERMINATION OR AMENDMENT. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at
any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee.
5
<PAGE>
14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Company with respect to the
subject matter contained herein, and there are no agreements, understandings,
restrictions, representations, or warranties among the Optionee and the Company
other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of this Option and shall remain in full force and effect.
15. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
NETWORK GENERAL CORPORATION
By:
----------------------------------
Title:
-------------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
Date:
--------------------------- ----------------------------------
Optionee's Signature
----------------------------------
Printed Name of Optionee
6
<PAGE>
EXHIBIT 10.17
NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK OPTION PLAN
(As Amended August 9, 1996)
1. PURPOSE. The Network General Corporation 1989 Stock Option Plan (the
"Plan") is established to create additional incentive for key employees,
directors and consultants of Network General Corporation and any successor
corporation thereto (collectively referred to as the "Company"), and any present
or future parent and/or subsidiary corporations of such corporation (all of whom
along with the Company being individually referred to as a "Participating
Company" and collectively referred to as the "Participating Company Group"), to
promote the financial success and progress of the Participating Company Group.
For purposes of the Plan, a parent corporation and a subsidiary corporation
shall be as defined in sections 424(e) and 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code").
2. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD AND/OR COMMITTEE. The Plan shall be
administered by the Board of Directors of the Company (the "Board") and/or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references herein to the Board shall also mean the
committee if such committee has been appointed and, unless the powers of the
committee have been specifically limited, the committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
terminate or amend the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation of
the Plan or of any options granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan and/or any Option.
(b) OPTIONS AUTHORIZED. Options may be either incentive stock
options as defined in section 422 of the Code ("Incentive Stock Options") or
nonqualified stock options.
(c) AUTHORITY OF OFFICERS. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
(d) DISINTERESTED ADMINISTRATION. With respect to the participation
in the Plan of officers or directors of the Company subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Plan shall
be administered by the Board in compliance with the "disinterested
administration" requirement of Rule 16b-3, as promulgated
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<PAGE>
under the Exchange Act and amended from time to time or any successor rule or
regulation ("Rule 16b-3").
(e) COMPLIANCE WITH SECTION 162(M) OF THE CODE. In the event a
Participating Company is a "publicly held corporation" as defined in
paragraph (2) of section 162(m) of the Code, as amended by the Revenue
Reconciliation Act of 1993 (P.L. 103-66), and the regulations promulgated
thereunder ("Section 162(m)"), the Company may establish a committee of outside
directors meeting the requirements of paragraph 4(C)(i) of Section 162(m) to
approve the grant of Options which might reasonably be anticipated to result in
the payment of employee remuneration that would otherwise exceed the limit on
employee remuneration deductible for income tax purposes pursuant to
Section 162(m).
3. ELIGIBILITY. The Options may be granted only to employees (including
officers and directors who are also employees) of the Participating Company
Group or to individuals who are rendering services as consultants or other
independent contractors to the Participating Company Group. The Board shall, in
the Board's sole discretion, determine which persons shall be granted Options
(an "Optionee"). An individual who is rendering services as a consultant or
other independent contractor shall be eligible to be granted only a nonqualified
stock option. An Optionee may, if otherwise eligible, be granted additional
Options.
4. SHARES SUBJECT TO OPTION. Options shall be for the purchase of shares
of the authorized but unissued common stock or treasury shares of common stock
of the Company (the "Stock"), subject to adjustment as provided in paragraph 9
below. The maximum number of shares of Stock which may be issued under the Plan
shall be Sixteen Million (16,000,000) shares. Subject to adjustment as provided
in paragraph 9 below, at any such time as a Participating Company is a "publicly
held corporation" as defined in paragraph 2 of Section 162(m), no person shall
be granted within any fiscal year of the Company Options which in the aggregate
cover more than Six Hundred Thousand (600,000) shares; provided, however, that
the foregoing limit shall be One Miilion Two Hundred Thousand (1,200,000) shares
with respect to Options granted to any person during the first fiscal year of
such person's employment with the Company (the "Per Optionee Limit"). In the
event that any outstanding Option for any reason expires or is terminated or
canceled and/or shares of Stock subject to repurchase are repurchased by the
Company, the shares allocable to the unexercised portion of such Option, or such
repurchased shares, may again be subject to an Option grant. Notwithstanding
the foregoing, any such shares shall be made subject to a new Option only if the
grant of such new Option and the issuance of such shares pursuant to such new
Option would not cause the Plan or any Option granted under the Plan to
contravene Rule 16b-3.
5. TIME FOR GRANTING OPTIONS. All Options shall be granted, if at all,
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.
6. TERMS, CONDITIONS AND FORM OF OPTIONS. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of
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<PAGE>
Stock for which the Option shall be granted, the option price of the Option, the
exercisability of the Option, whether the Option is to be treated as an
Incentive Stock Option or as a nonqualified stock option and all other terms and
conditions of the Option not inconsistent with the Plan. Options granted
pursuant to the Plan shall be evidenced by written agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish, and shall comply with and be subject to the following
terms and conditions:
(a) EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (i) the
exercise price per share for an Option shall be not less than the fair market
value, as determined by the Board, of a share of Stock on the date of the
granting of the Option, and (ii) no Option granted to an Optionee who at the
time the Option is granted owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of a Participating
Company within the meaning of section 422(b)(6) of the Code and/or ten percent
(10%) of the total combined value of all classes of stock of a Participating
Company (a "Ten Percent Owner Optionee") shall have an exercise price per share
less than one hundred ten percent (110%) of the fair market value of a share of
Stock on the date the Option is granted. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a nonqualified stock option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying with the provisions of section 424(a) of
the Code.
(b) EXERCISE PERIOD OF OPTIONS. The Board shall have the power to
set the time or times within which each Option shall be exercisable or the event
or events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that (I) no Option
shall be exercisable after the expiration of ten (10) years after the date such
Option is granted and (ii) no Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted.
(c) PAYMENT OF EXERCISE PRICE. Payment of the exercise price for the
number of shares of Stock being purchased pursuant to any Option shall be made
(i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's stock owned by the Optionee having 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, (iii) by the Optionee's recourse promissory note, (iv)
by the assignment of the proceeds of a sale of some or all of the shares being
acquired upon the exercise of an Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System), or (v) by
any combination thereof. The Board may at any time or from time to time, by
adoption of or by amendment to the form of Standard Option Agreement described
in paragraph 7 below, or by other means, 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 (1) or more forms of consideration.
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<PAGE>
Notwithstanding the foregoing, an Option may not be exercised by tender to the
Company of shares of the Company's stock to the extent such tender of stock
would constitute a violation of the provisions of any law, regulation and/or
agreement restricting the redemption of the Company's stock. Furthermore, no
promissory note shall be permitted if an exercise using a promissory note would
be a violation of any law. Any permitted promissory note shall be due and
payable not more than five (5) years after the Option is exercised and interest
shall be payable at least annually and be at least equal to the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. The Board shall have the authority to permit or require the Optionee
to secure any promissory note used to exercise an Option with the shares of
Stock acquired on exercise of the Option and/or with other collateral acceptable
to the Company.
(x) Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of the Company's stock unless such
shares of the Company's stock either have been owned by the Optionee for more
than six (6) months or were not acquired, directly or indirectly, from the
Company.
(y) Unless otherwise provided by the Board, in the event the
Company at any time is subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
(z) The Company reserves, at any and all times, the right, in
the Company's sole and absolute discretion, to establish, decline to approve
and/or terminate any program and/or procedures for the exercise of Options by
means of an assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise.
7. STANDARD FORM OF STOCK OPTION AGREEMENT. Unless otherwise provided
for by the Board at the time an Option is granted or as otherwise provided for
by this paragraph 7, all Options shall comply with and be subject to the terms
and conditions set forth in the stock option agreement attached hereto as
Exhibit A and incorporated herein by reference (the "Standard Option
Agreement").
(a) MODIFICATIONS FOR INCENTIVE STOCK OPTIONS. In the event the
Option is designated as an Incentive Stock Option, the Standard Option Agreement
for such Option shall be the Standard Option Agreement attached hereto as
Exhibit A as modified as set forth below unless otherwise specified by the
Board:
(i) The title and paragraph 2 of the Standard Option Agreement
shall reflect the Option's status as an Incentive Stock Option.
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(ii) Paragraph 7(f) of the Standard Option Agreement, regarding
an Optionee who is a director or consultant but not an employee of the Company,
shall be deleted and shall not apply to the Option.
(iii) A new paragraph 13 shall be added to the Standard
Option Agreement providing, among other things, that the Optionee give the
Company notice of sales upon disqualifying dispositions of shares of Stock
acquired pursuant to the exercise of Incentive Stock Options as follows:
13. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The
Optionee shall dispose of the shares acquired pursuant to the Option
only in accordance with the provisions of this Option Agreement. In
addition, the Optionee shall promptly notify the Chief Financial
Officer of the Company if the Optionee disposes of any of the shares
acquired pursuant to the Option within one (1) year from the date the
Optionee exercises all or part of the Option or within two (2) years
of the date of grant of the Option. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all shares acquired
pursuant to the Option in the Optionee's name (and not in the name of
any nominee) for the one-year period immediately after exercise of the
Option and the two-year period immediately after grant of the Option.
At any time during the one-year or two-year periods set forth above,
the Company may place a legend or legends on any certificate or
certificates representing shares acquired pursuant to the Option
requesting the transfer agent for the Company's stock to notify the
Company of any such transfers. The obligation of the Optionee to
notify the Company of any such transfer shall continue notwithstanding
that a legend has been placed on the certificate or certificates
pursuant to the preceding sentence.
(iv) Paragraph 13 of the Standard Option Agreement shall be
renumbered as paragraph 14 and a new paragraph 14(a) shall be added to the
Standard Option Agreement providing for a legend regarding Incentive Stock
Options to be placed on each certificate representing shares of Stock acquired
pursuant to the Option as follows:
(a) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE
STOCK OPTION AS DEFINED IN SECTION 422 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES
BY THE REGISTERED HOLDER HEREOF MADE ON OR BEFORE ___________________.
THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE OPTION
IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)
PRIOR TO THIS DATE."
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(v) Paragraph 15 of the Standard Option Agreement shall be
renumbered as paragraph 16 and shall be modified to provide that amendments to
the Standard Option Agreement may be made without the Optionee's consent if such
amendments are required to enable an Option designated as an Incentive Stock
Option to qualify as an Incentive Stock Option.
(vi) The remaining paragraphs of such modified Standard Option
Agreement for Incentive Stock Options shall be renumbered accordingly.
(b) STANDARD TERM FOR OPTIONS. Unless otherwise provided for by the
Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of ten (10) years.
8. AUTHORITY TO VARY TERMS. The Board shall have the authority from time
to time to vary the terms of the Standard Option Agreement either in connection
with the grant of an individual Option or in connection with the authorization
of a new standard form or forms; provided, however, that the terms and
conditions of such revised or amended standard form or forms of stock option
agreement shall be in accordance with the terms of the Plan. Such authority
shall include, but not by way of limitation, the authority to grant Options
which are immediately exercisable subject to the Company's right to repurchase
any unvested shares of Stock acquired by an Optionee on exercise of an Option in
the event such Optionee's employment with the Participating Company Group is
terminated for any reason, with or without cause.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan, to
the Per Optionee Limit set forth in paragraph 4 above, and to any outstanding
Options and in the exercise price of any outstanding Options in the event of a
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or like change in the capital structure of the Company.
10. TRANSFER OF CONTROL. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this paragraph 10, the "Control Company"
shall mean the Participating Company whose stock is subject to the Option.
(a) the direct or indirect sale or exchange by the stockholders of
the Control Company of all or substantially all of the stock of the Control
Company where the stockholders of the Control Company before such sale or
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company;
(b) a merger in which the stockholders of the Control Company before
such merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company; or
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(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the stockholders of the Control Company before such
sale, exchange, or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets 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 Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options. In the event the Acquiring
Corporation elects not to assume or substitute for such outstanding Options in
connection with a merger described in (B) above or a sale of assets described in
(C) above, the Board shall provide that any unexercisable and/or unvested
portion of the outstanding Options shall be immediately exercisable and vested
as of a date prior to the Transfer of Control, as the Board so determines. The
exercise and/or vesting of any Option that was permissible solely by reason of
this paragraph 10 shall be conditioned upon the consummation of the Transfer of
Control. Any Options which are neither assumed by the Acquiring Corporation nor
exercised as of the date of the Transfer of Control shall terminate effective as
of the date of the Transfer of Control.
11. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders.
12. OPTIONS NON-TRANSFERABLE. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
13. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired on the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the fair market
value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this paragraph 13 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this paragraph 13 shall
not constitute a defense or otherwise prevent the exercise of the repurchase
right by the assignee of such right.
14. TERMINATION OR AMENDMENT OF PLAN OR OPTIONS. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan or any
Option at any time;
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provided, however, that without the approval of the Company's stockholders,
there shall be (a) no increase in the total number of shares of Stock covered
by the Plan (except by operation of the provisions of paragraph 9 above), (b)
no change in the class of persons eligible to receive Incentive Stock Options
and (c) no expansion in the class of persons eligible to receive nonqualified
stock options. In addition to the foregoing, the approval of the Company's
stockholders shall be sought for any amendment to the Plan or an Option for
which the Board deems stockholder approval necessary in order to comply with
Rule 16b-3. In any event, no amendment may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such amendment is required to enable an Option
designated as an Incentive Stock Option to qualify as an Incentive Stock
Option.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Network General Corporation 1989 Stock Option Plan was duly
amended by the Board of Directors of the Company on the 9th day of August, 1996.
--------------------------
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NETWORK GENERAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
(INITIAL OPTION)
Network General Corporation (the "Company") granted to the individual named
below an option to purchase certain shares of common stock of the Company, in
the manner and subject to the provisions of this Option Agreement.
1. DEFINITIONS:
(a) "Optionee" shall mean ____________________________________.
(b) "Date of Option Grant" shall mean ________________________.
(c) "Number of Option Shares" shall mean _____________________
shares of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $______ per share as adjusted from
time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/4
provided the Optionee is
continuously employed by
a Participating Company from
the Date of Option Grant until
the Initial Vesting Date
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PLUS
For each full month 1/48
of the Optionee's
continuous employment by a
Participating Company from the
Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Network General Corporation, a Delaware
corporation, and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Network General Corporation 1989 Stock
Option Plan.
2. STATUS OF THE OPTION. This Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to
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the Company herein, provided the officer has apparent authority with respect
to such matter, right, obligation, or election.
4. EXERCISE OF THE OPTION.
(a) RIGHT TO EXERCISE. Except as provided in paragraph 4(f) below,
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option. In no event shall
the Option be exercisable for more shares than the Number of Option Shares.
Notwithstanding the foregoing, the Option may not be exercised more frequently
than twice in any continuous twelve (12) month period; provided, however, that
the foregoing restriction shall not apply so as to prevent an exercise (i)
following the Optionee's termination of employment as set forth in paragraph 7
below or (ii) during the thirty (30) day periods immediately preceding and
following an Ownership Change as defined in paragraph 8 below. In addition to
the foregoing, in the event that the adoption of the Plan or any amendment of
the Plan is subject to the approval of the Company's stockholders in order for
the Option to comply with the requirements of Rule 16b-3, promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall not be exercisable prior to such stockholder approval if the Optionee is
subject to Section 16(b) of the Exchange Act, unless the Board, in its sole
discretion, approves the exercise of the Option prior to such stockholder
approval.
(b) METHOD OF EXERCISE. The Option shall be exercisable by written
notice to the Company which shall state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment
of the exercise price for the number of shares being purchased and (ii) an
executed copy, if required herein, of the then current form of joint escrow
instructions referenced below.
(c) FORM OF PAYMENT OF EXERCISE PRICE. Such payment shall be made
(i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a value not
less than the exercise price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, (iii) by cash for a portion of the exercise price and the Optionee's
promissory note for the balance of the exercise price, (iv) by Immediate Sales
Proceeds, as defined below, or (v) by any combination of the foregoing.
Notwithstanding the foregoing, the Option may not be exercised by tender to the
Company of shares of the Company's common stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's
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common stock. Unless otherwise specified by the Board at the time the Option is
granted, the promissory note permitted in clause (iii) above shall not exceed
the amount permitted by law to be paid by a promissory note and shall be a
full recourse note in a form satisfactory to the Company, with principal
payable in equal annual installments with the last installment due four (4)
years from the date the Option is exercised. Interest on the principal
balance of the promissory note shall be payable in annual installments at the
minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be
secured by the shares of stock acquired pursuant to the then current form of
security agreement as approved by the Company. In the event the Company at
any time is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any
promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations. Except as the
Company in its sole discretion shall determine, the Optionee shall pay the
unpaid principal balance of the promissory note and any accrued interest
thereon upon termination of the Optionee's employment with the Participating
Company Group for any reason, with or without cause. "Immediate Sales
Proceeds" shall mean the assignment in form acceptable to the Company of the
proceeds of a sale of some or all of the shares acquired upon the exercise of
the Option pursuant to a program and/or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
decline to approve any such program and/or procedure.
(d) WITHHOLDING. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
(e) CERTIFICATE REGISTRATION. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the
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<PAGE>
Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the
terms of an applicable exemption from the registration requirements of the
Securities Act. As a condition to the exercise of the Option, the Company
may require the Optionee to satisfy any qualifications that may be necessary
or appropriate, to evidence compliance with any applicable law or regulation
and to make any representation or warranty with respect thereto as may be
requested by the Company.
(g) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF THE OPTION. If the Optionee ceases to be an
employee of the Participating Company Group for any reason except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminates, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death of the Optionee or disability of
the Optionee within the meaning of section 422(c) of the Code, the Option may be
exercised by the Optionee (or the Optionee's legal representative) at any time
prior to the expiration of twelve (12) months from the date the Optionee's
employment terminated, but in any event no later than the Option Term Date. The
Optionee's employment shall be deemed to have terminated on account of death if
the Optionee dies within one (1) month after the Optionee's termination of
employment. Except as the Company and the Optionee otherwise agree, exercise of
the Option pursuant to this paragraph 7(a) may not be made by delivery of a
promissory note as provided in paragraph 4(c)(iii) above.
(b) TERMINATION OF EMPLOYMENT DEFINED. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(c) EXERCISE PREVENTED BY LAW. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's employment with the Participating Company Group terminates unless
the exercise of the Option in accordance with
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<PAGE>
this paragraph 7 is prevented by the provisions of paragraph 4(f) above. If
the exercise of the Option is so prevented, the Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Option is exercisable, but in any event no later than
the Option Term Date.
(d) OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which the Optionee would no longer be subject to such suit, (ii) the one hundred
and ninetieth (190th) day after the Optionee's termination of employment, or
(iii) the Option Term Date.
(e) LEAVE OF ABSENCE. For purposes hereof, the Optionee's employment
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
(f) APPLICATION TO CONSULTANTS. For purposes of this Option
Agreement, in the event the Optionee is a consultant or other independent
contractor but not an employee of a Participating Company at the time the Option
is granted, termination of the Optionee's status as a consultant or other
independent contractor of the Participating Company shall be deemed to be
termination of the Optionee's employment.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL. For purposes hereof, the
"Control Company" shall mean the Participating Company whose stock is subject to
the Option. An "Ownership Change" shall be deemed to have occurred in the event
any of the following occurs with respect to the Control Company:
(a) the direct or indirect sale or exchange by the stockholders of
the Control Company of all or substantially all of the stock of the Control
Company;
(b) a merger in which the Control Company is a party; or
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the stockholders of the Control Company before such
sale, exchange, or transfer retain, directly or indirectly, at least a majority
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<PAGE>
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
A "Transfer of Control" shall mean an Ownership Change in which the
stockholders of the Control Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Control Company.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall assume the Company's rights and obligations under this
Option Agreement or substitute an option for the Acquiring Corporation's stock
for the Option. In the event the Acquiring Corporation elects not to assume the
Company's rights and obligations under this Option Agreement or substitute for
the Option in connection with a Transfer of Control involving an Ownership
Change described in (b) or (c) above, the Board shall provide that any
unexercised portion of the Option shall be fully exercisable as of a date prior
to the Transfer of Control, as the Board so determines. The Option shall
terminate effective as of the date of the Transfer of Control to the extent that
the Option is neither assumed by the Acquiring Corporation nor exercised as of
the date of the Transfer of Control.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company. In the event a majority of the shares which
are of the same class as the shares that are subject to the Option are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change) shares of another corporation (the "New Shares"), the Company
may unilaterally amend the Option to provide that the Option is exercisable for
New Shares. In the event of any such amendment, the number of shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. The Optionee shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. ESCROW.
(a) ESTABLISHMENT OF ESCROW. To insure shares which are security for
any promissory note will be available for repurchase, the Company may require
the Optionee to deposit the certificate or certificates evidencing the shares
which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of a security agreement
approved by the Company. If the Company does not require such
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<PAGE>
deposit as a condition of exercise of the Option, the Company reserves the
right at any time to require the Optionee to so deposit the certificate or
certificates in escrow. The Company shall bear the expenses of the escrow.
(b) DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
full repayment on any promissory note secured by the shares in escrow, but not
more frequently than twice each year, the agent shall deliver to the Optionee
the shares no longer security for any promissory note.
12. STOCK DIVIDENDS SUBJECT TO OPTION AGREEMENT. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to any security interest held by the
Company with the same force and effect as the shares subject to such security
interest immediately before such event.
13. LEGENDS. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph.
14. BINDING EFFECT. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15. TERMINATION OR AMENDMENT. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee.
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
17. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
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The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all the terms and provisions tereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions this Option Agreement.
By:
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Title:
-----------------------
Date:
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NETWORK GENERAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
(FOCAL GRANT)
Network General Corporation (the "Company") granted to the individual named
below an option to purchase certain shares of common stock of the Company, in
the manner and subject to the provisions of this Option Agreement.
1. DEFINITIONS:
(a) "Optionee" shall mean __________________________________.
(b) "Date of Option Grant" shall mean _______________________.
(c) "Number of Option Shares" shall mean ____________________ shares
of common stock of the Company as adjusted from time to time pursuant to
paragraph 9 below.
(d) "Exercise Price" shall mean $_____ per share as adjusted from
time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring one (1) month
after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) month
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/48
provided the Optionee is
continuously employed by
a Participating Company from
the Date of Option Grant until
the Initial Vesting Date
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PLUS
For each full month 1/48
of the Optionee's
continuous employment by a
Participating Company from the
Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Network General Corporation, a Delaware
corporation, and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Network General Corporation 1989 Stock
Option Plan.
2. STATUS OF THE OPTION. This Option is intended to be a nonqualified
stock option and shall not be treated as an incentive stock option as described
in section 422(b) of the Code.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
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4. EXERCISE OF THE OPTION.
(a) RIGHT TO EXERCISE. Except as provided in paragraph 4(f) below,
the Option shall first become exercisable on the Initial Exercise Date. The
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option in the amount equal to the Number of Option Shares
multiplied by the Vested Ratio as set forth in paragraph 1 above less the number
of shares previously acquired upon exercise of the Option. In no event shall
the Option be exercisable for more shares than the Number of Option Shares.
Notwithstanding the foregoing, the Option may not be exercised more frequently
than twice in any continuous twelve (12) month period; provided, however, that
the foregoing restriction shall not apply so as to prevent an exercise (i)
following the Optionee's termination of employment as set forth in paragraph 7
below or (ii) during the thirty (30) day periods immediately preceding and
following an Ownership Change as defined in paragraph 8 below. In addition to
the foregoing, in the event that the adoption of the Plan or any amendment of
the Plan is subject to the approval of the Company's stockholders in order for
the Option to comply with the requirements of Rule 16b-3, promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall not be exercisable prior to such stockholder approval if the Optionee is
subject to Section 16(b) of the Exchange Act, unless the Board, in its sole
discretion, approves the exercise of the Option prior to such stockholder
approval.
(b) METHOD OF EXERCISE. The Option shall be exercisable by written
notice to the Company which shall state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. Such written notice shall be signed by the Optionee and shall
be delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment of
the exercise price for the number of shares being purchased and (ii) an executed
copy, if required herein, of the then current form of joint escrow instructions
referenced below.
(c) FORM OF PAYMENT OF EXERCISE PRICE. Such payment shall be made
(i) in cash, by check, or cash equivalent, (ii) by tender to the Company of
shares of the Company's common stock owned by the Optionee having a value not
less than the exercise price, which either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from the
Company, (iii) by cash for a portion of the exercise price and the Optionee's
promissory note for the balance of the exercise price, (iv) by Immediate Sales
Proceeds, as defined below, or (v) by any combination of the foregoing.
Notwithstanding the foregoing, the Option may not be exercised by tender to the
Company of shares of the Company's common stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's common stock.
Unless otherwise specified by the Board at the time the Option is granted, the
promissory note permitted in clause (iii) above shall not exceed the amount
permitted by law to be paid by a promissory note and shall be a full recourse
note in a form satisfactory to the
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Company, with principal payable in equal annual installments with the last
installment due four (4) years from the date the Option is exercised.
Interest on the principal balance of the promissory note shall be payable in
annual installments at the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of stock acquired pursuant to
the then current form of security agreement as approved by the Company. In
the event the Company at any time is subject to the regulations promulgated
by the Board of Governors of the Federal Reserve System or any other
governmental entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine,
the Optionee shall pay the unpaid principal balance of the promissory note
and any accrued interest thereon upon termination of the Optionee's
employment with the Participating Company Group for any reason, with or
without cause. "Immediate Sales Proceeds" shall mean the assignment in form
acceptable to the Company of the proceeds of a sale of some or all of the
shares acquired upon the exercise of the Option pursuant to a program and/or
procedure approved by the Company (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System). The
Company reserves, at any and all times, the right, in the Company's sole and
absolute discretion, to decline to approve any such program and/or procedure.
(d) WITHHOLDING. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
(e) CERTIFICATE REGISTRATION. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in the
name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (ii) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. As a condition to the exercise of the Option, the Company
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<PAGE>
may require the Optionee to satisfy any qualifications that may be necessary
or appropriate, to evidence compliance with any applicable law or regulation
and to make any representation or warranty with respect thereto as may be
requested by the Company.
(g) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF THE OPTION. If the Optionee ceases to be an
employee of the Participating Company Group for any reason except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminates, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death of the Optionee or disability of
the Optionee within the meaning of section 422(c) of the Code, the Option may be
exercised by the Optionee (or the Optionee's legal representative) at any time
prior to the expiration of twelve (12) months from the date the Optionee's
employment terminated, but in any event no later than the Option Term Date. The
Optionee's employment shall be deemed to have terminated on account of death if
the Optionee dies within one (1) month after the Optionee's termination of
employment. Except as the Company and the Optionee otherwise agree, exercise of
the Option pursuant to this paragraph 7(a) may not be made by delivery of a
promissory note as provided in paragraph 4(c)(iii) above.
(b) TERMINATION OF EMPLOYMENT DEFINED. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(c) EXERCISE PREVENTED BY LAW. Except as provided in this
paragraph 7, the Option shall terminate and may not be exercised after the
Optionee's employment with the Participating Company Group terminates unless
the exercise of the Option in accordance with this paragraph 7 is prevented
by the provisions of paragraph 4(f) above. If the exercise of the Option is
so prevented, the Option shall remain exercisable until three (3) months
after the date the Optionee is notified by the Company that the Option is
exercisable, but in any event no later than the Option Term Date.
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<PAGE>
(d) OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended, the Option shall remain exercisable
until the earliest to occur of (i) the tenth (10th) day following the date on
which the Optionee would no longer be subject to such suit, (ii) the one hundred
and ninetieth (190th) day after the Optionee's termination of employment, or
(iii) the Option Term Date.
(e) LEAVE OF ABSENCE. For purposes hereof, the Optionee's employment
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract.
(f) APPLICATION TO CONSULTANTS. For purposes of this Option
Agreement, in the event the Optionee is a consultant or other independent
contractor but not an employee of a Participating Company at the time the Option
is granted, termination of the Optionee's status as a consultant or other
independent contractor of the Participating Company shall be deemed to be
termination of the Optionee's employment.
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL. For purposes hereof, the
"Control Company" shall mean the Participating Company whose stock is subject to
the Option. An "Ownership Change" shall be deemed to have occurred in the event
any of the following occurs with respect to the Control Company:
(a) the direct or indirect sale or exchange by the stockholders of
the Control Company of all or substantially all of the stock of the Control
Company;
(b) a merger in which the Control Company is a party; or
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the stockholders of the Control Company before such
sale, exchange, or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
A "Transfer of Control" shall mean an Ownership Change in which the
stockholders of the Control Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Control Company.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall assume the Company's rights and obligations under this
Option Agreement or substitute an option for the Acquiring
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Corporation's stock for the Option. In the event the Acquiring Corporation
elects not to assume the Company's rights and obligations under this Option
Agreement or substitute for the Option in connection with a Transfer of
Control involving an Ownership Change described in (b) or (c) above, the
Board shall provide that any unexercised portion of the Option shall be fully
exercisable as of a date prior to the Transfer of Control, as the Board so
determines. The Option shall terminate effective as of the date of the
Transfer of Control to the extent that the Option is neither assumed by the
Acquiring Corporation nor exercised as of the date of the Transfer of Control.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company. In the event a majority of the shares which
are of the same class as the shares that are subject to the Option are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change) shares of another corporation (the "New Shares"), the Company
may unilaterally amend the Option to provide that the Option is exercisable for
New Shares. In the event of any such amendment, the number of shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. The Optionee shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. ESCROW.
(a) ESTABLISHMENT OF ESCROW. To insure shares which are security for
any promissory note will be available for repurchase, the Company may require
the Optionee to deposit the certificate or certificates evidencing the shares
which the Optionee purchases upon exercise of the Option with an agent
designated by the Company under the terms and conditions of a security agreement
approved by the Company. If the Company does not require such deposit as a
condition of exercise of the Option, the Company reserves the right at any time
to require the Optionee to so deposit the certificate or certificates in escrow.
The Company shall bear the expenses of the escrow.
(b) DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
full repayment on any promissory note secured by the shares in escrow, but not
more frequently than twice each year, the agent shall deliver to the Optionee
the shares no longer security for any promissory note.
12. STOCK DIVIDENDS SUBJECT TO OPTION AGREEMENT. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding
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stock of the corporation the stock of which is subject to the provisions of
this Option Agreement, then in such event any and all new substituted or
additional securities to which the Optionee is entitled by reason of the
Optionee's ownership of the shares acquired upon exercise of the Option shall
be immediately subject to any security interest held by the Company with the
same force and effect as the shares subject to such security interest
immediately before such event.
13. LEGENDS. The Company may at any time place legends referencing any
applicable federal or state securities law restrictions on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to effectuate the provisions
of this paragraph.
14. BINDING EFFECT. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15. TERMINATION OR AMENDMENT. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at any
time; provided, however, that no such termination or amendment may adversely
affect the Option or any unexercised portion hereof without the consent of the
Optionee.
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Company other than those as set forth or provided for
herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
17. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
NETWORK GENERAL CORPORATION
By:
---------------------------------
Title:
-------------------------------
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The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, and hereby accepts the Option subject to
all of the terms and provisions thereof. The Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board
upon any questions arising under this Option Agreement.
Date:
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EXHIBIT 10.18
NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN
(As Amended August 9, 1996)
1. PURPOSE. The Network General Corporation 1989 Employee Stock Purchase
Plan (the "Plan") is established to provide eligible employees of Network
General Corporation, a Delaware corporation ("Network General"), and any current
or future parent or subsidiary corporations of Network General which the Board
of Directors of Network General (the "Board") determines should be included in
the Plan (collectively referred to as the "Company"), with an opportunity to
acquire a proprietary interest in the Company by the purchase of the common
stock of Network General. (Network General and any parent or subsidiary
corporation designated by the Board as a participating corporation shall be
individually referred to herein as a "Participating Company." For purposes of
the Plan, a parent corporation and a subsidiary corporation shall be as defined
in sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended.
(the "Code").)
It is intended that the Plan shall qualify as an "employee stock purchase
plan" under section 423 of the Code (including any future amendments or
replacements of such section), and the Plan shall be so construed. Any term not
expressly defined in the Plan but defined for purposes of section 423 of the
Code shall have the same definition herein.
An employee participating in the Plan (a "Participant") may withdraw such
Participant's accumulated payroll deductions (if any) therein at any time during
an Offering Period (as defined below). Accordingly, each Participant is, in
effect, granted an option pursuant to the Plan (a "Purchase Right") which may or
may not be exercised at the end of an Offering Period and which is intended to
qualify as an option described in section 423 of the Code.
2. ADMINISTRATION. The Plan shall be administered by the Board and/or by
a duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references to the Board shall also mean the
committee if a committee has been appointed. The Board shall have the sole and
absolute discretion to determine from time to time what parent corporations
and/or subsidiary corporations shall be Participating Companies. All questions
of interpretation of the Plan or of any Purchase Right shall be determined by
the Board and shall be final and binding upon all persons having an interest in
the Plan and/or any Purchase Right. Subject to the provisions of the Plan, the
Board shall determine all of the relevant terms and conditions of Purchase
Rights granted pursuant to the Plan; provided, however, that all Participants
granted Purchase Rights pursuant to the Plan shall have the same rights and
privileges within the meaning of section 423(b)(5) of the Code. All expenses
incurred in connection with the administration of the Plan shall be paid by the
Company.
3. SHARE RESERVE. The maximum number of shares which may be issued under
the Plan shall be 1,500,000 shares of Network General's authorized but unissued
common stock or
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treasury shares of common stock (the "Shares"). In the event that any
Purchase Right for any reason expires or is cancelled or terminated, the
Shares allocable to the unexercised portion of such Purchase Right may again
be subjected to a Purchase Right.
4. ELIGIBILITY. Any employee of a Participating Company is eligible to
participate in the Plan except the following:
(a) employees who have not completed one (1) month of continuous
employment with the Company as of the commencement of an Offering Period;
(b) employees who are customarily employed by the Company for less
than twenty (20) hours a week;
(c) employees whose customary employment is for not more than five
(5) months in any calendar year; and
(d) employees who own or hold options to purchase or who, as a
result of participation in this Plan, would own or hold options to purchase,
stock of the Company possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company within
the meaning of section 423(b)(3) of the Code.
5. OFFERING DATES.
(a) OFFERING PERIODS. Except as otherwise set forth below, the
Plan shall be implemented by sequential offerings (individually an
"Offering") of six (6) months duration (an "Offering Period"). Prior to
August 1, 1992, an Offering Period shall commence on the first day of January
and end on the last day of June of the same year. An Offering Period shall
also commence on the first day of July of each year and end on the last day
of December of the same year. The first Offering Period shall commence on
the effective date of a registration statement on Form S-1 under the
Securities Act of 1933, as amended, which covers the common stock of Network
General, whether or not such registration statement covers some or all of the
Shares issuable under the Plan. Effective as of August 1, 1992 and in lieu of
the foregoing, an Offering Period shall commence on the first day of February
of each year and end on the last day of July of the same year. An Offering
Period shall also commence on the first day of August of each year and end on
the last day of January of the succeeding year. Notwithstanding the
foregoing, the Board may establish a different term for one or more Offerings
and/or different commencing and/or ending dates for such Offerings. An
employee who becomes eligible to participate in the Plan after an Offering
Period has commenced shall not be eligible to participate in such Offering
but may participate in any subsequent Offering provided such employee is
still eligible to participate in the Plan as of the commencement of any such
subsequent Offering. The first day of an Offering Period shall be the
"Offering Date" for such Offering Period. In the event the first and/or last
day of an Offering Period is not a business day, the Company shall specify
the business day that will be deemed the first or last day, as the case may
be, of the Offering Period.
(b) GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding
any other provision of the Plan to the contrary, any Purchase Right granted
pursuant to the Plan shall
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be subject to (i) obtaining all necessary governmental approvals and/or
qualifications of the sale and/or issuance of the Purchase Rights and/or the
Shares, and (ii) obtaining stockholder approval of the Plan. Notwithstanding
the foregoing, stockholder approval shall not be necessary in order to grant
any Purchase Right granted on the Offering Date of either of the Plan's first
Offering Period; provided, however, that the exercise of any such Purchase
Right shall be subject to obtaining stockholder approval of the Plan.
6. PARTICIPATION IN THE PLAN.
(a) INITIAL PARTICIPATION. An eligible employee shall become a
participant in the Plan (a "Participant") on the first Offering Date after
satisfying the eligibility requirements and delivering to the Company not later
than the close of business on the last business day before such Offering Date
(the "Subscription Date") a subscription agreement indicating the employee's
election to participate in the Plan and authorizing payroll deductions. An
eligible employee who does not deliver a subscription agreement to the Company
on or before the Subscription Date shall not participate in the Plan for that
Offering Period or for any subsequent Offering Period unless such eligible
employee subsequently enrolls in the Plan by complying with the provisions of
paragraph 4 and by filing a subscription agreement with the Company on or before
the Subscription Date for such subsequent Offering Period. The Company may,
from time to time, change the Subscription Date as deemed advisable by the
Company in its sole discretion for proper administration of the Plan.
(b) CONTINUED PARTICIPATION. Participation in the Plan shall
continue until (i) the Participant ceases to be eligible as provided in
paragraph 4, (ii) the Participant withdraws from the Plan pursuant to paragraph
11, or (iii) the Participant terminates employment as provided in paragraph 12.
At the end of an Offering Period, each Participant in such terminating Offering
Period shall automatically participate in the first subsequent Offering Period
according to the same elections contained in the Participant's subscription
agreement effective for the Offering Period which has just ended, provided such
Participant is still eligible to participate in the Plan as provided in
paragraph 4. However, a Participant may file a subscription agreement with
respect to such subsequent Offering Period if the Participant desires to change
any of the Participant's elections contained in the Participant's then effective
subscription agreement.
7. RIGHT TO PURCHASE SHARES. During an Offering Period each Participant
in such Offering Period shall have a Purchase Right consisting of the right to
purchase five thousand (5,000) Shares.
8. PURCHASE PRICE. The purchase price at which Shares may be acquired at
the end of an Offering pursuant to the exercise of all or any portion of a
Purchase Right granted under the Plan (the "Offering Exercise Price") shall be
set by the Board; provided, however, that the purchase price shall not be less
than eighty-five percent (85%) of the lesser of (a) the fair market value of the
Shares on the Offering Date of such Offering Period, or (b) the fair market
value of the Shares at the time
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of exercise of all or any portion of the Purchase Right. Unless otherwise
provided by the Board prior to the commencement of an Offering Period, the
Offering Exercise Price shall be eighty-five percent (85%) of the lesser of
(a) the fair market value of the Shares on the Offering Date of such Offering
Period or (b) the fair market value of the Shares at the time of exercise of
all or any portion of the Purchase Right. The fair market value of the
Shares on the Offering Date or on the date of exercise will be the closing
price quoted on the National Association of Securities Dealers Automated
Quotation System on such date; however the fair market value of the Shares on
the first Offering Date will be the offering price for the common stock of
Network General as registered on the Form S-1 filed with the Securities and
Exchange Commission.
9. PAYMENT OF PURCHASE PRICE. Shares which are acquired pursuant to the
exercise of all or any portion of a Purchase Right for a given Offering Period
may be paid for only by means of payroll deductions from the Participant's
Compensation accumulated during the Offering Period. For purposes of the Plan,
a Participant's "Compensation" with respect to an Offering shall include all
amounts paid in cash and includable as "wages" subject to tax under section
3101(a) of the Code without applying the dollar limitation of section 3121(a) of
the Code. Accordingly, Compensation shall include, without limitation,
salaries, commissions, bonuses, overtime, and salary deferrals under section
401(k) of the Code. Notwithstanding the foregoing, Compensation shall not
include reimbursements of expenses, allowances, or any amount deemed received
without the actual transfer of cash or any amounts directly or indirectly paid
pursuant to the Plan or any other stock purchase or stock option plan. Except
as set forth below. the amount of Compensation to be withheld from a
Participant's Compensation during each pay period shall be determined by the
Participant's subscription agreement.
(a) ELECTION TO DECREASE WITHHOLDING. During an Offering
Period, a Participant may elect to decrease the amount withheld from his or
her Compensation by filing an amended subscription agreement with the Company
on or before the Change Notice Date. The "Change Notice Date" shall
initially be the seventh (7th) day prior to the end of the first pay period
for which such election is to be effective; however, the Company may change
such Change Notice Date from time to time. A Participant may not elect to
increase the amount withheld from the Participant's Compensation during an
Offering Period.
(b) LIMITATIONS ON PAYROLL WITHHOLDING. The amount of payroll
withholding with respect to the Plan for any Participant during any pay period
shall not exceed ten percent (10%) of the Participant's Compensation for such
pay period. Amounts shall be withheld in whole percentages only and shall be
reduced by any amounts contributed by the Participant and applied to the
purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under section 423 of the Code.
(c) PAYROLL WITHHOLDING. Payroll deductions shall commence on the
first payday following the Offering Date and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in the Plan.
(d) PARTICIPANT ACCOUNTS. Individual accounts shall be maintained
for each Participant. All payroll deductions from a Participant's Compensation
shall be credited to such account and shall be deposited with the general funds
of the Company. All payroll deductions received or held by the Company may be
used by the Company for any corporate purpose.
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(e) NO INTEREST PAID. Interest shall not be paid on sums withheld
from a Participant's Compensation.
(f) EXERCISE OF PURCHASE RIGHT. On the last day of an Offering
Period, each Participant who has not withdrawn from the Offering or whose
participation in the Offering has not terminated on or before such last day
shall automatically acquire pursuant to the exercise of the Participant's
Purchase Right the number of whole Shares arrived at by dividing the total
amount of the Participant's accumulated payroll deductions for the Offering
Period by the Offering Exercise Price; provided, however, in no event shall the
number of Shares purchased by the Participant exceed the number of Shares
subject to the Participant's Purchase Right. No Shares shall be purchased on
behalf of a Participant whose participation in the Offering or the Plan has
terminated on or before the date of such exercise.
(g) RETURN OF CASH BALANCE. Any cash balance remaining in the
Participant's account shall be refunded to the Participant as soon as practical
after the last day of the Offering Period. In the event the cash to be returned
to a Participant pursuant to the preceding sentence is an amount less than the
amount necessary to purchase a whole Share, the Company may establish procedures
whereby such cash is maintained in the Participant's account and applied toward
the purchase of Shares in the subsequent Offering Period.
(h) WITHHOLDING. At the time the Purchase Right is exercised, in
whole or in part, or at the time some or all of the Shares are disposed of, the
Participant shall make adequate provision for foreign, federal and state tax
withholding obligations of the Company, if any, which arise upon exercise of the
Purchase Right and/or upon disposition of Shares. The Company may, but shall
not be obligated to, withhold from the Participant's Compensation the amount
necessary to meet such withholding obligations.
(i) COMPANY ESTABLISHED PROCEDURES. The Company may, from time to
time, establish (i) a minimum required withholding amount for participation in
any Offering, (ii) limitations on the frequency and/or number of changes in the
amount withheld during an Offering, (iii) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (iv) payroll withholding
in excess of or less than the amount designated by a Participant in order to
adjust for delays or mistakes in the Company's processing of subscription
agreements, and/or (v) such other limitations or procedures as deemed advisable
by the Company in the Company's sole discretion which are consistent with the
Plan and section 423 of the Code.
(j) EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
10. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER.
(a) FAIR MARKET VALUE LIMITATION. Notwithstanding any other
provision of the Plan, no Participant shall be entitled to purchase Shares under
the Plan (and any other employee stock purchase plan sponsored by Network
General or a parent or subsidiary corporation of Network General) at a rate
which exceeds $25,000 in fair market value, determined as of the
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Offering Date for each Offering Period (or such other limit as may be imposed
by the Code), for each calendar year in which the Participant participates in
the Plan (and any other employee stock purchase plan sponsored by Network
General or a parent or subsidiary corporation of Network General).
(b) ALLOCATION OF SHARES. In the event the number of Shares which
might be purchased by all Participants in the Plan exceeds the number of Shares
available in the Plan, the Company shall make a pro rata allocation of the
remaining Shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable.
(c) RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall
have no rights as a stockholder by virtue of the Participant's participation
in the Plan until the date of the issuance of a stock certificate(s) for the
Shares being purchased pursuant to the exercise of the Participant's Purchase
Right. No adjustment shall be made for cash dividends or distributions or
other rights for which the record date is prior to the date such stock
certificate(s) are issued. Nothing herein shall confer upon a Participant
any right to continue in the employ of the Company or interfere in any way
with any right of the Company to terminate the Participant's employment at
any time.
11. WITHDRAWAL.
(a) WITHDRAWAL FROM AN OFFERING. A Participant may withdraw
from an Offering by signing a written notice of withdrawal on a form provided
by the Company for such purpose and delivering such notice to the Company at
any time prior to the end of an Offering Period. Unless otherwise indicated
by the Participant, withdrawal from an Offering shall not result in a
withdrawal from the Plan or any succeeding Offering therein. A Participant
is prohibited from again participating in an Offering upon withdrawal from
such Offering. The Company may, from time to time, impose a requirement that
the notice of withdrawal be on file with the Company for a reasonable period
prior to the effectiveness of the Participant's withdrawal from an Offering.
(b) WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the
Plan by signing a written notice of withdrawal on a form provided by the Company
for such purpose and delivering such notice to the Company. In the event a
Participant voluntarily elects to withdraw from the Plan, the Participant may
not resume participation in the Plan during the same Offering Period, but may
participate in any subsequent Offering under the Plan by again satisfying the
requirements of paragraph 6. The Company may impose, from time to time, a
requirement that the notice of withdrawal be on file with the Company for a
reasonable period prior to the effectiveness of the Participant's withdrawal
from the Plan.
(c) LIMITATION FOLLOWING CESSATION OF PARTICIPATION BY CERTAIN
EMPLOYEES. Notwithstanding any provision herein to the contrary, an employee
shall be prohibited from again participating in the Plan for at least six months
after the date on which such employee is deemed to "cease participation" in the
Plan (as defined below) if such employee is:
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(1) an officer or director of Network General subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and
(2) deemed to have "ceased participation" in the Plan
within the meaning of Rule 16b-3, promulgated under the Exchange Act, as
amended from time to time or any successor rule or regulation ("Rule 16b-3")
as a consequence of such employee's election to (i) withdraw from an Offering
pursuant to paragraph 11(a) above, (ii) withdraw from the Plan pursuant to
paragraph 11(b) above, or (iii) stop or decrease to a nominal level the
amount withheld from such employee's Compensation pursuant to paragraph 9(a)
above.
(d) WAIVER OF WITHDRAWAL RIGHT. The Company may, from time to
time, establish a procedure pursuant to which a Participant may elect (an
"Irrevocable Election"), at least six (6) months prior to the last day of an
Offering Period, to have all payroll deductions accumulated in such
Participant's Plan account as of such date applied to purchase shares under
the Plan, and (1) to waive such Participant's right to withdraw from the
Offering or the Plan and (2) to waive such Participant's right to increase,
decrease, or cease payroll deductions under the Plan from such Participant's
Compensation during the Offering Period ending on such date. An Irrevocable
Election shall be made in writing on a form provided by the Company for such
purpose and must be delivered to the Company not later than the close of
business on the day preceding the date which is six (6) months before the
last day of the Offering Period for which such election is to be first
effective.
12. TERMINATION OF EMPLOYMENT. Termination of a Participant's employment
with the Company on account of either death or disability shall terminate the
Participant's participation in the Plan at the end of the Offering Period in
which the Participant's death or disability occurs.
Termination of a Participant's employment with the Company for any reason
other than death or disability, including the failure of a Participant to remain
an employee eligible to participate in the Plan, shall terminate the
Participant's participation in the Plan at the end of thirty (30) days after
such termination of employment. A Participant whose participation has been so
terminated may again become eligible to participate in the Plan by again
satisfying the requirements of paragraphs 4 and 6.
In the event of termination of a Participant's employment on account of the
Participant's death, the Participant's legal representative shall have the right
to withdraw from the Plan according to the terms of paragraph 11 prior to the
time the deceased Participant's participation in the Plan terminates.
13. REPAYMENT OF PAYROLL DEDUCTIONS. In the event a Participant's
interest in the Plan or any Offering therein is terminated for any reason, the
balance held in the Participant's account shall be returned as soon as
practicable after such termination to the Participant (or, in the case of the
Participant's death, to the Participant's legal representative) and all of the
Participant's rights under the Plan shall terminate. Such account balance may
not be applied to any other Offering under the Plan. No interest shall be paid
on sums returned to a Participant pursuant to this paragraph 13.
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14. TRANSFER OF CONTROL. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this paragraph 14, the "Control Company"
shall mean Network General.
(a) the direct or indirect sale or exchange by the stockholders of
the Control Company of all or substantially all of the stock of the Control
Company where the stockholders of the Control Company before such sale or
exchange do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company;
(b) a merger in which the stockholders of the Control Company
before such merger do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer of all or substantially all of
the Control Company's assets (other than a sale, exchange, or transfer to one
(1) or more corporations where the stockholders of the Control Company before
such sale, exchange, or transfer retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the corporation(s) to
which the assets were transferred).
In the event of a Transfer of Control, the Board, in its sole discretion,
shall either (i) provide that Purchase Rights granted under the Plan shall be
fully exercisable to the extent of each Participant's account balance for the
Offering Period as of a date prior to the Transfer of Control, as the Board so
determines, or (ii) arrange with the surviving, continuing, successor, or
purchasing corporation, as the case may be, that such corporation assume the
Company's rights and obligations under the Plan. All Purchase Rights shall
terminate effective as of the date of the Transfer of Control to the extent that
the Purchase Right is neither exercised as of the date of the Transfer of
Control nor assumed by the surviving, continuing, successor, or purchasing
corporation, as the case may be.
15. CAPITAL CHANGES. In the event of changes in the common stock of the
Company due to a stock split, reverse stock split, stock dividend, combination,
reclassification, or like change in the Company's capitalization, or in the
event of any merger, sale or other reorganization, appropriate adjustments shall
be made by the Company in the Plan's share reserve, the number of Shares subject
to a Purchase Right and in the purchase price per share.
16. NON-TRANSFERABILITY. A Purchase Right may not be transferred in any
manner otherwise than by will or the laws of descent and distribution and shall
be exercisable during the lifetime of the Participant only by the Participant.
17. REPORTS. Each Participant who exercised all or part of the
Participant's Purchase Right for an Offering Period shall receive as soon as
practicable after the last day of such Offering Period a report of such
Participant's account setting forth the total payroll deductions accumulated,
the number of Shares purchased and the remaining cash balance to be refunded or
retained in the Participant's account pursuant to paragraph 9(g), if any.
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18. PLAN TERM. This Plan shall continue until terminated by the Board or
until all of the Shares reserved for issuance under the Plan have been issued,
whichever shall first occur.
19. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares pursuant to
the Purchase Right shall be subject to compliance with all applicable
requirements of federal or state law with respect to such securities. The
Purchase Right may not be exercised if the issuance of shares upon such exercise
would constitute a violation of any applicable federal or state securities laws
or other law or regulations. In addition, no Purchase Right may be exercised
unless (i) a registration statement under the Securities Act of 1933, as
amended, shall at the time of exercise of the Purchase Right be in effect with
respect to the shares issuable upon exercise of the Purchase Right, or (ii) in
the opinion of legal counsel to the Company, the shares issuable upon exercise
of the Purchase Right may be issued in accordance with the terms of an
applicable exemption from the registration requirements of said Act. As a
condition to the exercise of the Purchase Right, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company.
20. LEGENDS. The Company may at any time place legends or other
identifying symbols referencing any applicable federal and/or state securities
restrictions and any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this paragraph. Unless otherwise specified by the Company,
legends placed on such certificates may include but shall not be limited to the
following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the California
Commissioner of Corporations.
21. NOTIFICATION OF SALE OF SHARES. The Company may require the
participant to give the Company prompt notice of any disposition of Shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may direct that the certificates evidencing
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<PAGE>
shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
22. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend
or terminate the Plan, except that such termination shall not affect Purchase
Rights previously granted under the Plan, nor may any amendment make any change
in a Purchase Right previously granted under the Plan which would adversely
affect the right of any Participant (except as may be necessary to qualify the
Plan as an employee stock purchase plan pursuant to section 423 of the Code).
In addition, an amendment to the Plan must be approved by the stockholders of
the Company, within the meaning of section 423 of the Code, within twelve (12)
months of the adoption of such amendment if such amendment would authorize the
sale of more shares than are authorized for issuance under the Plan or would
change the definition of the corporations that may be designated by the Board as
a corporation the employees of which are eligible to participate in the Plan.
Furthermore, the approval of the Company's stockholders shall be sought for any
amendment to the Plan for which the Board deems stockholder approval necessary
in order to comply with Rule 16b-3.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Network General Corporation 1989 Employee Stock Purchase Plan was
duly amended by the Board of Directors on the 9th day of August, 1996.
-----------------------
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NETWORK GENERAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
__ Original Application
__ Change in Percentage of Payroll Deductions
I hereby elect to participate in the 1989 Employee Stock Purchase Plan
(the "Stock Purchase Plan") of Network General Corporation (the "Company")
and subscribe to purchase shares of the Company's common stock as determined
in accordance with the terms of the Stock Purchase Plan.
I hereby authorize payroll deductions in the amount of $____________ or
___________ percent of my compensation (fill in one only) from each paycheck
throughout the "Offering Period" (as defined in the Stock Purchase Plan) in
accordance with the terms of the Stock Purchase Plan. (I understand that the
amount deducted each pay period cannot be more than 10% of my compensation.) I
understand that these payroll deductions will be accumulated for the purchase of
shares of common stock of the Company at the applicable purchase price
determined in accordance with the Stock Purchase Plan. I further understand
that, except as otherwise set forth in the Stock Purchase Plan, shares will be
purchased for me automatically on the last day of the Offering Period unless I
withdraw from the Stock Purchase Plan or from the Offering by giving written
notice to the Company or unless I terminate employment.
I further understand that I will automatically participate in each
subsequent Offering under the Plan and have the same percentage of my
compensation withheld as I have designated in this agreement until such time as
I file with the Company a notice of withdrawal from the Stock Purchase Plan on
such form as may be established from time to time by the Company or I terminate
employment.
Shares purchased for me under the Stock Purchase Plan should be issued in
the name set forth below. I understand that Shares may be issued either in my
name alone or together with my spouse as community property or in joint
tenancy.)
NAME:
----------------------------------------------
ADDRESS: ----------------------------------------------
----------------------------------------------
----------------------------------------------
MY SOCIAL SECURITY NUMBER:
-----------------------------
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I am familiar with the terms and provisions of the Stock Purchase Plan and
hereby agree to participate in the Stock Purchase Plan subject to all of the
terms and provisions thereof. I understand that the Board reserves the right to
amend the Stock Purchase Plan and my right to purchase stock under the Stock
Purchase Plan as may be necessary to qualify the Plan as an employee stock
purchase plan as defined in section 423 of the Internal Revenue Code of 1986, as
amended. I understand that the effectiveness of this subscription agreement is
dependent upon my eligibility to participate in the Stock Purchase Plan.
Date: Signature:
-------------------------- ---------------------------
12
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NETWORK GENERAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I hereby elect to withdraw from the current offering (the "Offering") of
the common stock of Network General Corporation (the "Company") under the
Network General Corporation 1989 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), and hereby request that all payroll deductions credited to my
account under the Stock Purchase Plan with respect to the Offering (if any), and
not previously used to purchase shares of common stock of the Company under the
Stock Purchase Plan, be paid to me as soon as is practical. I understand that
this Notice of Withdrawal automatically terminates my interest in the Offering.
As to participation in future offerings of stock under the Stock Purchase
Plan, I elect as follows:
__ I elect to participate in future offerings under the Stock
Purchase Plan.
I understand that by making the election set forth above I shall
participate in all sequential offerings under the Stock Purchase Plan commencing
subsequent to the Offering until such time as I elect to withdraw from the Stock
Purchase Plan or any such subsequent offering. (However, if I am subject to
Section 16 of the Securities Exchange Act of 1934, I understand that I may be
prohibited from again participating in future Offerings for at least six months
from the date of my withdrawal. See applicable provisions of the Plan.)
__ I elect NOT to participate in future offerings under the Stock
Purchase Plan.
I understand that by making the election set forth above I terminate my
interest in the Stock Purchase Plan and that no further payroll deductions will
be made unless I elect in accordance with the Stock Purchase Plan to become a
participant in another offering under the Stock Purchase Plan.
I understand that if no election is made as to participation in future
offerings under the Stock Purchase Plan, I will be deemed to have elected to
participate in such future offerings.
Date: Signature:
-------------------------- -------------------------
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NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN
IRREVOCABLE ELECTION BY OFFICER
I, _______________________________, am a participant in the Network General
Corporation 1989 Employee Stock Purchase Plan (the "Plan"). In order to exempt
my future purchase(s) of common stock under the Plan from the "short-swing"
profit recovery provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), I declare as follows:
1. TERM.
(a) The Term of this Election (the "Term") will commence either
immediately or on the first day of the offering period under the Plan beginning
on or after the date of this Election and ending at least six (6) months after
the date of this Election, as indicated below. The Term will end six (6) months
after the date on which I deliver to the Company a written revocation of this
Election on a form approved by the Company.
Check one:
_____ The Term will commence on the first day of the offering period
beginning:
-----------------------------
(Enter Date)
_____ The Term will commence immediately.
(b) I understand that any purchase I make under the Plan less than
six (6) months after the date of this Election or at any other time that this
Election is not in force may not be exempt from Section 16(b) of the Exchange
Act. I understand that any such purchase will be exempt from Section 16(b) only
if I hold the shares I acquire in such purchase for at least six months after
the date of purchase.
2. ELECTION. I IRREVOCABLY ELECT, for the duration of the Term, to have
all payroll deductions accumulated in my account under the Plan as of each
purchase date applied to purchase whole shares of common stock in accordance
with the terms of the Plan and my current subscription agreement. Furthermore,
I waive any and all rights I may have under the Plan or my subscription
agreement to increase or decrease the rate of payroll deductions set forth in my
current subscription agreement, to voluntarily cease such payroll deductions, or
to withdraw from the Plan or any offering period under the Plan.
3. INDEMNIFICATION. The Company will not be required to carry out any
instruction I may give to the Company, purporting to be effective at any time
during the Term, which is
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contrary to this Election. Notwithstanding the foregoing, the Company shall
have no liability to me, and I hereby agree to indemnify and hold the Company
harmless with respect to, any consequence arising from the Company's
compliance with any instruction that I may give, including, without
limitation, any cost, liability or penalty I may incur pursuant to any
federal or state income tax or securities law or regulation.
Date:
- ------------------------------------
(Signature)
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NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN
REVOCATION OF
ELECTION BY OFFICER
I, _________________________________________ hereby revoke my Election,
dated _____________________ 199____, with respect to my participation in the
Network General Corporation 1989 Employee Stock Purchase Plan. I understand
that this Revocation will become effective six (6) months after the date on
which this Revocation is delivered to the authorized representative of the
Company.
Date:
------------------------------
- -------------------------------------
(Signature)
RECEIVED BY:
NETWORK GENERAL CORPORATION
AUTHORIZED REPRESENTATIVE
Date:
-------------------------- -------------------------------
(Signature)
-------------------------------
(Name Printed)
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EXHIBIT 10.21
SECURED LOAN AGREEMENT
October 29, 1996
A. PARTIES
1. John Richard Stringer
19915 Bella Vista
Saratoga, CA 95070
("DEBTOR")
2. Network General Corporation
4200 Bohannon Drive
Menlo Park, CA 94025
("CREDITOR")
B. RECITALS
1. Whereas, as of the date of this Secured Loan Agreement first set forth
above, Debtor is an executive officer of Creditor.
2. Whereas, Creditor desires to lend Debtor and Debtor desires to borrow
from Creditor funds to assist Debtor's purchase of certain land located in
California and construction of a primary residence thereon.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
C. AGREEMENT
1. PRINCIPAL. Creditor is lending to Debtor, and Debtor is borrowing
from Creditor a total principal amount of Five Hundred Thousand Dollars
($500,000) to be paid to Debtor as follows: (i) Two Hundred Thousand Dollars
($200,000) to be paid into Debtor's escrow account number 761881 with Chicago
Title Company (the "LAND ESCROW") for Debtor's purchase of certain real property
located at Parcel Number 1 Garrod Road, Saratoga, California 95070 which is
more fully identified in the preliminary title report attached hereto as EXHIBIT
A (the "LAND"), upon GMAC Mortgage Corporation's depositing into the Land Escrow
Three Hundred Thousand Dollars ($300,000); and (ii) Three Hundred Thousand
Dollars ($300,000) to be paid into Debtor's escrow for the permanent (mortgage)
financing of the Land and the improvements to have been built on the Land (the
"FINAL ESCROW"), which
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improvements (hereafter known as the "RESIDENCE") are more fully described in
"A Custom Residence for Serena Development Corp., Lot 1, Garrod Road,
Saratoga, CA" dated as of May 2, 1990 and the balance of which permanent
(mortgage) financing for the Land and the Residence is to be providedby GMAC
Mortgage Corporation, upon GMAC Mortgage Corporation's approval of the Final
Escrow closing. The amounts loaned to Debtor hereunder are evidenced by the
Promissory Notes in the forms attached hereto as EXHIBITS B and C,
respectively (the "NOTES"). The Note represented by EXHIBIT C for Five
Hundred Thousand Dollars ($500,000) shall be executed by Debtor upon
Creditor's advance of the Three Hundred Thousand Dollars ($300,000) described
in Section 1 (ii) herein and in substitution and cancellation for the Note
represented by EXHIBIT B for Two Hundred Thousand Dollars ($200,000). Under
no circumstances will funds described in Section C.1(ii) above be advanced
prior to the close of the Land Escrow, nor prior to the close of the Final
Escrow. In the event the Land Escrow does not close by October 31, 1996,
Creditor is under no obligation to advance any funds pursuant to this Secured
Loan Agreement. In the event the Final Escrow does not close by October 31,
1997, Creditor is under no obligation to advance the Three Hundred Thousand
Dollars ($300,000) described in Section C.1(ii) herein. In the event Debtor
is no longer an employee of Creditor prior to Creditor's advance of either
the funds described in Section C.1(i) above or Section C.1(ii) above,
Creditor is under no obligation to advance any funds which have not already
been advanced pursuant to such Sections.
2. SECURITY. Subject to the applicable terms of this Secured Loan
Agreement, Debtor grants to Creditor a security interest in the Collateral to
secure the payment of the Obligations, as defined in Section D below.
3. REPAYMENT. In accordance with the terms and conditions of the Notes:
A. INTEREST. Debtor shall make interest payments on the principal
outstanding to Creditor at the simple rate of the lesser of: (a) six and six
tenths percent (6.6%) per annum or (b) the statutorily prescribed applicable
Federal rate (AFR) appropriate to the loan principal. Debtor shall make such
interest payments semi-annually. Throughout the term of this Agreement, Debtor
shall make semi-annual interest payments to Creditor within five (5) business
days of Creditor's payment to Debtor of Debtor's semi-annual management bonus
payments, which payments generally occur each October and April. In the event
that Creditor does not: (i) make any management bonus available to any employee
of Creditor; (ii) make any management bonus available to Debtor; or (iii) make a
management bonus available to Debtor until after October or April, respectively,
then in any of such cases, Debtor shall make his semi-annual interest payment to
Creditor no later than the next successive November 15 or May 15, respectively.
B. PRINCIPAL. In the event the Creditor advances to Debtor the
entire Five Hundred Thousand Dollars ($500,000) as set forth in Section C.1
above, Debtor shall repay the full Five Hundred Thousand Dollar ($500,000)
principal amount and any accrued interest thereon (from the last most recent
interest payment date) on the date which is exactly five (5) years from the date
the Final Escrow closes ("FINAL REPAYMENT DATE"). In the event that Creditor
has advanced to Debtor only Two Hundred Thousand Dollars ($200,000) by October
2
<PAGE>
31, 1997, Debtor shall repay the full Two Hundred Thousand Dollar ($200,000)
principal amount and any accrued interest thereon (from the last most recent
interest payment date) on October 31, 1997. Debtor is hereby permitted to prepay
the principal and interest in whole or in part at any time prior to dates
described in these Sections C.3A and C.3B without penalty.
4. ACCELERATION OF PAYMENT. In the event that Debtor is no longer an
employee of Creditor for any reason (except as set forth below in Section C.5),
and Creditor has only advanced Debtor Two Hundred Thousand Dollars ($200,000),
the payment of principal described in Section C.3.B above will no longer apply
(although the payment of interest pursuant to Section C.3.A. shall remain in
full force and effect) and the total principal and all accrued interest (from
the last most recent interest payment date) will be due upon THE EARLIER OF: (i)
the date which is nine (9) months from the date Debtor is no longer an employee
of Creditor; or (ii) October 31, 1997. In the event that Debtor is no longer an
employee of Creditor for any reason (except as set forth below in Section C.5),
and Creditor has advanced Debtor Five Hundred Thousand Dollars ($500,000), the
payment of principal and interest described in Section C.3B above will no longer
apply (although the payment of interest pursuant to Section C.3.A. shall remain
in full force and effect) and the total principal and all accrued interest (from
the last most recent interest payment date) will be due on the date which is THE
EARLIER OF: (i) nine (9) months from the date Debtor is no longer an employee of
Creditor; or (ii) the Final Repayment Date.
5. CHANGE IN CONTROL.
A. "CHANGE OF CONTROL EVENT" means an Ownership Change, as defined
below, in which the shareholders of the Creditor before such Ownership Change do
not retain, directly or indirectly, at a least a majority of the beneficial
interest in the voting stock of the Creditor after such transaction or in which
the Creditor is not the surviving corporation. "Ownership Change" shall be
deemed to have occurred in the event any of the following occurs with respect to
the Creditor:
(i) the direct or indirect sale or exchange by the shareholders
of the Creditor of all or substantially all of the stock of the Creditor;
(ii) a merger or consolidation in which the Creditor is a party
and in which the shareholders of the Creditor before such Ownership Change do
not retain, directly or indirectly, at a least a majority of the beneficial
interest in the voting stock of the Creditor after such transaction or in which
the Creditor is not the surviving corporation;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Creditor; or
(iv) a liquidation or dissolution of the Creditor.
B. "CONSTRUCTIVE TERMINATION" means one or more of the following
that occurs within two (2) years after the occurrence of any Change of Control
Event: (i) any
3
<PAGE>
failure by the Creditor to pay, or any reduction by the Creditor
of (a) the Debtor's base salary in effect immediately prior to the date of the
Change of Control Event (unless reductions comparable in amount and duration are
concurrently made for all other employees of the Creditor with responsibilities,
organizational level and title comparable to the Debtor), or (b) the Debtor's
bonus compensation in effect immediately prior to the date of the Change of
Control Event (subject to applicable performance requirements with respect to
the actual amount of bonus compensation earned by the Debtor and all other
participants in the bonus program); or (ii) any failure by the Creditor to: (a)
continue to provide the Debtor with the opportunity to participate, on terms no
less favorable than those in effect for the benefit of any executive, management
or administrative group which customarily includes a person holding the
employment position or a comparable position with the Creditor then held by the
Debtor, any benefit or compensation plans and programs, including, but not
limited to, the Creditor's life, disability, health, dental, medical, savings,
profit sharing, stock purchase and retirement plans in which the Debtor was
participating immediately prior to the date of the Change of Control Event, or
their equivalent, or (b) provide the Debtor with all other fringe benefits (or
their equivalent) from time to time in effect for the benefit of any executive,
management or administrative group which customarily includes a person holding
the employment position or a comparable position with the Creditor then held by
the Debtor.
C. "PERMANENT DISABILITY" means that:
(i) the Debtor has been incapacitated by bodily injury or
disease so as to be prevented thereby from engaging in the performance of the
Debtor's duties;
(ii) such total incapacity shall have continued for a period of
six consecutive months; and
(iii) such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of the Debtor's
life.
D. "CAUSE" means:
(i) theft, a material act of dishonesty, fraud, the
falsification of any employment or Creditor records or the commission of any
criminal act which impairs Debtor's ability to perform his/her duties;
(ii) improper disclosure of the Creditor's confidential,
business or proprietary information by the Debtor;
(iii) any action by Debtor which the Creditor's Board of
Directors (the "BOARD") reasonably believes has had or will have a material
detrimental effect on the Creditor's reputation or business; or
4
<PAGE>
(iv) persistent failure of the Debtor to perform the lawful
duties and responsibilities assigned by the Creditor which is not cured within a
reasonable time following the Debtor's receipt of written notice of such failure
from the Creditor.
E. "TERMINATION UPON CHANGE OF CONTROL" means any one of the
following:
(i) any termination of the employment of the Debtor by the
Creditor without Cause within two (2) years after the occurrence of any Change
of Control Event;
(ii) any termination of the employment of the Debtor by the
Creditor without Cause during the period commencing thirty (30) days prior to
the date of the Creditor's first public announcement that the Creditor has
entered into a definitive agreement to effect an Ownership Change (even though
still subject to approval by the Creditor's stockholders and other conditions
and contingencies) and ending on the date of the Change of Control Event; or
(iii) any resignation by the Debtor immediately following
any Constructive Termination that occurs within two (2) years after the
occurrence of any Change of Control Event.
"Termination Upon Change of Control" shall not include any termination
of the employment of the Debtor: (a) by the Creditor for Cause; (b) by the
Creditor as a result of the Permanent Disability of the Debtor; (c) as a result
of the death of the Debtor; or (d) as a result of the voluntary termination of
employment by the Debtor that is not deemed to be a Constructive Termination
pursuant to Subsection 5.B. above.
NOTHING SET FORTH IN THIS AGREEMENT SHALL CONSTITUTE AN AGREEMENT OF
EMPLOYMENT NOR SHALL THIS AGREEMENT ALTER DEBTOR'S STATUS AS AN AT-WILL EMPLOYEE
OF CREDITOR.
F. REPAYMENT UPON DEBTOR'S TERMINATION UPON CHANGE OF CONTROL. In the
event of the Debtor's Termination Upon Change of Control, the repayment of
interest for a period of one (1) year from the date of such Termination shall be
borne by the Creditor or its successor, and the repayment of principal set
forth in Subsection C.3.B shall remain in full force and effect.
G. DUE ON SALE. In the event Debtor sells, transfers, assigns or conveys
any interest (including but not limited to change of title, grants of leases, or
grants of security interests) in the Land or Residence, or any portion thereof,
other than the grant to GMAC Mortgage Corporation of a first deed of trust in
the Land and Residence, all outstanding principal and accrued interest shall be
fully due and payable immediately prior to the closing of any such upon the
closing any such sale, transfer, assignment or conveyance.
D. OBLIGATION
5
<PAGE>
The following are the "OBLIGATIONS" secured by this Agreement:
1. All amounts due under the Notes.
2. All costs incurred by Creditor to obtain, preserve, and enforce this
Agreement, collect the Obligation, and maintain and preserve the Collateral, and
including (but not limited to) taxes, assessments, insurance premiums, repairs,
reasonable attorneys' fees and legal expenses, rent, storage costs, and expenses
of sale.
E. COLLATERAL
Debtor hereby grants and agrees to grant to Creditor a security interest in
the following, hereinafter called the "COLLATERAL":
1. To secure the Two Hundred Thousand Dollars ($200,000) loaned to Debtor
and interest thereon pursuant to the Note, evidenced by EXHIBIT B: all stock
options, whether vested or unvested, which Debtor has any rights to pursuant to
the Network General Corporation 1989 Employee Stock Option Plan, as amended, now
owned and hereafter acquired by Debtor and wherever located, and all cash or
non-cash proceeds of any of the foregoing, including insurance proceeds
(Debtor's "STOCK OPTIONS").
2. Upon Creditor's advancing to Debtor the final Three Hundred Thousand
Dollars ($300,000), Debtor's executing the Note evidenced by EXHIBIT C,
Debtor's executing and assisting in the filing of appropriate documentation to
secure the Land/Residence Collateral described below and Creditor's
extinguishing the Note represented by EXHIBIT B, Creditor will release all
rights to the Collateral described in Section E.1. above and will instead secure
the entire principal amount loaned hereunder and interest thereon with a deed of
trust on the Land and the Residence, including all substitutes and replacements
therefor, accessions, attachments, and other additions thereto, and all cash or
non-cash proceeds of any of the foregoing, including insurance proceeds. At no
time will Creditor have both Debtor's Stock Options and the Land/Residence as
Collateral.
F. AGREEMENTS OF DEBTOR
1. Debtor will: take adequate care of the Collateral; insure the
Collateral for such hazards and in such amounts as Creditor directs, with
policies and coverages satisfactory to Creditor; pay all costs necessary to
obtain, preserve, and enforce this security interest, collect the Obligation and
preserve the Collateral, including (but not limited to) taxes, assessments,
insurance premiums, repairs, reasonable attorneys' fees and legal expenses,
rent, storage costs, and expenses of sale; furnish Creditor with any information
on the Collateral requested by Creditor; allow Creditor to inspect the
Collateral, and inspect and copy all records relating to the Collateral and the
Obligation; sign any papers furnished by Creditor which are necessary to obtain
and maintain this security interest, including but not limited to executing
Joint Escrow Instructions appointing Gray Cary Ware & Freidenrich as agent with
respect to Debtor's Stock Options as security, executing and filing a form UCC-1
Financing Statement with the
6
<PAGE>
California Secretary of State, appropriate deeds of trust with the county of
Santa Clara or elsewhere as Creditor may deem appropriate to perfect its
security interest; perfect a security interest (using a method satisfactory to
Creditor) in goods covered by chattel paper which is part of the Collateral;
notify Creditor of any change occurring in or to the Collateral, or in any fact
or circumstance warranted or represented by Debtor in this Agreement or
furnished to Creditor, or if any Event of Default occurs.
2. For so long as Creditor has as Collateral Debtor's Stock Options
Debtor will not, without Creditor's prior written consent exercise in any period
more than fifty percent (50%) of the number of Stock Options which vested in
such period.
3. Debtor warrants: except for the first deed of trust which will be
perfected on the Land and Residence by GMAC Mortgage Corporation, no financing
statement, deed of trust or notice of security interest has been filed with
respect to the Collateral, other than relating to this security interest; Debtor
is absolute owner of the Collateral, and it is not encumbered other than by this
security interest (and the same will be true of Collateral acquired hereafter
when acquired); all account debtors and obligors, whose obligations are part of
the Collateral, are to the extent permitted by law prevented from asserting
against Creditor any claims or defenses they have against sellers.
G. RIGHTS OF CREDITOR
Creditor may, in its discretion, before or after default: terminate, on
notice to Debtor, Debtor's authority to sell, lease, otherwise transfer
Collateral, or any other Collateral as to which such permission has been given;
require Debtor to give possession or control of the Collateral to Creditor;
indorse as Debtor's agent any instruments or chattel paper in the Collateral;
notify account debtors and obligors on instruments to make payment directly to
Creditor; contact account debtors directly to verify information furnished by
Debtor; take control of proceeds and use cash proceeds to reduce any part of the
Obligation; take any action Debtor is required to take or otherwise necessary to
obtain, preserve, and enforce this security interest, and maintain and preserve
the Collateral, without notice to Debtor, and add costs of same to the
Obligation (but Creditor is under no duty to take any such action); release
Collateral in its possession to Debtor, temporarily or otherwise; take control
of funds generated by the Collateral, such as dividends, interest, proceeds or
refunds from insurance, and use same to reduce any part of the Obligation; waive
any of its right hereunder without such waiver prohibiting the later exercise of
the same or similar rights; revoke any permission or waiver previously granted
to Debtor.
H. DEFAULT
1. Any of the following is an "Event of Default": failure of Debtor to
pay the Notes in accordance with its terms, or any other liability in the
Obligation on demand, or to perform any act or duty required by this Agreement;
Debtor's material breach of any other agreement between Creditor and Debtor;
falsity of any warranty or representation in this Agreement when made; material
adverse change in any fact warranted or represented in this
7
<PAGE>
Agreement; involvement of Debtor in bankruptcy or insolvency proceedings;
death or other termination of Debtor's existence; a sale of all or
substantially all of Debtor's assets; substantial loss, theft, destruction,
sale, reduction in value, encumbrance of, damage to, or change in the
Collateral; material adverse modification of any contract, the rights to
which are part of the Collateral; levy on, seizure, or attachment of the
Collateral; judgment against Debtor; filing any financing statement with
regard to the Collateral, other than relating to this security interest;
Creditor's belief that the prospect of payment of any part of the Obligation
or the performance of any part of this Agreement, is materially impaired.
2. When an Event of Default occurs, the entire Obligation becomes
immediately due and payable at Creditor's option without notice to Debtor, and
Creditor may proceed to enforce payment of same and exercise any and all of the
rights and remedies available to a secured party under the California Commercial
Code as well as all other rights and remedies. When Debtor is in default,
Debtor, upon demand by Creditor, shall assemble the Collateral and make it
available to Creditor at a place reasonably convenient to both parties.
I. WAIVERS
1. WAIVER OF NOTICE AND CONSENT. Debtor and all other parties now or
hereafter liable for the payment hereof, whether as endorser, guarantor, surety
or otherwise, severally waive demand, presentment, notice of dishonor, notice of
intention to accelerate the maturity hereof, notice of acceleration of the
maturity hereof, diligence in collecting, grace, notice and protest, and to the
acceptance of further security or the release of any security for this Agreement
or the Note, and to the release of any party liable hereunder, all without in
any way affecting the liability of Debtor and any endorsers or guarantors hereof
or sureties therefor whether or not they are a party to any such act or
agreement.
2. CUMULATIVE REMEDIES. No failure, delay or discontinuance on the part
of Creditor or any other Creditor of rights in this Agreement or the Notes in
exercising any right, power or remedy hereunder or pursuant to the Notes shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided in this
Agreement and the Notes are cumulative and are not exclusive of any remedies
that may be available to Creditor at law, in equity or otherwise. No amendment,
modification, supplement, termination, consent, or waiver of this Agreement or
the Note, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by Creditor.
3. WAIVER. The failure to exercise the option to accelerate the
repayment of the Obligations evidenced by this Agreement, upon the happening of
one or more of the Events of Default shall not constitute a waiver of the right
to exercise the same at any subsequent time in respect of the same Event of
Default (unless such Event of Default has been cured or expressly waived in
writing) or any other Event of Default. The acceptance by a Creditor of these
Notes of any payment which is late or is less than the payment in full of all
amounts due and payable at the time of such payment shall not constitute any of
the following: (i) a waiver of the right to
8
<PAGE>
exercise the foregoing option at that time or at any subsequent time or
nullify any prior exercise of such option; (ii) a waiver of the right to
receive timely payments in the future; or (iii) a waiver of the right to
receive payment in full of all amounts due and payable at the time of such
payment.
J. INDEMNIFICATION
Debtor agrees to indemnify, defend and hold harmless Creditor and Creditors
successors, assigns, agents, and directors (the "INDEMNITEES") of any interest
in this Agreement or the Notes from and against (i) any and all transfer taxes,
documentary taxes, assessments or charges by reason of the execution and
delivery of this Agreement and the Note, and (ii) any and all liabilities,
losses, damages, penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the fees and
disbursements of legal counsel and other professionals) in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against such Indemnitee, in any manner relating to or
arising out of or in connection with the providing of the Agreement or Notes by
Debtor ("INDEMNIFIED LIABILITIES"); provided, however, that Debtor shall have no
obligation hereunder with respect to any of the Indemnified Liabilities arising
from or related to the gross negligence or willful misconduct of any Indemnitee.
K. MISCELLANEOUS
1. SEVERABLE PROVISIONS. Every provision of this Agreement and the Notes
is intended to be severable. If any term or provision hereof is declared by a
court of competent jurisdiction to be illegal, invalid or unenforceable for any
reason whatsoever, such illegality, invalidity, or unenforceability shall not
affect. the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
2. APPLICABLE LAW. This Agreement and the Notes are performable in
California and shall be governed by and construed in accordance with the laws of
the State of California and laws of the United States applicable to the
transaction evidenced hereby.
3. SUCCESSORS-AND ASSIGNS. This Agreement and/or the Notes may not be
assigned to any third party by Creditor without the written consent of Debtor.
This Agreement and the Notes and any amendments hereto and theretoshall be
binding upon and inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Debtor may not assign or transfer any
interest or obligation hereunder without the prior written consent of Creditor
which may not be unreasonably withheld.
4. NOTICE. Debtor waives presentment, demand, notice of dishonor,
protest, and extension of time without notice as to any instruments and chattel
paper in the Collateral. Any notice to a party shall be given in writing at
that party's address set forth in Section A above, or such other address of
which notice is given hereunder, and shall be deemed effectively given as of the
earliest of (i) when delivered personally, (ii) when sent by confirmed telex or
facsimile,
9
<PAGE>
(iii) one (1) day after deposit with a commercial overnight carrier with
written verification of receipt, or (iv) five (5) days after having been sent
by registered or certified mail, return receipt
10
<PAGE>
requested, postage prepaid; PROVIDED, that if the California Commercial Code
specifies another notice procedure, such notice procedure shall apply.
CREDITOR DEBTOR
NETWORK GENERAL CORPORATION:
By: /s/James T. Richardson By: /s/John Richard Stringer
---------------------- ------------------------
Name: James T. Richardson Name: John Richard Stringer
------------------- ---------------------
Title: Senior Vice President and Chief Financial Officer
-------------------------------------------------
The undersigned, being the spouse of the above-named Debtor, does hereby
acknowledge that the undersigned has read and is familiar with the provisions
of the above Secured Loan Agreement, and the undersigned hereby agrees thereto
and joins therein to the extent, if any, that the agreement and joinder of the
undersigned may be necessary.
Name: Pamela Lura Stringer
By: /s/Pamela Lura Stringer
-----------------------
11
<PAGE>
12
<PAGE>
EXHIBIT B
FULL RECOURSE SECURED PROMISSORY NOTE
Menlo Park, California
$ 200,000.00 OCTOBER 29, 1996
1. OBLIGATION. For value received, John Stringer, a married individual,
resident at 19915 Bella Vista, Saratoga, CA 95070 ("DEBTOR") hereby promises to
pay to the order of NETWORK GENERAL CORPORATION, a Delaware corporation
("CREDITOR"), the principal sum of Two Hundred Thousand Dollars ($200,000.00),
together with interest on the unpaid principal balance from the date hereof
until paid at the simple rate of the lesser of: (i) six and six tenths percent
(6.6%) per annum or (ii) the statutorily prescribed applicable Federal rate
(AFR) appropriate to the loan principal.
2. INTEREST PAYMENTS. Debtor shall make interest payments on the unpaid
principal balance semi-annually as set forth herein. Debtor shall make such
semi-annual interest payments to Creditor within five (5) business days of
Creditor's payment to Debtor of Debtor's semi-annual management bonus payments,
which payments generally occur each October and April. In the event that
Creditor does not: (i) make any management bonus available to any employee of
Creditor; (ii) make any management bonus available to Debtor; or (iii) make a
management bonus available to Debtor until after October or April, respectively,
then in any of such cases, Debtor shall make his semi-annual interest payment to
Creditor no later than the next successive November 15 or May 15, respectively.
3. REPAYMENT OF PRINCIPAL. Debtor shall repay to Creditor the entire
amount of unpaid principal and any accrued interest thereon no later than
October 31, 1997. Debtor may prepay any or all of this Note at any time at no
penalty. Any partial payment shall be applied first to accrued interest, then
to principal. Delivery of interest payments and principal due under this Note
shall be paid in lawful money of the United States of America at Creditor's
address set forth in that certain Secured Loan Agreement dated as of October 29,
1996 between Creditor and Debtor (the "LOAN AGREEMENT").
4. ACCELERATION OF PAYMENT. Except as set forth in the Loan Agreement,
in the event that Debtor is no longer an employee of Creditor for any reason,
the payment of principal described in Sections 3 above will no longer apply and
the total principal and all accrued interest will be due no later than the
earlier of: (i) the date which is nine (9) months after Debtor's final date as
an employee of Creditor; or (ii) October 31, 1997. Nothing set forth in this
Note shall constitute an agreement of employment nor shall this Agreement alter
Debtor's status as an at-will employee of Creditor.
5. DEFAULT. Upon the occurrence of an "Event of Default" (as such term
is defined in the Loan Agreement) by Debtor: (a) the entire unpaid principal
sum and accrued interest
13
<PAGE>
under this Note shall become immediately due and payable; and (b) Creditor
shall have, in addition to its rights and remedies under the Loan Agreement,
any and all rights and remedies available to it at law or in equity, all of
which rights and remedies shall be cumulative.
6. WAIVER. Debtor waives presentment, notice of nonpayment, notice of
dishonor, protest, demand and diligence.
7. ATTORNEYS' FEES. If suit is brought for collection of this Note,
Debtor agrees to pay all reasonable expenses, including attorneys' fees,
incurred by Creditor in connection therewith, whether or not such suit is
prosecuted to judgment.
8. INTEGRATION. This Note is an integral part of the Loan Agreement and
shall be interpreted as part of and with the Loan Agreement.
IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the
date and year first written above.
DEBTOR
By: /s/John Richard Stringer
------------------------
Name: John Richard Stringer
By: /s/Pamela Lura Stringer
------------------------
Name: Pamela Lura Stringer
14
<PAGE>
EXHIBIT C
SECURED PROMISSORY NOTE
Menlo Park, California
$ 500,000.00 ____________, 1997
1. OBLIGATION. For value received, John Stringer, a married individual,
resident at ______________________________________ ("DEBTOR") hereby promises to
pay to the order of NETWORK GENERAL CORPORATION, a Delaware corporation
("CREDITOR"), the principal sum of Five Hundred Thousand Dollars ($500,000.00),
together with interest on the unpaid principal balance from the date hereof
until paid at the simple rate of the lesser of: (i) six and six tenths percent
(6.6%) per annum or (ii) the statutorily prescribed applicable Federal rate
(AFR) appropriate to the loan principal.
2. INTEREST PAYMENTS. Debtor shall make interest payments on the unpaid
principal balance semi-annually as set forth herein. Debtor shall make such
semi-annual interest payments to Creditor within five (5) business days of
Creditor's payment to Debtor of Debtor's semi-annual management bonus payments,
which payments generally occur each October and April. In the event that
Creditor does not: (i) make any management bonus available to any employee of
Creditor; (ii) make any management bonus available to Debtor; or (iii) make a
management bonus available to Debtor until after October or April, respectively,
then in any of such cases, Debtor shall make his semi-annual interest payment to
Creditor no later than the next successive November 15 or May 15, respectively.
3. REPAYMENT OF PRINCIPAL. Debtor shall repay to Creditor the entire
amount of unpaid principal and any accrued interest thereon no later than the
date which five (5) years from the date of this Note first set forth above.
Debtor may prepay any or all of this Note at any time at no penalty. Any
partial payment shall be applied first to accrued interest, then to principal.
Delivery of interest payments and principal due under this Note shall be paid in
lawful money of the United States of America at Creditor's address set forth in
that certain Secured Loan Agreement dated as of October __, 1996 between
Creditor and Debtor (the "LOAN AGREEMENT").
4. ACCELERATION OF PAYMENT. Except as set forth in the Loan Agreement,
in the event that Debtor is no longer an employee of Creditor for any reason,
the payment of principal described in Sections 3 above will no longer apply and
the total principal and all accrued interest will be due no later than the date
which is nine (9) months after Debtor's final date as an employee of Creditor.
Nothing set forth in this Note shall constitute an agreement of employment nor
shall this Agreement alter Debtor's status as an at-will employee of Creditor.
15
<PAGE>
5. DEFAULT. Upon the occurrence of an "Event of Default" (as such term
is defined in the Loan Agreement) by Debtor: (a) the entire unpaid principal
sum and accrued interest under this Note shall become immediately due and
payable; and (b) Creditor shall have, in addition to its rights and remedies
under the Loan Agreement, any and all rights and remedies available to it at law
or in equity, all of which rights and remedies shall be cumulative.
6. WAIVER. Debtor waives presentment, notice of nonpayment, notice of
dishonor, protest, demand and diligence.
7. ATTORNEYS' FEES. If suit is brought for collection of this Note,
Debtor agrees to pay all reasonable expenses, including attorneys' fees,
incurred by Creditor in connection therewith, whether or not such suit is
prosecuted to judgment.
8. INTEGRATION. This Note is an integral part of the Loan Agreement and
shall be interpreted as part of and with the Loan Agreement.
IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the
date and year first written above.
DEBTOR
By:
---------------------------------
Name: John Richard Stringer
By:
----------------------------------
Name: Pamela Lura Stringer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 36,548
<SECURITIES> 67,061
<RECEIVABLES> 47,506
<ALLOWANCES> (3,478)
<INVENTORY> 5,191
<CURRENT-ASSETS> 169,057
<PP&E> 45,027
<DEPRECIATION> (27,901)
<TOTAL-ASSETS> 237,212
<CURRENT-LIABILITIES> 46,669
<BONDS> 0
0
0
<COMMON> 468
<OTHER-SE> 186,551
<TOTAL-LIABILITY-AND-EQUITY> 237,212
<SALES> 84,265
<TOTAL-REVENUES> 107,225
<CGS> 20,769
<TOTAL-COSTS> 27,080
<OTHER-EXPENSES> 56,665
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> (3,296)
<INCOME-PRETAX> 26,634
<INCOME-TAX> 8,123
<INCOME-CONTINUING> 18,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,511
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
