<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NETWORK GENERAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[NETWORK GENERAL LOGO]
July 7, 1997
Dear Stockholder:
This year's annual meeting of stockholders will be held on Friday, August 8,
1997 at 11:00 a.m., California time, at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California. You are cordially invited to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN, AND RETURN THE
ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON. Regardless of the number
of shares you own, your careful consideration of and vote on the matters before
our stockholders is important.
A copy of the Company's Annual Report to Stockholders is also enclosed for
your information. At the annual meeting we will review Network General's
activities over the past year and our plans for the future.
The Board of Directors and management look forward to seeing you at the
annual meeting.
Very truly yours,
[SIGNATURE]
LESLIE G. DENEND
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
NETWORK GENERAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 8, 1997
TO THE STOCKHOLDERS:
Please take notice that the annual meeting of the stockholders of Network
General Corporation, a Delaware corporation (the "Company"), will be held on
August 8, 1997, at 11:00 a.m., California time, at the Hotel Sofitel, 223 Twin
Dolphin Drive, Redwood City, California, for the following purposes:
1. To elect three Class I directors to hold office for three-year terms and
until their respective successors are elected and qualified.
2. To amend the Company's 1989 Stock Option Plan to increase the number of
shares of the Company's Common Stock reserved for issuance thereunder by
1,500,000.
3. To amend the Company's 1989 Employee Stock Purchase Plan to increase the
number of shares of the Company's Common Stock reserved for issuance thereunder
by 500,000.
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending March 31, 1998.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on June 18, 1997 are
entitled to notice of and to vote at this meeting and any adjournment or
postponement thereof. For ten days prior to the meeting, a complete list of the
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose relating to the meeting during ordinary
business hours at the concierge desk at the Hotel Sofitel, 223 Twin Dolphin
Drive, Redwood City, California.
By Order of the Board of Directors
[SIGNATURE]
SCOTT C. NEELY
SECRETARY
Menlo Park, California
July 7, 1997
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING POST-PAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SOLICITATION AND VOTING OF PROXIES......................................................................... 1
INFORMATION ABOUT NETWORK GENERAL.......................................................................... 1
Stock Ownership of Certain Beneficial Owners and Management.............................................. 1
Board of Directors....................................................................................... 3
EXECUTIVE COMPENSATION AND OTHER MATTERS................................................................... 5
Summary Compensation Table............................................................................... 5
Stock Options Granted During the Fiscal year Ended March 31, 1997........................................ 6
Option Exercises and Year-End Values for the Fiscal Year Ended March 31, 1997............................ 7
Compensation of Directors................................................................................ 7
Employment, Severance and Change in Control Arrangements................................................. 8
Certain Transactions..................................................................................... 9
Changes to Benefit Plans................................................................................. 9
REPORT OF THE COMPENSATION COMMITTEE....................................................................... 10
COMPARISON OF STOCKHOLDER RETURN........................................................................... 13
ELECTION OF DIRECTORS...................................................................................... 14
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION 1989 STOCK OPTION PLAN............................ 14
Introduction............................................................................................. 14
Summary of the Provisions of the Option Plan............................................................. 15
Summary of Federal Income Tax Consequences of the Option Plan............................................ 17
Vote Required and Board of Directors' Recommendation..................................................... 18
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION 1989 EMPLOYEE STOCK PURCHASE PLAN................. 18
Introduction............................................................................................. 18
Summary Of Provisions of the Purchase Plan............................................................... 18
Summary of Federal Income Tax Consequences of the Purchase Plan.......................................... 19
Vote Required and Board of Directors' Recommendation..................................................... 20
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. 21
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING OF STOCKHOLDERS.............................................. 21
TRANSACTION OF OTHER BUSINESS.............................................................................. 21
</TABLE>
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
NETWORK GENERAL CORPORATION
4200 Bohannon Drive
Menlo Park, California 94025
The accompanying proxy is solicited by the Board of Directors of Network
General Corporation, a Delaware corporation ("Network General" or the
"Company"), for use at its annual meeting of stockholders to be held on August
8, 1997, or any adjournment or postponement thereof, for the purposes set forth
in the accompanying Notice of Annual Meeting of Stockholders. The date of this
Proxy Statement is July 7, 1997, the approximate date on which this Proxy
Statement and the accompanying form of proxy were first sent or given to
stockholders.
SOLICITATION AND VOTING OF PROXIES
This solicitation of proxies is made on behalf of the Board of Directors of
the Company and the cost of soliciting proxies will be borne by the Company. The
Company has retained Georgeson & Company Inc. to assist in the solicitation of
proxies for a fee not to exceed $6,500, plus customary out-of-pocket expenses.
In addition, the Company may solicit stockholders by mail through its regular
employees, and will request banks and brokers, and other custodians, nominees
and fiduciaries, to solicit their customers who have stock of the Company
registered in the names of such persons and will reimburse them for their
reasonable, out-of-pocket costs. The Company may use the services of its
officers, directors, and others to solicit proxies, personally or by telephone,
without additional compensation.
On June 18, 1997, the Company had outstanding 42,650,259 shares of its
Common Stock, par value $0.01 per share, all of which are entitled to vote with
respect to all matters to be acted upon at the annual meeting. Each stockholder
of record as of that date is entitled to one vote for each share of Common Stock
held by him, her or it. The Company's Bylaws provide that a majority of all of
the shares of the stock entitled to vote, whether present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at the meeting.
All valid proxies received before the meeting will be exercised. All shares
represented by a proxy will be voted, and where a stockholder specifies by means
of his or her proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made. If no choice
is indicated on the proxy, the shares will be voted in favor of the proposal. A
stockholder giving a proxy has the power to revoke his or her proxy at any time
before the time it is exercised by delivering to the Secretary of the Company a
written instrument revoking the proxy or a duly executed proxy with a later
date, or by attending the meeting and voting in person.
INFORMATION ABOUT NETWORK GENERAL
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 1997 (except as noted in the
footnotes to the table) certain information with respect to the beneficial
ownership of the Company's Common Stock by (i) all persons known by the Company
to be the beneficial owners of more than 5% of the outstanding Common Stock of
the Company, (ii) each director and director-nominee of the Company, (iii) the
Chief Executive Officer and the other executive officers of the Network General
named in the Summary Compensation Table
1
<PAGE>
under the section headed "Executive Compensation and Other Matters," and (iv)
all executive officers and directors of the Company as of May 31, 1997, as a
group.
<TABLE>
<CAPTION>
PERCENT OF
NETWORK
AMOUNT AND GENERAL
NATURE OF COMMON STOCK
NAME OF BENEFICIAL OWNER(1) SHARES OUTSTANDING
- --------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
A I M Management Group Inc. (2)........................................................ 4,008,500 9.4%
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
T. Rowe Price Associates, Inc. (3)..................................................... 3,247,450 7.6%
100 E. Pratt Street
Baltimore, MD 94111
RCM Capital Management, L.L.C. (4)..................................................... 3,043,300 7.1%
Four Embarcadero Center, Suite 2900
San Francisco, CA 94111
Harry J. Saal (5)...................................................................... 1,845,400 4.3%
Leslie G. Denend (6)................................................................... 255,360 *
Michael H. Kremer (7).................................................................. 56,307 *
Laurence R. Hootnick (8)............................................................... 54,500 *
Gregory M. Gallo (9)................................................................... 52,000 *
David M. Carver (10)................................................................... 50,000 *
James T. Richardson (10)............................................................... 48,125 *
Howard Frank (10)...................................................................... 40,000 *
Richard H. Lewis (10).................................................................. 37,168 *
John R. Stringer (10).................................................................. 34,124 *
Charles J. Abbe (11)................................................................... 33,500 *
Douglas C. Chance (12)................................................................. 21,166 *
Janet L. Hyland (10)................................................................... 20,833 *
Bernard J. Whitney (13)................................................................ 16,905 *
All executive officers and directors as a group (13 persons) (14)...................... 2,471,913 5.2%
</TABLE>
- ------------------------
* Less than 1%
(1) The persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable and except as
otherwise disclosed in the footnotes to this table. Unless otherwise
indicated, the business address of each of the beneficial owners listed is
4200 Bohannon Drive, Menlo Park, California 94025.
(2) Based on Amendment No. 1 dated February 12, 1997 to a Schedule 13G filed by
A I M Management Group Inc. with the Securities and Exchange Commission (the
"SEC").
(3) Based on a Schedule 13G dated February 14, 1997 filed with the SEC by T.
Rowe Price Associates, Inc. ("Price Associates"). These securities are owned
by various individual and institutional investors for whom Price Associates
serves as investment adviser with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting requirements of
the Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(4) Based on an amendment to Schedule 13G dated January 30, 1997 and filed with
the SEC by RCM Capital Management, L.L.C., its Managing Agent (RCM Limited
L.P.) and RCM Limited L.P.'s general partner (RCM General Corporation).
(5) Represents shares held in the Harry J. Saal Trust dated July 19, 1972 of
which Mr. Saal and his wife are the trustees.
2
<PAGE>
(6) Includes 252,082 shares subject to options exercisable within 60 days of
May 31, 1997.
(7) Includes 51,625 shares subject to options exercisable within 60 days of May
31, 1997.
(8) Includes 2,000 shares held by the Laurence R. Hootnick Trust dated 4/22/76,
for which Mr. Hootnick and his wife are trustees, and 52,500 shares subject
to options exercisable within 60 days of May 31, 1997.
(9) Includes 2,000 shares held by the Gallo Family Trust, for which Mr. Gallo
and his wife are trustees, and 50,000 shares subject to options exercisable
within 60 days of May 31, 1997.
(10) Represents shares subject to options exercisable within 60 days of May 31,
1997.
(11) Includes 32,500 shares subject to options exercisable within 60 days of May
31, 1997.
(12) Includes 19,166 shares subject to options exercisable within 60 days of May
31, 1997.
(13) Includes 16,249 shares subject to options exercisable within 60 days of May
31, 1997.
(14) Includes 615,579 shares subject to options exercisable within 60 days of
May 31, 1997. See also notes 4, 7 and 8.
BOARD OF DIRECTORS
DIRECTORS. This section sets forth for the current directors, including the
Class I nominees to be elected at this meeting, information concerning their age
and background.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE SINCE
- ------------------------- ------------------------------------------------------------------- --- ---------
<S> <C> <C> <C>
CLASS I NOMINEES FOR ELECTION AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS:
Harry J. Saal Director (Chairman of the Board) 53 1986
Charles J. Abbe Director 56 1994
Howard Frank Director 56 1991
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS:
Douglas C. Chance Director 55 1995
Gregory M. Gallo Director 55 1989
Janet L. Hyland Director 41 1995
CLASS III DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS:
Leslie G. Denend President, Chief Executive Officer and Director 56 1993
Laurence R. Hootnick Director 55 1989
</TABLE>
Dr. Saal, a founder of the Company, has served as Chairman of the Board of
Directors since its inception. Dr. Saal served as President of Smart Valley,
Inc., a trade association involved with establishing the information
superhighway, from September 1993 until December 1995. He served as President
and Chief Executive Officer of the Company from its inception in May 1986 until
June 1993. He was also the Company's Chief Financial Officer from May 1986 until
November 1987. Dr. Saal is also a director of Personal Computer Products, Inc.,
Borland International, Inc., and Globalnet Systems, Limited and serves as a
director of several privately-held companies and non-profit associations.
Since April 1996, Mr. Abbe has served as Vice President and General Manager
of Optical Coating Laboratory, Inc., an optical thin film manufacturing company.
He served as Senior Vice President, Corporate Development of Raychem
Corporation, an electronics components company, from May 1995 until December
1995 and previously served in various other management capacities for Raychem
from September 1989 through August 1993.
Since January 1985, Dr. Frank has served as President of Howard Frank
Associates, a consulting company. Since May 1990, Mr. Frank has served as a
Senior Fellow at the University of Pennsylvania's Wharton School of Business and
since 1993 has been on loan by the university to the Defense Advanced Research
Projects Agency, the agency that developed the Internet in the 1980s, where he
serves as the Director of the Information Technology Office. In June 1997, the
University of Maryland at College Park announced the appointment of Dr. Frank as
dean of the university's Maryland Business School, starting September 1997. From
September 1987 until April 1990, Mr. Frank also served as Chairman of the Board
of Directors of Network Management, Inc.
3
<PAGE>
Mr. Chance has served as the Chief Executive Officer of Wyse Technology, a
video display manufacturer, since October 1994. From November 1993 through
October 1994 Mr. Chance was a self-employed consultant and from October 1990
through November 1993 he was Chief Executive Officer of Octel Communications
Corporation, a developer of voicemail systems. Mr. Chance is also a director of
Optical Coating Laboratory, Inc.
Mr. Gallo is a member of the law firm of Gray Cary Ware & Freidenrich, A
Professional Corporation, the Company's outside legal counsel, where he has been
employed since 1973.
Since January 1995, Ms. Hyland has served as the President and sole
proprietor of eMagine, a marketing consulting firm. Ms. Hyland served as the
Director of Network Strategy Research of Forrester Research, Inc., a technology
research firm, from November 1990 to December 1994.
Mr. Denend is the President and Chief Executive Officer of the Company and
has held those positions since June 1993. He was also the Company's Senior Vice
President of Products from February 1993 to June 1993. Prior to joining Network
General, he was President of Vitalink, a manufacturer of internetworking
products, from November 1990 to December 1992. From January 1989 to October
1990, Mr. Denend served in a variety of positions at 3Com Corporation, a global
data networking company, most recently as Executive Vice President for Product
Operations. Mr. Denend is also a director of Rational Software Inc., McAfee
Associates, Inc. and Proxim, Inc.
Since July 1996, Mr. Hootnick has served as President and Chief Executive
Officer of Consilium, Inc., a developer and provider of integrated manufacturing
execution software and services. From December 1995 through June 1996, Mr.
Hootnick served as the Senior Vice President of Finance and Operations of Power
Computing Incorporated, a computer hardware company. From May 1995 to November
1995, Mr. Hootnick was a self-employed consultant. From August 1994 to May 1995,
Mr. Hootnick served as the Chief Operations Officer of NetManage, Inc., a
software company. From May 1991 to June 1994, Mr. Hootnick served as President
and Chief Executive Officer of Maxtor Corporation, a manufacturer of disk
drives.
MEETINGS OF THE BOARD OF DIRECTORS. During the fiscal year ended March 31,
1997, the Board of Directors of the Company held eight (8) meetings. During that
period the Audit Committee of the Board held six (6) meetings, the Compensation
Committee of the Board held three (3) meetings, and the Nominating Committee of
the Board held one (1) meeting. No director attended fewer than 75% of the
aggregate of the total number of meetings of the Board and of the committees of
the Board on which such director was then serving.
The members of the Audit Committee during the fiscal year ended March 31,
1997, were Messrs. Hootnick, Chance and Gallo. The functions of the Audit
Committee include: recommending to the Board, subject to stockholder approval,
the retention of independent public accountants; reviewing and approving the
planned scope, proposed fee arrangements and results of the Company's annual
audit; reviewing the adequacy of accounting and financial controls; reviewing
the independence of the Company's independent public accountants; approving all
assignments to be performed by the Company's independent public accountants; and
instructing the Company's independent public accountants to undertake special
assignments, as deemed appropriate.
The members of the Compensation Committee during the fiscal year ended March
31, 1997 were Messrs. Abbe and Hootnick and Ms. Hyland. The Compensation
Committee reviews and determines the salary and bonus criteria of all of the
Company's officers and awards option grants. For additional information about
the Compensation Committee, see "REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION" and "EXECUTIVE COMPENSATION AND OTHER MATTERS" below.
4
<PAGE>
The members of the Nominating Committee during the fiscal year ended March
31, 1997 were Messrs. Saal, Abbe, Gallo and Denend (ex officio). The Nominating
Committee considers and recommends action to the Board regarding nominations to
the Board of Directors. Pursuant to the Company's Bylaws, nominations for the
election of directors may be made by any stockholder entitled to vote in the
election of directors if such nomination is received by the Secretary of the
Company not less than 120 calendar days before the first anniversary of the date
the Company's proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company as of March 31, 1997, as well as
two former executive officers of the Company, whose total salary and incentive
compensation for the fiscal year ended March 31, 1996 exceeded $100,000, for
services in all capacities to the Company, earned during the fiscal years ended
March 31, 1997, March 31, 1996, and March 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION(1) COMPENSATION
-------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(2) (SHARES) COMPENSATION(3)
- ------------------------------------- ----------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Leslie G. Denend .................... 1997 $ 315,000 $ 255,000 -- $ 5,021
President and Chief Executive 1996 300,000 252,883 340,000 7,285
Officer 1995 265,008 190,598 100,000 7,043
James T. Richardson ................. 1997 210,000 79,000 30,000 60,369
Senior Vice President and Chief 1996 203,000 81,653 50,000 39,658
Financial Officer 1995 184,808 74,523 170,000 39,032
John R. Stringer .................... 1997 155,045 92,945 30,000 3,790
Senior Vice President, Worldwide 1996 120,000 106,386 32,000 59,622
Field Operations 1995 40,000 17,265 100,000 --
David M. Carver ..................... 1997 156,000 74,750 30,000 1,525
Executive Vice President and Chief 1996 50,250 20,903 120,000 488
Operating Officer 1995 -- -- -- --
Bernard J. Whitney .................. 1997 148,333 53,000 25,000 1,525
Vice President and Controller 1996 106,875 32,808 50,000 1,497
1995 -- -- -- --
FORMER OFFICERS
Richard H. Lewis .................... 1997 170,000 103,357 10,000 64,743
Senior Vice President, Worldwide 1996 153,560 118,389 50,000 46,705
Field Operations 1995 150,000 128,736 46,000 45,863
Michael H. Kremer ................... 1997 200,641 35,000 30,000 1,296
Vice President, Product Development 1996 178,000 87,707 60,000 1,100
1995 138,333 59,756 56,000 1,251
</TABLE>
- ------------------------
(1) Includes all amounts paid to the named person by the Company for the fiscal
year indicated, whether in the capacity of an executive officer or
otherwise. Mr. Stringer joined the Company in January 1995, Mr. Carver in
November 1995, and Mr. Whitney in June 1995.
(2) Reflects amounts paid with respect to the fiscal year indicated. Bonuses are
based on performance and the amounts are for the fiscal year indicated See
"REPORT OF THE COMPENSATION COMMITTEE." Includes commissions earned for Mr.
Stringer of $62,695, $78,151 and $9,156 in
5
<PAGE>
fiscal years 1997, 1996 and 1995, respectively. Includes commissions earned
for Mr. Lewis of $83,357, $88,413 and $93,113 in fiscal years 1996, 1995 and
1994, respectively.
(3) Amounts include 401(k) employer matching funds, car allowance, payment for
attendance at Presidents Club, payment of relocation expenses and certain
living and travel expenses. Mr. Denend's amounts include 401(k) employer
matching funds in fiscal 1997, 1996 and 1995 of $1,614, $1,985 and $2,451,
respectively, and payments for attendance at Presidents Club in fiscal 1997,
1996 and 1995 of $3,407, $5,300 and $4,592, respectively. Mr. Richardson's
amounts include 401(k) employer matching funds in fiscal years 1997, 1996
and 1995 of $1,888, $1,574 and $750, respectively; and payment of certain
living and travel expenses in fiscal 1997, 1996 and 1995 of $58,480, $38,084
and $38,282, respectively. Mr. Stringer's amounts include: 401(k) employer
matching funds in fiscal 1997 and 1996 of $1,550 and $900, respectively;
payments for attendance at President's Club in fiscal 1997 and 1996 and 1995
of $2,240 and $4,827, respectively; payment of certain living and travel
expenses in fiscal 1996 of $33,895, and payment of a special $20,000
relocation bonus in fiscal 1996. Mr. Carver's amounts include 401(k)
employer matching funds in fiscal 1997 and 1996 of $1,525 and $488,
respectively. Mr. Whitney's amounts include 401(k) employer matching funds
in fiscal 1997 and 1996 of $1,525 and $1,497, respectively. Mr. Lewis'
amounts include: 401(k) employer matching funds in fiscal 1997, 1996 and
1995 of $578, $2,250, and $2,295, respectively; car allowance of $4,800 in
each of fiscal 1997, 1996 and 1995; payment for attendance at Presidents
Club in fiscal 1997, 1996 and 1995 of $3,153, $4,752 and $3,030,
respectively; and payment of certain living and travel expenses in fiscal
1997, 1996 and 1995 of $56,212, $34,903 and $35,738, respectively. Mr.
Kremer's amounts include 401(k) employer matching funds in fiscal 1997, 1996
and 1995 of $1,296, $1,100 and $1,251, respectively.
STOCK OPTIONS GRANTED DURING THE FISCAL YEAR ENDED MARCH 31, 1997
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
March 31, 1997, to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE
- ---------------------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES OPTION TERM(1)
GRANTED IN FISCAL EXERCISE EXPIRATION --------------------
NAME (SHARES)(2) YEAR PRICE(3) DATE 5% 10%
- -------------------------------- ----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend................ -- N/A N/A N/A N/A N/A
James T. Richardson............. 30,000 1.64 $ 16.0625 09/11/06 $ 303,049 $ 767,985
John R. Stringer................ 30,000 1.64 16.0625 09/11/06 303,049 767,985
David M. Carver................. 30,000 1.64 16.0625 09/11/06 303,049 767,985
Bernard J. Whitney.............. 25,000 1.36 16.0625 09/11/06 252,541 639,987
FORMER OFFICERS
Richard H. Lewis................ 10,000 0.55 16.0625 09/11/06 101,016 255,995
Michael H. Kremer............... 30,000 1.64 16.0625 09/11/06 303,049 767,985
</TABLE>
- ------------------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the Common Stock, overall market conditions and the option holders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved. One share of
6
<PAGE>
stock purchased at $16.0625 in 1997 would yield profits of $10.10 per share
at 5% appreciation over 10 years, or $25.60 per share at 10% appreciation
over the same period.
(2) Initial grants for new hires and initial grants for new officers generally
vest at the rate of one-quarter at the end of one year, and then 1/48 per
month thereafter for each full month of the optionee's continuous employment
with the Company until fully vested at the end of four years. Subsequent
option grants generally vest monthly at a rate of 1/48 per month for each
full month of the optionee's continuous employment with the Company until
fully vested at the end of four years. All of the option grants listed in
the table were subsequent option grants. Under the 1989 Stock Option Plan,
the Board retains discretion to modify the terms of outstanding options,
subject to the provisions of that plan. For additional information regarding
options, see "Employment, Severance and Change in Control Arrangements"
below.
(3) All options were granted at market value on the date of grant.
OPTION EXERCISES AND YEAR-END VALUES FOR THE FISCAL YEAR ENDED MARCH 31, 1997
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in the fiscal year ended March
31, 1997, and unexercised options held as of March 31, 1997, by the persons
named in the Summary Compensation Table:
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT 3/31/97 MONEY OPTIONS AT 3/31/97(3)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(3) UNEXERCISABLE
- ------------------------- ----------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie G. Denend......... 155,000 $ 2,953,282 160,416 454,584 $ 2,268,742 $ 2,217,821
James T. Richardson...... 58,958 894,370 25,207 105,835 94,649 793,897
John R. Stringer......... 36,000 375,819 17,916 94,084 132,611 665,066
David M. Carver.......... 10,000 98,125 31,250 108,750 163,047 570,703
Bernard J. Whitney....... 15,000 192,188 10,000 50,000 83,594 391,406
FORMER OFFICERS
Richard H. Lewis......... 65,000 1,044,075 5,167 100,501 28,320 941,821
Michael H. Kremer........ 40,000 636,250 40,291 105,709 272,949 672,801
</TABLE>
- ------------------------
(1) Value realized by the optionee prior to the payment of taxes.
(2) Company stock options granted in fiscal 1997 generally vest over a four year
period from the date of grant, and are exercisable only to the extent
vested. See also "OPTION GRANTS IN LAST FISCAL YEAR" table and the footnotes
thereto.
(3) The value of the unexercised in-the-money options is based on the closing
sales price of the Company's Common Stock on March 31, 1997 ($21.50 share).
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 1997, the Company's non-employee
directors received $1,000 for each meeting of the Board of Directors they
attended, $500 for each committee meeting they attended and a $1,000 per month
retainer. Non-employee directors who travel more than four hours to attend Board
meetings receive an additional $2,000 per meeting. The Company's non-employee
directors also received options under the Company's 1989 Outside Directors Stock
Option Plan (the "Directors Plan"). Since November 1, 1993, an option to
purchase 20,000 shares of Common Stock has been granted upon a non-employee
director's initial eligibility under the Directors Plan, with an additional
option to purchase 5,000
7
<PAGE>
shares granted at the completion of each year of service. Mr. Frank and Ms.
Hyland are also reimbursed for out-of-pocket travel expenses related to Board
and Committee meetings. The Company also makes available health and medical
coverage to any non-employee Board member who elects to participate under the
same plans as it provides its U.S. employees generally. A director participating
in this program pays for his or her premium coverage through deductions from the
standard monthly retainer. The Company's directors who are also officers of the
Company did not receive any compensation for their services as members of the
Board of Directors.
EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
Options granted to certain executive officers of Network General under its
1989 Stock Option Plan (the "Option Plan") will become immediately exercisable
and vested under certain circumstances, as explained below, upon a "change of
control" as defined under the Option Plan. In the event of a transfer of control
of Network General, the Board shall provide that the unexercisable and/or
unvested portions of any outstanding option shall become immediately exercisable
and vested as of a date prior to the transfer of control if the acquiring or
successor corporation does not elect to either assume the options or provide
substitute options for such outstanding options. Any outstanding options which
are not exercised, assumed or replaced will terminate effective as of the date
of the transfer of control.
In April 1994, the Company entered into employment agreements with key
executive officers Leslie G. Denend, James T. Richardson and Richard H. Lewis.
The Company entered in to similar employment agreements with Michael H. Kremer
in August 1995 and with David M. Carver and John R. Stringer in April 1997.
These agreements provide that, in the event the officer is terminated, including
a "constructive termination" by demoting or reducing the salary of the officer,
within two years after a "change of control" of the Company, the officer would
be entitled to continued salary, bonus and commission payments and immediate
acceleration of all options to purchase shares of the Company's Common Stock
granted to that officer prior to the "change of control." In the event of such
termination, Mr. Denend would be entitled to continuation of his salary, bonus
and commission payments until the date two years after such termination; the
remaining officers would be entitled to such continuation until the date one
year after such termination (respectively, the "Severance Periods"). Each
executive would be entitled to continued medical coverage by the Company during
the Severance Period, unless the executive is covered by another employer's
group health plan.
In July 1996, the Board established a relocation loan program for officers.
Pursuant to that program, the Company agreed to loan Mr. Stringer $500,000 in
two installments to assist in his relocation from Georgia to California as part
of his promotion to Senior Vice President, Worldwide Field Operations. The loan
is evidenced by a full recourse promissory note under which principal is
repayable on the fifth anniversary of the close of escrow for the California
residence being purchased by Mr. Stringer (the "Principal Due Date"). Interest
is payable semi-annually at the simple annual rate of 6.6% and the source of
interest payments is first from bonuses, if any, otherwise payable to Mr.
Stringer. Mr. Stringer's obligations as to the first installment of the loan are
secured by a security interest in any Company stock options granted Mr. Stringer
and any proceeds from the sale of the underlying shares. When the Company funds
the balance of the loan, the collateral securing the loan is replaced with the
California land and residence being purchased. If Mr. Stringer's employment with
the Company is terminated for any reason other than for certain specified
reasons following a change of control involving the Company, all outstanding
principal and interest is due on the earlier of nine months after such
termination or the Principal Due Date. If termination is for certain specified
reasons following a change of control involving the Company, interest accruing
for the first year following termination is borne by the Company or its
successor and principal remains due on the Principal Due Date. As of March 31,
1997, $200,000 principal and $5,570 of accrued interest was outstanding under
Mr. Stringer's note.
8
<PAGE>
In December 1996, the Company entered into an agreement with Mr. Lewis under
which Mr. Lewis retired from his position as Senior Vice President, Worldwide
Field Operations, but would remain a consulting vice president until December
31, 1997. Under the agreement, until such time as Mr. Lewis accepted employment
elsewhere or provided services to a competitor (but not later than December 31,
1997), the Company will continue paying Mr. Lewis' then current base salary
($14,166.67 per month), $5,000 per month for June through December 1997, any
amounts earned as commissions through the period ended March 31, 1997, and any
executive bonus earned for the second half of fiscal 1997.
In January 1997, the Company entered into an agreement with Mr. Kremer under
which Mr. Kremer resigned from his position as Senior Vice President, Product
Development, but would remain an employee of the Company through the end of
calendar 1997. Under the agreement, until such time as Mr. Kremer accepted
employment elsewhere or provided services to a competitor (but not later than
December 31, 1997), the Company will continue paying Mr. Kremer's then current
base salary of $10,000 per month.
CERTAIN TRANSACTIONS
In December 1994, the Company committed to make charitable donations in the
amount of one million dollars ($1,000,000) in value of goods, services and
grants over three years to the Santa Clara and San Mateo Counties schools in
connection with the Smart Valley Challenge 2000. Harry J. Saal, Chairman of the
Board of Directors, served as President of Smart Valley, Inc. from September
1993 until December 1995. The disinterested directors of the Board unanimously
ratified the charitable donation.
CHANGES TO BENEFIT PLANS
The Company has proposed an amendment to increase the number of shares
available for issuance under the Company's Option Plan and Purchase Plan
(defined below). The following table sets forth the options granted under the
Option Plan to, and purchases of shares under the Purchase Plan during the
fiscal year ended March 31, 1997 by: (1) the persons named in the Summary
Compensation Table; (2) the group of all persons who were executive officers as
of March 31, 1997; and (3) and all non-executive officer employees as a group:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1989 STOCK OPTION 1989 EMPLOYEE STOCK
PLAN(1) PURCHASE PLAN(2)
---------------------- ----------------------
EXERCISE PURCHASE
PRICE PER NUMBER OF PRICE PER NUMBER OF
NAME AND PRINCIPAL POSITION SHARE SHARES SHARE SHARES
- ------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Leslie G. Denend................................................... -- -- -- --
President and Chief Executive Officer
James T. Richardson................................................ $ 16.0625 30,000 -- --
Senior Vice President and Chief Financial Officer
John R. Stringer................................................... 16.0625 30,000 -- --
Senior Vice President, Worldwide Field Operations
David M. Carver.................................................... 16.0625 30,000 -- --
Executive Vice President and Chief Operating Officer
Bernard J. Whitney................................................. 16.0625 25,000 $ 15.0875 656
Vice President and Controller
Richard H. Lewis................................................... 16.0625 10,000 15.06 1,353
Former Senior Vice President, Worldwide Field Operations
Michael H. Kremer.................................................. 16.0625 30,000 15.06 1,334
Former Senior Vice President, Product Development
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
1989 STOCK OPTION 1989 EMPLOYEE STOCK
PLAN(1) PURCHASE PLAN(2)
---------------------- ----------------------
EXERCISE PURCHASE
PRICE PER NUMBER OF PRICE PER NUMBER OF
NAME AND PRINCIPAL POSITION SHARE SHARES SHARE SHARES
- ------------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
All Executive Officers as a group (6 persons)...................... $ 17.43 195,000 $ 15.0875 656
All Non-Executive Officer employees as a group..................... 18.98 1,639,050 15.04 195,175
</TABLE>
- --------------------------
(1) Only employees, consultants and prospective employees and consultants of the
Company are eligible to participate in the Option Plan. Grants of options
under the Option Plan are made at the discretion of the Compensation
Committee. Accordingly, future grants under the Option Plan are not
determinable. The exercise prices per share are the weighted average
exercise prices per share for the person or group indicated. No one received
grants aggregating at least five percent of the total grants under the
Option Plan in fiscal 1997.
(2) Only employees of the Company are eligible to participate in the Purchase
Plan. Purchases of stock under the Purchase Plan are made at the discretion
of participants. Accordingly, future purchases under the Purchase Plan are
not determinable. The exercise prices per share are the weighted average
exercise prices per share for the person or group indicated. No one
purchased an aggregate of five percent or more of the total grants purchased
under the Purchase Plan in fiscal 1997.
REPORT OF THE COMPENSATION COMMITTEE
At the commencement of fiscal 1997, the Compensation Committee (the
"Committee") was comprised of three non-employee directors of the Board of
Directors, Messrs. Abbe and Hootnick and Ms. Hyland. The Committee is
responsible for setting and administering policies governing compensation of
executive officers. The Committee reviews the performance and compensation
levels for executive officers, and sets salary and bonus levels and makes option
grants under the Company's Option Plan.
COMPENSATION POLICIES GENERALLY
The goals of the Company's executive officer compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align executive officer compensation with the Company's performance
and to motivate executive officers to achieve the Company's business objectives.
The Company uses salary, executive officer bonuses and stock options to achieve
these goals. The Company's Human Resources staff provides the Committee with
compensation surveys which are obtained from compensation consultants and other
data to enable the Committee to compare the Company's compensation package with
that of similarly-sized high technology companies in the Company's geographic
area.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company has considered the amendments to Section 162(m) of the Internal
Revenue Code, as amended (the "Code"), and related regulations that restrict the
deductibility for federal income tax purposes of executive compensation paid to
the chief executive officer and each of the four other most highly compensated
executive officers at the end of any fiscal year to the extent such compensation
exceeds $1,000,000 for any of such officers in any year and does not qualify for
an exemption under the statute or regulations. The Committee concluded in June
1994 that it would be advisable to establish certain restrictions on the
granting of options under the Option Plan to enable compensation recognized in
connection with the exercise of options to qualify for exemption from the
deductibility limitation as "performance-based compensation." These restrictions
were approved at the 1994 Annual Meeting of Stockholders. The Committee does not
believe that other components of the Company's compensation in the aggregate
will be likely to exceed $1,000,000 for any executive officer in any year in the
foreseeable future, and therefore concluded that no further action with respect
to qualifying such compensation for federal income tax deductibility was
necessary at this time. In the future, the Committee will continue to evaluate
the advisability of qualifying its executive compensation for such
deductibility. The Committee's policy is to qualify its executive compensation
for deductibility under applicable tax laws as practicable.
10
<PAGE>
COMPENSATION COMPONENTS
Salaries are set for each executive officer with reference to a range of
salaries for comparable positions among high technology companies of similar
size and location. Annual salary adjustments take into account individual
executive officers' achievements during the prior fiscal year towards key
Company-wide objectives set annually by the Board of Directors, as well as the
executive officers' performance of their individual responsibilities. The
Committee's compensation philosophy targets total cash compensation for
executive officers at between the 50th and 75th percentile of total cash
compensation for similar positions among comparable companies with comparable
sales. During fiscal 1997, the Committee established a policy under which the
base salary component was set at the median level and variable cash incentive
compensation was targeted to an above-average level to bring total cash
compensation to approximately the 65th percentile of total cash compensation for
comparable positions at comparable companies.
Consistent with this policy, the Committee approved a fiscal 1997 base
salary for Leslie G. Denend, its President and Chief Executive Officer, at the
midpoint of salaries for chief executive officers in similarly-sized high
technology companies in the Company's geographic proximity, based on a recently
completed survey by the Company's compensation consultants. If the Company
continues to grow, the Committee expects that base salaries will increase
further to align with salaries for similar positions among comparable companies
with comparable revenue ranges.
Variable cash incentive compensation for fiscal 1997 was provided through
the Company's executive bonus plan for all executive officers and, for the
executive officers responsible for field operations, through sales commission
plans as well. In accordance with the Committee's goal to have an above-average
proportion of total cash compensation as variable incentive compensation based
on Company and individual performance, fiscal 1997 variable cash incentive
compensation for executive officers other than the Chief Executive Officer was
targeted under the executive bonus plan at approximately 22% to 38% of the
officer's total cash compensation if predetermined corporate targets and
individual objectives were achieved. Mr. Denend's variable compensation for
fiscal 1997 was targeted at 40% of total cash compensation if such targets and
objectives were achieved. Average total cash compensation to officer employees
is generally higher than that paid to non-officer employees.
The executive bonus plan for fiscal 1997 was based on corporate financial
goals (i.e., operating profits) set by the Board for the fiscal year and
specified strategic and/or other operating objectives established by the
Committee for each executive officer. Distributions to executive officers under
the executive bonus plan are reviewed and determined by the Committee on a
semi-annual basis. The bonus targets are allocated among the individual
executive officers with reference to responsibilities, performance and goal
achievement of individual executive officers. The actual bonus payments may
exceed the target if the Committee determines that an executive officer has
outperformed the individual performance objectives established for the officer.
For fiscal 1997, Mr. Denend's primary objectives were for the Company to meet
its planned operating profits each quarter and for him to continue to develop
and maintain a strategic plan for the Company. The Committee determined that the
Company exceeded its fiscal 1997 corporate targets and Company-wide objectives
and the Committee evaluated the achievements of individual executive officer
goals. Consistent with this determination, Mr. Denend received an aggregate
fiscal 1997 bonus of 121% of his target executive bonus because, in the
Committee's determination, Mr. Denend had significant responsibility for the
Company's performance and met or exceeded his individual objectives. Bonuses
under the executive bonus plan to persons who were executive officers at the end
of the fiscal year ranged from 119% to 131% of bonuses targeted under the plan.
Prior to fiscal 1997, executive officers were also eligible to participate
in the Company's profit-sharing plan. In reviewing the variable compensation
programs for executive officers for fiscal 1997, the Committee determined that
officers should no longer be eligible to participate in the profit-sharing plan
as their compensation program was already heavily tied to corporate
profitability. Accordingly, the Committee
11
<PAGE>
eliminated officers as participants in the profit sharing plan and increased the
total amount available for distribution under that plan to non-officers.
The Committee strongly believes that equity ownership by executive officers
provides incentives to build stockholder value and align the interests of
executive officers with the stockholders. Initial stock option grants to
executive officers are subject to four year vesting. The size of the initial
grant has been determined with reference to comparable stock option compensation
offered by similarly-sized high technology companies for similar positions and
the responsibilities and expected future contributions of the executive officer,
as well as recruitment considerations. The Committee has generally awarded a
refresher grant annually thereafter. In determining the size of, or whether to
grant, refresher grants, the Committee has considered each executive officer's
performance during the previous fiscal year and expected contributions during
the coming year, as well as the relative position and responsibilities of each
executive officer and previous option grants to such executive officers.
Generally, refresher option grants vest monthly over a four year period from the
date of grant. The Committee believes that refresher options have provided
strong incentives for executive officers to remain with the Company. In light of
this policy, the Committee considered the grant of new stock options to Mr.
Denend and concluded that no further grants were appropriate during fiscal 1997
in light of the significant grant made to him the previous year.
In preparing the performance graph for this Proxy Statement, the Company has
selected the Hambrecht & Quist Index for Technology Companies as its peer group.
The companies that the Company references in its salary surveys are not
necessarily those included in the indices, as such companies may not compete
with the Company for executive talent.
EMPLOYMENT AGREEMENTS
In April 1994, the Committee considered methods to incentivize senior
management to maximize stockholder value. The Committee determined that
agreements with severance provisions triggered under certain circumstances
following a change of control would encourage management to remain with the
Company during the negotiation of a merger, providing both the strongest
possible negotiating team and strong management to make a successful transition,
and would allow management to negotiate the terms of a merger without being
distracted by concerns over the loss of their personal livelihood. Accordingly,
the Committee authorized the Company to enter into employment agreements with
severance provisions with the Chief Executive Officer and certain other
executive officers who would be critical in negotiating the terms of any merger
and in the transition after a merger. The Committee authorized the Company to
enter into similar agreements in August 1995 and April 1997 with additional key
executive officers. See "Employment, Severance and Change in Control
Arrangements" above.
THE COMPENSATION COMMITTEE
Charles J. Abbe
Laurence R. Hootnick
Janet L. Hyland
12
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on the Company's ("NGC") Common Stock with the
cumulative total return of the Center for Research in Securities Prices ("CRSP")
Total Return Index for the Nasdaq Stock Market (U.S. Companies) ("NASDAQ") and
the Hambrecht & Quist Index for Technology Companies ("H&Q") for the period
commencing on March 31, 1991(1) and ending on March 31, 1996.(1)
COMPARISON OF CUMULATIVE TOTAL RETURN FROM MARCH 31, 1992(1) THROUGH MARCH 31,
1997(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C>
Based on reinvestment of $100 beginning March 31,
1992
Network General Corporation NASDAQ Stock Market (US)
March/92 $100 $100
March/93 $64 $115
March/94 $97 $124
March/95 $154 $138
March/96 $216 $187
March/97 $232 $208
SOURCE: GEORGESON & COMPANY INC.
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C>
Based on reinvestment of $100 beginning March 31,
1992
Hambrecht & Quist Index
for Technology Companies
March/92 $100
March/93 $119
March/94 $137
March/95 $177
March/96 $241
March/97 $281
SOURCE: GEORGESON & COMPANY INC.
</TABLE>
<TABLE>
<CAPTION>
MAR-92 MAR-93 MAR-94 MAR-95 MAR-96
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Network General Corporation............................... $ 100 $ 64 $ 97 $ 154 $ 216
NASDAQ Stock Market (U.S.)................................ $ 100 $ 115 $ 124 $ 138 $ 187
Hambrecht & Quist Index for Technology Companies.......... $ 100 $ 119 $ 137 $ 177 $ 241
<CAPTION>
MAR-97
-----------
<S> <C>
Network General Corporation............................... $ 232
NASDAQ Stock Market (U.S.)................................ $ 208
Hambrecht & Quist Index for Technology Companies.......... $ 281
</TABLE>
- ------------------------
(1) The Company's fiscal year ends on March 31. March 29, 1996 was the last
trading day in fiscal 1996.
(2) Assumes that $100.00 was invested in the Company's Common Stock and each
index on March 31, 1992 at the closing sales price of the Company's Common
Stock on March 31, 1992 and each index and that all dividends were
reinvested. No dividends have been declared on the Company's Common Stock.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
13
<PAGE>
ELECTION OF DIRECTORS
Network General has a classified Board of Directors consisting of three
Class I directors (Harry J. Saal, Charles J. Abbe and Howard Frank), three Class
II directors (Douglas C. Chance, Janet L. Hyland, and Gregory M. Gallo), and two
Class III directors (Leslie G. Denend and Laurence R. Hootnick) who will serve
until the annual meetings of stockholders to be held in 1997, 1998 and 1999,
respectively, and until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, directors are elected for a
term of three years to succeed those directors whose terms expire at the annual
meeting dates.
The terms of the Class I directors will expire on the date of the upcoming
annual meeting. Accordingly, three persons are to be elected to serve as Class I
directors of the Board of Directors at the meeting. Management's nominees for
election by the stockholders to those three positions are Harry J. Saal, Charles
J. Abbe and Howard Frank, all of whom are current Class I members of the Board
of Directors. Please see "INFORMATION ABOUT NETWORK GENERAL--Board of Directors"
above for information concerning the nominees. If elected, the nominees will
serve as directors until the Company's annual meeting of stockholders in 2000
and until their successors are elected and qualified. If any of the nominees
declines to serve or becomes unavailable for any reason, or if a vacancy occurs
before the election (although the Company knows of no reason to anticipate that
this will occur), the proxies may be voted for such substitute nominees as the
Company may designate.
If a quorum is present and voting, the three nominees for Class I director
receiving the highest number of votes will be elected as Class I directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present for purposes of determining if a
quorum is present.
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION
1989 STOCK OPTION PLAN
INTRODUCTION
The Company's Board of Directors and stockholders adopted and approved the
Network General Corporation 1989 Stock Option Plan (the "Option Plan") in
February 1989 and August 1989, respectively, and subsequent amendments thereto
from time to time. Currently, a maximum of 16,000,000 shares of Common Stock may
be issued under the Option Plan. Of that number, as of May 31, 1997 options to
purchase 6,998,548 shares had been exercised, options to purchase 7,517,381
shares were outstanding, and 1,484,071 shares remained available for future
grants. To provide an adequate reserve of shares for continued operation of the
Option Plan, the Board of Directors has amended the plan, subject to approval by
the stockholders, to increase the maximum aggregate number of shares of Common
Stock issuable under the Option Plan by 1,500,000 to a total of 17,500,000
shares.
The Option Plan is intended to assist the Company in the recruitment,
retention and motivation of employees and consultants through the grant of
options to purchase Common Stock, generally at a price equal to its market value
on the date the option is granted. The Company's continued employment growth and
need for highly qualified personnel, combined with the increased competition for
the limited supply of qualified personnel, make the Option Plan essential to the
Company's ability to recruit and retain its key employees and consultants. The
Company's competition for the pool of targeted employees typically offer total
compensation packages which include stock options similar to those granted under
the Option Plan. The Board of Directors believes that an adequate reserve of
shares available for issuance under the Option Plan is necessary to enable it to
compete successfully with other companies to secure and retain valuable
personnel and to assist in aligning their long-term interests with those of the
stockholders. The Company has attempted to offset the dilutive impact of options
on stockholders through the systematic repurchase of shares under a program
begun in 1995.
14
<PAGE>
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which will be made available to
any stockholder upon written request.
The Option Plan is administered by the Board of Directors and/or a duly
appointed committee of the Board of Directors (hereinafter referred to as the
"Board"). With respect to the participation of individuals whose transactions in
the Company's equity securities are subject to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Option Plan must be
administered in compliance with the requirements of Rule 16b-3 under the
Exchange Act. Options granted under the Option Plan may be either incentive
stock options or nonqualified stock options. Subject to the provisions of the
Option Plan, the Board determines the persons to whom options are to be granted,
the number of shares to be covered by each option, whether an option is to be an
incentive stock option or a nonstatutory stock option, the timing and terms of
exercisability of each option, the exercise price of and the type of
consideration to be paid to the Company upon the exercise of each option, the
duration of each option, and all other terms and conditions of the options. The
Board will interpret the Option Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Option Plan or any option.
All employees (including officers and directors who are employees) and
consultants or other independent contractors of the Company and its present or
future parent and/or subsidiary corporations are eligible to participate in the
Option Plan. As of May 31, 1997, approximately 879 employees, including six
executive officers, were eligible to participate in the Option Plan.
As amended, the maximum aggregate number of shares of the Common Stock of
the Company that may be issued upon the exercise of options granted pursuant to
the Option Plan is 17,500,000 shares (subject to adjustment in the event of
stock dividends, stock splits, reverse stock splits, recapitalizations,
combinations, reclassifications, or like changes in the capital structure of the
Company). Such shares may be authorized but unissued shares or treasury shares
of Common Stock. To the extent that any outstanding option under the Option Plan
expires or terminates prior to exercise in full or if shares issued upon
exercise of an option are repurchased by the Company, the shares of Common Stock
for which such option is not exercised or the repurchased shares are returned to
the Option Plan and become available for future grant. The Option Plan provides
that no employee may be granted in any fiscal year options to purchase in excess
of 600,000 shares, except new employees may be granted options for up to
1,200,000 shares (such limits to be subject to adjustment in the event of stock
dividends, stock splits, reverse stock splits, combinations, reclassifications
or like changes in the capital structure of the Company). This limit on the
maximum number of shares for which options may be granted in any fiscal year is
intended to qualify all ordinary income recognized by certain executive officers
of the Company in connection with options granted under the Option Plan for full
deductibility by the Company for federal income tax purposes. All options must
be granted, if at all, not later than February 2, 1999.
Options granted under the Option Plan must have an exercise price equal to
at least 100% of the fair market value of the Common Stock of the Company, as
determined by the Board, on the date of grant. However, any option granted under
the Option Plan to an optionee who at the time of grant owns stock comprising
more than 10% of the total combined voting power or value of all classes of the
Company's stock or that of its subsidiaries (a "Ten Percent Stockholder") must
have an exercise price equal to at least 110% of the fair market value of the
Common Stock of the Company, as determined by the Board, on the date of the
grant. Notwithstanding the foregoing, options may be granted under the Option
Plan with exercise prices less than the above stated minimums if such options
are granted pursuant to an assumption or substitution for another option in a
manner qualifying under section 424(a) of the Code. The closing price of the
Company's Common Stock as reported on the Nasdaq National Market on May 30, 1997
was $18.375 per share.
15
<PAGE>
The Option Plan authorizes payment of the exercise price of an option (1) in
cash, by check, or by cash equivalent, (2) by tender of shares of Common Stock
of the Company which (a) have a value, as determined by the Board (but without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price and (b) have been owned by the
optionee for more than six months or were not acquired either directly or
indirectly from the Company, (3) by the optionee's recourse promissory note, (4)
by assignment acceptable to the Company of the proceeds of a sale of some or all
of the shares being acquired through exercise of an option, or (5) by any
combination of such methods. However, the Board may at any time grant options
which do not permit all of the foregoing forms of consideration to be used in
payment of the exercise price and/or which otherwise restrict one or more forms
of consideration.
Options granted under the Option Plan become exercisable and vested at such
times and subject to such conditions as specified by the Board. Generally,
options granted under the Option Plan become exercisable in installments over a
period of time specified by the Board at the time of grant, subject to the
optionee's continued service with the Company. However, the Board is also
authorized to grant options that are exercisable immediately on and after the
date of grant, subject to the right of the Company to reacquire at the
optionee's exercise price any unvested shares held by the optionee upon
termination of service or if the optionee attempts to transfer any unvested
shares. The maximum term of an option granted under the Option Plan is ten
years, except that an option granted to a Ten Percent Stockholder may have a
maximum term of five years. During the lifetime of the optionee, the option may
be exercised only by the optionee. An option may not be transferred or assigned,
except by will or the laws of descent and distribution.
If an optionee ceases to be an employee or consultant of the Company for any
reason, except death or disability, the optionee may generally exercise his or
her option (to the extent exercisable on the date of termination) within three
months after the date of termination, but in any event not later than the
termination of the option. In the event of termination due to death or
disability, an optionee (or his or her legal representative) may generally
exercise the option (to the extent exercisable on the date of the termination)
within 12 months after the date of termination, but in any event not later than
the termination of the option.
The Option Plan defines a "Transfer of Control" as (i) a sale or exchange by
the stockholders of all or substantially all of the Company's voting stock, (ii)
a merger in which the Company is a party, or (iii) the sale, exchange or
transfer (including pursuant to a liquidation or dissolution) of all or
substantially all of the assets of the Company wherein, upon any such event, the
stockholders of the Company before such event do not retain direct or indirect
beneficial ownership of at least a majority of the voting stock of the Company,
its successor, or the corporation to which the assets of the Company were
transferred. In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the rights and obligations of the Company
under outstanding options or substitute therefore options to purchase the
Acquiring Corporation's stock. However, if the Acquiring Corporation elects not
to assume or substitute new options for options outstanding under the Option
Plan in connection with a Transfer of Control described in (ii) or (iii) above,
then the Option Plan requires the Board to provide that any unexercisable or
unvested option will be immediately exercisable and vested in full as of a date
prior to the Transfer of Control. Any outstanding options that are not
exercised, assumed or replaced will terminate effective as of the date of the
Transfer of Control.
The Board may terminate or amend the Option Plan at any time; provided,
however, that without stockholder approval, the Board may not amend the Option
Plan to increase the maximum aggregate number of shares issuable pursuant to the
Option Plan or to change the class of persons eligible to receive options under
the Option Plan.
16
<PAGE>
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Option Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under Section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonqualified Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months. Any
ordinary income recognized by the optionee upon the disqualifying disposition of
the shares generally should be deductible by the Company for federal income tax
purposes, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonqualified Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular tax
for the year. Special rules may apply with respect to certain subsequent sales
of the shares in a disqualifying disposition, certain basis adjustments for
purposes of computing the alternative minimum taxable income on a subsequent
sale of the shares and certain tax credits which may arise with respect to
optionees subject to the alternative minimum tax.
NONQUALIFIED STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonqualified stock options. Nonqualified stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonqualified stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If the
optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the date
on which the option is exercised unless the shares are subject to a substantial
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or (ii)
the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to Section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
not later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonqualified stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
determination date, will be taxed as capital gain or loss. A capital gain or
loss will be long-term if the optionee's holding period is more than 12 months.
No tax deduction is available to the Company with respect to the grant of a
nonqualified stock option or the sale of the stock acquired pursuant to such
grant. The Company generally should be entitled to a deduction equal to the
amount of ordinary income
17
<PAGE>
recognized by the optionee as a result of the exercise of a nonqualified stock
option, except to the extent such deduction is limited by applicable provisions
of the Code or the regulations thereunder.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority of the
shares present, in person or by proxy, and entitled to vote at the annual
meeting of stockholders, at which a quorum is present. Abstentions and "broker
non-votes" will each be counted as present for purposes of determining the
presence of a quorum. Abstentions will have the same effect as a negative vote
on this proposal. "Broker non-votes," on the other hand, will have no effect on
the outcome of this vote.
The Board believes that the proposed amendment to the Option Plan is in the
best interests of the Company and the stockholders for the reasons stated above.
THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
OF THIS PROPOSAL TO INCREASE BY 1,500,000 THE MAXIMUM NUMBER OF SHARES ISSUABLE
UNDER THE OPTION PLAN.
APPROVAL OF AMENDMENT TO THE NETWORK GENERAL CORPORATION
1989 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Network General Corporation 1989 Employee Stock Purchase Plan (the
"Purchase Plan") provides for the purchase of the Company's Common Stock by
employees of the Company. The Board of Directors and stockholders adopted and
approved the Purchase Plan in December 1988 and August 1989, respectively, and
subsequent amendments thereto from time to time. Currently, a maximum of
1,500,000 shares of Common Stock may be issued to eligible employees pursuant to
the Purchase Plan. Of that number, as of May 31, 1997, a total of 1,252,802
shares had been issued under the Purchase Plan and 247,198 shares remained
available for future purchase. To provide an adequate reserve of shares for
continued operation of the Purchase Plan, the Board of Directors amended the
plan in April 1997, subject approval by the stockholders, to increase the
maximum aggregate number of shares of Common Stock issuable under the Purchase
Plan by 500,000 to a total of 2,000,000 shares.
The Board of Directors believes that the Purchase Plan is an important
factor in attracting and retaining qualified employees essential to the success
of the Company and that an adequate reserve of shares available for issuance
under the Purchase Plan is therefore in the best interests of the Company and
the stockholders.
SUMMARY OF PROVISIONS OF THE PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which will be made
available to any stockholder upon written request.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. Each participant in the Purchase Plan is
granted at the beginning of each offering under the plan (an "Offering") the
right to purchase through accumulated payroll deductions up to a number of
shares of the Common Stock of the Company (a "Purchase Right") determined on the
first day of the Offering. The Purchase Right is automatically exercised on the
last day of the Offering unless the participant has withdrawn from participation
in the Offering or in the Purchase Plan prior to such date.
The Purchase Plan is administered by the Board of Directors or a duly
appointed committee of the Board (hereinafter referred to as the "Board").
Subject to the provisions of the Purchase Plan, the Board determines the terms
and conditions of Purchase Rights granted under the plan. The Board will
interpret the Purchase Plan and Purchase Rights granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Purchase Plan or any Purchase Rights.
18
<PAGE>
As amended, an aggregate of up to 2,000,000 of the authorized but unissued
or treasury shares of the Company's Common Stock may be issued upon the exercise
of Purchase Rights under the Purchase Plan, subject to adjustment in the event
of a stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the Company's capital
structure or in the event of any merger, sale of assets or other reorganization
of the Company. If any Purchase Right expires or terminates, the shares subject
to the unexercised portion of such Purchase Right will again be available for
issuance under the Purchase Plan.
Any employee of the Company and its subsidiary corporations, including any
officer or director who is also an employee, is eligible to participate in the
Purchase Plan, as long as that employee has been continuously employed by the
Company for at least one month and is customarily employed by the Company for at
least five months in any calendar year and for at least 20 hours per week. No
person who owns or holds options to purchase or who, as a result of
participation in the Purchase Plan, would own or hold options to purchase 5% or
more of the Common Stock of the Company or of any parent or subsidiary
corporation of the Company is entitled to participate in the Purchase Plan. As
of May 31, 1997, approximately 897 employees, including six executive officers,
were eligible to participate in the Purchase Plan.
The Purchase Plan permits eligible employees to purchase shares of Common
Stock of the Company through payroll withholding. Generally, each offering of
Common Stock under the Purchase Plan is for a period of six months (an "Offering
Period"), and a new Offering Period commences on February 1 and August 1 of each
year. However, the Purchase Plan authorizes the Board to establish a different
term or different beginning or ending dates for one or more Offerings.
Generally, participants in the Purchase Plan purchase shares on the last day of
the Offering Period (a "Purchase Date").
The purchase price of shares acquired in any Offering Period under the
Purchase Plan is set by the Board; provided, however, that the purchase price
will generally be, and cannot be less than, 85% of the lesser of (a) the fair
market value of the shares on the first day of the Offering Period (the
"Offering Date") or (b) the fair market value of the shares on the Purchase
Date. The closing price of the Company's Common Stock as reported on the Nasdaq
National Market for May 30, 1997 was $18.375 per share.
Participation in an Offering under the Purchase Plan is limited to eligible
employees who authorize payroll deductions prior to the start of the Offering. A
participating employee's payroll withholding may not exceed 10% of that
employee's compensation during any pay period. No participant may purchase more
than 5,000 shares during any Offering Period or shares with a fair market value
(determined on the first day of the Offering Period) exceeding $25,000 for each
calendar year in which the participant participates in the Purchase Plan.
Generally, upon termination of participation in the Purchase Plan, all amounts
withheld on behalf of an employee for a current Offering Period are refunded to
the employee. No interest is paid on amounts withheld.
The Purchase Plan provides that in the event of a Transfer of Control, the
Board will either provide that each participant's Purchase Right will be fully
exercisable to the extent of the participant's accumulated payroll deductions
for the Offering Period as of a date prior to the Transfer of Control or arrange
with the Acquiring Corporation to assume the Company's rights and obligations
under the Purchase Plan. Any Purchase Rights that are not assumed or exercised
prior to the Transfer of Control will terminate.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
19
<PAGE>
Generally, there are no tax consequences to an employee of either becoming a
participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years after the Offering Date or within one year after the Purchase
Date on which the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the
Purchase Date and the purchase price. Such income may be subject to withholding
of tax. Any additional gain or resulting loss recognized by the participant from
the disposition of the shares is a capital gain or loss. If the participant
disposes of shares at least two years after the Offering Date and at least one
year after the Purchase Date on which the shares are acquired, the participant
recognizes ordinary income in the year of disposition in an amount equal to the
lesser of (i) the difference between the fair market value of the shares on the
date of disposition and the purchase price or (ii) 15% of the fair market value
of the shares on the Offering Date. Any additional gain recognized by the
participant on the disposition of the shares is a capital gain. If the fair
market value of the shares on the date of disposition is less than the purchase
price, there is no ordinary income, and the loss recognized is a capital loss.
If the participant owns the shares at the time of the participant's death, the
lesser of (i) the difference between the fair market value of the shares on the
date of death and the purchase price or (ii) 15% of the fair market value of the
shares on the Offering Date is recognized as ordinary income in the year of the
participant's death.
If the exercise of a Purchase Right does not constitute an exercise pursuant
to an "employee stock purchase plan" under section 423 of the Code, the exercise
of the Purchase Right will be treated as the exercise of a nonstatutory stock
option. The participant would therefore recognize ordinary income on the
Purchase Date equal to the excess of the fair market value of the shares
acquired over the purchase price. Such income is subject to withholding of
income and employment taxes. Any gain or loss recognized on a subsequent sale of
the shares, as measured by the difference between the sale proceeds and the sum
of (i) the purchase price for such shares and (ii) the amount of ordinary income
recognized on the exercise of the Purchase Right, will be treated as a capital
gain or loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the shares
for more than 12 months and short-term if the participant holds the shares for
12 months or less. Both long-term and short-term capital gains are at present
generally subject to the same tax rates as ordinary income, except that
long-term capital gains are currently subject to a maximum tax rate of 28%.
If the participant disposes of the shares in a disqualifying disposition the
Company should be entitled to a deduction equal to the amount of ordinary income
recognized by the participant as a result of the disposition, except to the
extent such deduction is limited by applicable provisions of the Code or the
regulations thereunder. In all other cases, no deduction is allowed the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of this proposal requires the affirmative vote of a majority of the
shares present, in person or by proxy, and entitled to vote at the annual
meeting of stockholders, at which a quorum is present. Abstentions and "broker
non-votes" will each be counted as present for purposes of determining the
presence of a quorum. Abstentions will have the same effect as a negative vote
on this proposal. "Broker non-votes," on the other hand, will have no effect on
the outcome of this vote.
The Board of Directors believes that the proposed amendment to the Purchase
Plan is in the best interests of the Company and the stockholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THIS PROPOSAL TO INCREASE BY 500,000 THE MAXIMUM NUMBER
OF SHARES ISSUABLE UNDER THE PURCHASE PLAN.
20
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected Arthur Andersen LLP as
the independent public accountants to audit the financial statements of the
Company for the fiscal year ending March 31, 1998. Arthur Andersen LLP has acted
in such capacity since its appointment in fiscal year 1987. A representative of
Arthur Andersen LLP is expected to be present at the annual meeting with the
opportunity to make a statement if the representative desires to do so, and is
expected to be available to respond to appropriate questions.
Approval of this proposal requires the affirmative vote of a majority of the
votes cast affirmatively or negatively at the annual meeting of stockholders, at
which a quorum is present. Abstentions and "broker non-votes" will each be
counted as present for purposes of determining the presence of a quorum, but
will not be counted as having voted on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
FISCAL YEAR ENDING MARCH 31, 1998.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 4200 Bohannon Drive, Menlo Park, California 94025, (Attn:
Secretary), no later than March 9, 1998, and satisfy the conditions established
by the Securities and Exchange Commission for stockholder proposals to be
included in the Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment or postponement thereof, it is the intention of
the persons named in the accompanying form of proxy to vote the proxy on such
matters in accordance with their best judgment.
By Order of the Board of Directors
[SIGNATURE]
SCOTT C. NEELY
SECRETARY
July 7, 1997
21
<PAGE>
P
R
O
X
Y
DETACH HERE
NETWORK GENERAL CORPORATION
4200 BOHANON DRIVE
MENLO PARK, CALIFORNIA 94025
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leslie G. Denend and Scott C. Neely,
each with the power to appoint his substitute, as Proxies and hereby
authorize(s) each of them to represent and to vote as designated below, all
the shares of common stock of Network General Corporation which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company to be held on August 8, 1997, and at
any and all adjournments thereof.
The proxy when properly executed and returned, will be voted in the
manner directed herein by the undersigned stockholder(s). If no direction is
given, this proxy will be voted FOR election of the nominees for director
named in Proposal 1 and FOR Proposals 2,3 and 4. In their discretion, the
proxies are also authorized to vote upon such other matters as may properly
come before the meeting or any adjournment thereof.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
DETACH HERE
/X/ Please mark votes as in this example
1. To elect Charles J. Abbe, Howard Frank and Harry J. Saal to the Board of
Directors as Class I Directors.
FOR ALL NOMINEES EXCEPT AS NOTED / /
WITHHOLD AUTHORITY FOR ALL NOMINEES / /
/ /_______________________________
(INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY NOMINEE, WRITE NOMINEE'S
NAME IN THE SPACE PROVIDED ABOVE)
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
2. To approve an amendment to the Company's 1989 Stock Option Plan to
increase the number of shares of the Company's Common Stock reserved
thereunder by 1,500,000.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve an amendment to the Company's 1989 Employee Stock Purchase Plan
to increase the number of shares of the Company's Common Stock reserved
thereunder by 500,000.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending March 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears on this proxy. When shares are held
jointly, all joint owners should sign. Executors, administrators, trustees,
guardians, attorneys and corporate officers should add their titles. If a
partnership, please sign in partnership name by an authorized person.
Signature: Date: Signature: Date:
-------------- ---------- ----------------- --------
