<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Rule 14a-11(c) or Rule 14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
McAFEE ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
McAfee Logo
MCAFEE ASSOCIATES, INC.
2710 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051-0963
APRIL 30, 1997
TO THE STOCKHOLDERS OF McAFEE ASSOCIATES, INC.
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
(including any adjournments or reschedulings thereof, the "Annual Meeting") of
McAfee Associates, Inc. (the "Company") which will be held at the Westin Hotel,
5101 Great America Parkway, Santa Clara, California, on Thursday, June 5, 1997,
at 8:30 a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the Annual
Meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does NOT deprive you of your right to
attend the Annual Meeting. If you decide to attend the Annual Meeting and wish
to change your proxy vote, you may do so automatically by voting in person at
the Annual Meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
William L. Larson
President, Chief Executive Officer
and Chairman of the Board
<PAGE> 3
McAfee Logo
MCAFEE ASSOCIATES, INC.
2710 WALSH AVENUE
SANTA CLARA, CA 95051-0963
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1997
------------------------
The annual meeting of the stockholders (including any adjournments or
rescheduling thereof, the "Annual Meeting") of McAfee Associates, Inc. (the
"Company"), will be held on Thursday, June 5, 1997, at 8:30 a.m. Pacific time at
the Westin Hotel, 5101 Great America Parkway, Santa Clara, California, for the
following purposes:
1. To elect one (1) Class II director to hold office for a three-year
term and until a successor is elected and qualified.
2. To consider a proposal to approve the Company's 1997 Stock
Incentive Plan.
3. To consider a proposal to ratify the appointment of Coopers &
Lybrand L.L.P. as the independent accountants of the Company for the fiscal
year ending December 31, 1997.
4. To transact such other business as may properly come before the
Annual Meeting.
Stockholders of record at the close of business on April 8, 1997 are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
or reschedulings thereof. For ten days prior to the Annual 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 Annual Meeting
during ordinary business hours at the principal office of McAfee Associates,
Inc.
By order of the Board of Directors,
PRABHAT K. GOYAL
Secretary
Santa Clara, California
April 30, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE ANNUAL MEETING.
<PAGE> 4
MCAFEE ASSOCIATES, INC.
2710 WALSH AVENUE
SANTA CLARA, CALIFORNIA 95051-0963
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of McAfee
Associates, Inc., a Delaware corporation (the "Company"), for use at the annual
meeting of stockholders (including any adjournments or reschedulings thereof,
the "Annual Meeting") to be held on June 5, 1997, for the purposes set forth in
the accompanying Notice of Annual Meeting. The date of this Proxy Statement is
April 30, 1997, the approximate date on which this Proxy Statement and the
accompanying form of proxy were first sent or given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the year ended December 31, 1996 is
enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on April 8, 1997 will be entitled to vote at the Annual Meeting, including any
adjournment or rescheduling thereof. As of that date, there were 49,856,000
shares of Common Stock of the Company, par value $.01 per share, issued and
outstanding. Stockholders may vote in person or by proxy. Each holder of shares
of Common Stock is entitled to one vote for each share of stock held on the
proposals presented in this Proxy Statement. Shares of Common Stock may not be
voted cumulatively. 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
Annual Meeting. All votes will be tabulated by the inspector of elections
appointed for the Annual Meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
Solicitation of Proxies. The cost of soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional soliciting material furnished to stockholders, will be borne
by the Company. The Company has retained the services of MacKenzie Partners,
Inc. to assist in the solicitation of proxies for which it will receive a fee
from the Company of approximately $12,000 plus out-of-pocket expenses. In
addition to soliciting stockholders by mail through its regular employees, the
Company 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. Except as described above, the Company does not
presently intend to solicit proxies other than by mail.
Voting of Proxies. All valid proxies received prior to the Annual Meeting
will be voted. All shares represented by a proxy will be voted, and where a
stockholder specifies by means of the 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 prior to the time it is voted, by delivery to the
Secretary of the Company of a written instrument revoking the proxy or a duly
executed proxy with a later date, or by attending the Annual Meeting and voting
in person. A majority of the shares of Common Stock of the Company present at
the Annual Meeting, in person or by proxy, whether or not constituting a quorum,
may vote to, or the Company's Board in its discretion may, adjourn the Annual
Meeting from time to time without further notice, including for the purpose of
soliciting additional proxies. Proxies containing a vote against the proposals
presented in this Proxy Statement will not be used to vote in favor of any such
adjournment.
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PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three Class I
directors (John C. Bolger, Virginia Gemmell and Edwin L. Harper), one Class II
director (Leslie G. Denend), and two Class III directors (William L. Larson with
one vacancy), who have been elected to serve until the Annual Meetings of
Stockholders to be held in 1999, 1997 and 1998, respectively, and until their
respective successors are duly elected and qualified. At each Annual Meeting of
Stockholders, directors are elected for a full term of three years to succeed
those directors whose terms expire on the Annual Meeting of Stockholders dates.
On April 17, 1997, Walter G. Kortschak, formerly a Class II director, and
Jeffrey T. Chambers, formerly a Class III director, resigned from the Board of
Directors and, in connection with such resignations, the Board of Directors
amended the Company's Bylaws to reduce the number of authorized directors from
seven to six. As a result, the number of Class II directors to be elected at the
Annual Meeting is one. The nominee of the Board of Directors for election to
Class II of the Board of Directors at the Annual Meeting is Leslie G. Denend.
If elected, the Board of Director's nominee will serve as director until
the Company's Annual Meeting of Stockholders in 2000, and until a successor is
elected and qualified. If the nominee declines to serve or becomes unavailable
for any reason, or if another vacancy occurs before the election, the proxies
may be voted for such substitute nominee as Management may designate.
If a quorum is present and voting at the Annual Meeting, the nominee
receiving the highest number of votes will be elected as the Class II director.
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.
The table below sets forth, for the current directors and the Class II
nominee to be elected at the Annual Meeting, certain information with respect to
age and background.
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
------------------------------------------ ------------------------------ ---- --------
<S> <C> <C> <C>
Class I directors whose terms expire at the 1999 Annual Meeting of Stockholders:
John C. Bolger............................ Director 50 1996
Virginia Gemmell.......................... Director 48 1996
Edwin L. Harper........................... Director 52 1993
Class II nominee to be elected at the 1997 Annual Meeting of Stockholders:
Leslie G. Denend.......................... Director 56 1995
Class III directors whose terms expire at the 1998 Annual Meeting of Stockholders:
William L. Larson......................... President, Chief Executive 41 1993
Officer and Chairman of the
Board
Vacant....................................
</TABLE>
Mr. Bolger has been a director of the Company since April 18, 1996. Since
1992, Mr. Bolger has been a business consultant and private investor. Mr. Bolger
was Vice President of Finance and Administration of Cisco Systems, Inc., a
networking company, from May 1989 through December 1992. Mr. Bolger serves as a
director of Integrated Systems Inc., TCSI Corporation, Sanmina Corporation and
Integrated Device Technology, Inc.
Ms. Gemmell has been a director of the Company since September 16, 1996.
Ms. Gemmell founded GlidePath, Inc., a consulting firm, and has served as its
President since August 1995. From May 1986 to August 1995, Ms. Gemmell was
Managing Partner of Synectics, Inc., a consulting firm.
Mr. Harper has been a director of the Company since January 1993. Since
June 1996, Mr. Harper has been the President and Chief Executive Officer of
SyQuest Technology, Inc., a manufacturer of computer peripherals. From June 1993
to June 1996, Mr. Harper was President and Chief Executive Officer of
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ComByte, Inc., a privately-held PC peripherals company. Mr. Harper was President
and Chief Executive Officer of Colorado Memory Systems ("CMS"), a manufacturer
of computer peripherals, from June 1992 to April 1993, and served as President
and Chief Operating Officer of CMS from September 1990 through May 1992. Mr.
Harper serves as a director of SyQuest Technology, Inc. and Apex PC Solutions,
Inc.
Mr. Denend has been a director of the Company since June 14, 1995. Since
June of 1993, Mr. Denend has been Chief Executive Officer and President of
Network General Corporation, a networking company. From February of 1993 to June
of 1993, Mr. Denend was Senior Vice President of Network General Corporation.
Mr. Denend was President of Vitalink, a manufacturer of inter-networking
products, from November 1990 to December 1992. Mr. Denend serves as a director
of Rational Software Corporation, Proxim, Inc. and Network General Corporation.
Mr. Larson joined the Company in September 1993 as its Chief Executive
Officer. In October 1993, Mr. Larson was appointed as a director of the Company
and was elected to the additional office of President. In April 1995, Mr. Larson
was also elected Chairman of the Board of Directors. From August 1988 to
September 1993, Mr. Larson was employed as a Vice President of SunSoft, Inc., a
system software subsidiary of Sun Microsystems, Inc., where he was responsible
for worldwide sales and marketing.
Meetings of the Board of Directors
During the year ended December 31, 1996, the Board of Directors held ten
(10) meetings. With the exception of Mr. Bolger, no director serving on the
Board during 1996 attended fewer than 75% of the aggregate of such meetings of
the Board and the Committees of the Board on which he or she served.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services and related fees performed by the independent accountants,
recommend the retention of the independent accountants to the Board, subject to
ratification by the stockholders, and periodically review the Company's
accounting policies and internal accounting and financial controls. During the
year ended December 31, 1996, the members of the Audit Committee were Messrs.
Bolger, Chambers, Harper and Kortschak. The current members of the Audit
Committee are Messrs. Bolger and Harper. During the year ended December 31,
1996, the Audit Committee held four (4) meetings.
The Compensation Committee's function is to review and approve salary
levels and stock option grants. During the year ended December 31, 1996, the
members of the Compensation Committee were Ms. Gemmell and Messrs. Chambers,
Denend and Kortschak. The current members of the Compensation Committee are Ms.
Gemmell and Mr. Denend. During the year ended December 31, 1996, the
Compensation Committee held four (4) meetings. For additional information
concerning the Compensation Committee, see "EXECUTIVE COMPENSATION AND OTHER
MATTERS -- Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" and "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION."
PROPOSAL NO. 2 -- APPROVAL OF THE MCAFEE ASSOCIATES, INC. 1997 STOCK INCENTIVE
PLAN
At the Annual Meeting, the Company's stockholders will be asked to consider
and vote upon a proposal to approve the adoption of the McAfee Associates, Inc.
1997 Stock Incentive Plan (the "Incentive Plan").
BACKGROUND OF THE PLAN
The Incentive Plan was adopted by the Board of Directors in April 1997. It
becomes effective on June 5, 1997, subject to the approval of the stockholders.
The Board of Directors may amend or terminate the
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Incentive Plan at any time and for any reason. Amendments require the approval
of the Company's stockholders only to the extent provided by applicable laws,
regulations or rules.
The Board of Directors believes that approval of the Incentive Plan is in
the best interests of the Company and its stockholders, because stock options
and other forms of stock compensation serve to align the long-term interests of
the plan's participants and the stockholders and are an important factor in
attracting, motivating and retaining qualified personnel essential to the
success of the Company. As more companies enter the computer software market,
the very limited number of skilled and experienced employees are in demand by a
growing number of competitors. The Company believes that stock options are
critical in attracting and retaining these key contributors. The Incentive Plan
is intended to offer a significant incentive by enabling key employees to
acquire options to purchase Common Stock at a price equal to its fair market
value on the date the option is granted. The options will become valuable to the
recipients only if the price of the Company's Common Stock appreciates following
the grant and when such options have vested. By providing key employees with the
opportunity to acquire an equity interest in the Company over time and because a
benefit is only received through improved stock performance, the Company
believes that stock options serve to align the interests of key employees
closely with other stockholders.
The Company believes that the adoption of the Incentive Plan is necessary
to enable it to successfully compete with other companies and is essential to
the Company's ability to retain experienced employees and to recruit additional
qualified individuals. As of March 31, 1997, only 152,824 shares remained
available for future grants under the Company's 1995 Stock Incentive Plan (the
"Predecessor Plan"). The Predecessor Plan amended and restated the Company's
1992 Stock Option Plan and outstanding options under the Predecessor Plan
include grants made since 1992. As of March 31, 1997, 8,390,807 shares were
subject to outstanding options under the Predecessor Plan.
During 1996, the Company granted options under the Predecessor Plan at a
greater than anticipated rate due to the Company's expansion and the resulting
need to hire new employees. In addition, the number of employees has increased
as a result of several acquisitions in 1996 and early 1997. Furthermore, in
March 1997, Mr. Larson was granted an option to purchase 800,000 shares of the
Company's Common Stock and five other executive officers of the Company were
each granted an option to purchase 200,000 shares of the Company's Common Stock
under the Predecessor Plan (collectively, the "Performance Options"). Such
Performance Options vest 50% two and one-half years after the date of grant and
the remaining 50% vest five years after the date of grant; however, if certain
performance targets are met, the vesting of the Performance Options accelerates
such that 35% of the Performance Options vest one year after the date of grant,
another 35% vest two years after the date of grant and the remaining 30% vest
three years after the date of grant. The Company expects to continue to hire new
employees, make additional grants to existing employees and may acquire
additional companies, further increasing the number of its employees. As a
result, the remaining share reserve under the Predecessor Plan will not be
adequate for the number of option grants to employees required during the coming
year.
As a result of the minimal reserve remaining in the Predecessor Plan, in
January 1997, the Board of Directors adopted the 1997 Non-Officer Stock Plan
(the "Non-Officer Plan"), which provides for the grant of options to employees
other than executive officers and directors. As of March 31, 1997, options to
purchase 602,800 shares were outstanding under the Non-Officer Plan. In April
1997, the Board of Directors determined that the Non-Officer Plan would be
terminated effective as of the date of the Annual Meeting and, as a result, no
further grants will be made after such date.
SUMMARY OF THE PROVISIONS OF THE INCENTIVE PLAN
The key provisions of the Incentive Plan are summarized below. This
summary, however, is not intended to be a complete description of all terms of
the Incentive Plan. A copy of the plan text will be furnished to any stockholder
upon request. Such a request should be directed to the Corporate Secretary at
the Company's principal executive office.
ADMINISTRATION AND ELIGIBILITY. The Incentive Plan is administered by the
Compensation Committee of the Board of Directors or, in the case of award
recipients who are not officers or directors of the Company, by
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another committee of the Board of Directors consisting of at least one director.
The Compensation Committee selects the individuals who receive awards,
determines the size of any award and establishes any vesting or other
conditions. Employees, nonemployee directors and consultants of the Company are
eligible to participate in the Incentive Plan, although incentive stock options
may be granted only to employees. In addition, awards may be granted to
prospective employees or consultants in connection with a written offer of
employment or engagement from the Company. As of March 31, 1997, approximately
589 employees and 223 consultants would have been eligible to participate in the
Incentive Plan.
FORM OF AWARDS. The Incentive Plan provides for awards in the form of
options, stock appreciation rights ("SARs"), restricted shares or stock units,
or any combination thereof. No payment is required upon receipt of an award,
except that a recipient of newly issued restricted shares may be required to pay
the par value of such restricted shares to the Company.
OPTIONS. Options may include nonstatutory stock options ("NSOs") as well as
incentive stock options ("ISOs") intended to qualify for special tax treatment.
The term of an option cannot exceed 10 years. The exercise price of an ISO must
be equal to or greater than the fair market value of the Common Stock on the
date of grant, while the exercise price of an NSO must be equal to or greater
than 85% of fair market value. All options intended to be exempt from the
limitation on compensation deductions set forth in section 162(m) of the
Internal Revenue Code (the "162(m) Limit") will be granted with an exercise
price equal to or greater than 100% of fair market value. As of March 31, 1997,
the closing price of the Company's Common Stock on The Nasdaq National Market
was $44.25 per share.
The exercise price of an option may be paid in any lawful form permitted by
the Compensation Committee, including (without limitation) a full-recourse
promissory note or the surrender of shares of Common Stock or restricted shares
already owned by the optionee. The Compensation Committee may likewise permit
optionees to satisfy their withholding tax obligation upon exercise of an NSO by
surrendering a portion of their option shares to the Company. The Incentive Plan
also allows the optionee to pay the exercise price of an option by giving
"exercise/sale" or "exercise/pledge" directions. If exercise/sale directions are
given, a number of option shares sufficient to pay the exercise price and any
withholding taxes is issued directly to a securities broker selected by the
Company who, in turn, sells these shares in the open market. The broker remits
to the Company the proceeds from the sale of these shares, and the optionee
receives the remaining option shares. If exercise/pledge directions are given,
the option shares are issued directly to a securities broker or other lender
selected by the Company. The broker or other lender holds the shares as security
and extends credit for up to 50% of their market value. The loan proceeds are
paid to the Company to the extent necessary to pay the exercise price and any
withholding taxes. Any excess loan proceeds may be paid to the optionee. If the
loan proceeds are insufficient to cover the exercise price and withholding
taxes, the optionee is required to pay the deficiency to the Company at the time
of exercise.
The Committee may at any time offer to buy out an outstanding option for
cash or give an optionee the right to surrender his or her option for cash.
STOCK APPRECIATION RIGHTS. An SAR permits the participant to elect to
receive any appreciation in the value of the underlying stock from the Company,
either in shares of Common Stock or in cash or a combination of the two, with
the Compensation Committee having the discretion to determine the form in which
such payment is made. The amount payable on exercise of an SAR is measured by
the difference between the market value of the underlying stock at exercise and
the exercise price. All SARs intended to be exempt from the 162(m) Limit will be
granted with an exercise price equal to or greater than 100% of the fair market
value of the Common Stock on the date of grant. SARs may, but need not, be
granted in conjunction with options. Upon exercise of an SAR granted in tandem
with an option, the corresponding portion of the related option must be
surrendered and cannot thereafter be exercised. Conversely, upon exercise of an
option to which an SAR is attached, the SAR may no longer be exercised to the
extent that the corresponding option has been exercised.
RESTRICTED SHARES. Restricted shares are shares of Common Stock that are
subject to forfeiture in the event that the applicable vesting conditions are
not satisfied. Restricted shares have the same voting and
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dividend rights as other shares of Common Stock. The recipient of restricted
shares may pay all projected withholding taxes relating to the award with shares
of Common Stock rather than cash.
STOCK UNITS. A stock unit is an unfunded bookkeeping entry representing the
equivalent of one share of Common Stock. A holder of stock units has no voting
rights or other privileges as a stockholder but may be entitled to receive
dividend equivalents equal to the amount of dividends paid on the same number of
shares of Common Stock. Dividend equivalents may be converted into additional
stock units or settled in the form of cash, Common Stock or a combination of
both. Stock units, when vested, may be settled by distributing shares of Common
Stock or by a cash payment corresponding to the fair market value of an
equivalent number of shares of Common Stock, or a combination of both. Vested
stock units are settled at the time determined by the Compensation Committee. If
the time of settlement is deferred, interest or additional dividend equivalents
may be credited on the deferred payment. The recipient of stock units may pay
all withholding taxes relating to the settlement of the award with Common Stock
rather than cash.
VESTING CONDITIONS. As noted above, the Compensation Committee determines
the number of options, SARs, restricted shares or stock units to be included in
the award as well as the vesting and other conditions. The vesting conditions
may be based on the length of the recipient's service, his or her individual
performance, the Company's performance or other appropriate criteria. In the
case of restricted shares and stock units that are intended to be exempt from
the 162(m) Limit, vesting is based on the Company's performance as measured by
cash flow, earnings per share, gross margin, net income, operating income,
operating margin, pre-tax profit, return on assets, return on capital, return on
stockholder equity, growth with respect to any of the foregoing measures,
expense reduction, growth in bookings, growth in revenue or stock price
increase, or any combination of the foregoing.
Vesting may be accelerated in the event of the recipient's death,
disability or retirement or in the event of a transfer of control with respect
to the Company. For purposes of the Incentive Plan, a "transfer of control" of
the Company will be deemed to occur upon any of the following events in which
the stockholders of the Company immediately before such event do not retain in
substantially the same proportions immediately after such event, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the Company or its successor or the corporation to which the Company's assets
have been transferred: (a) the direct or indirect sale or exchange by the
stockholders of the Company of all or substantially all of the voting stock of
the Company, (b) a merger in which the Company is a party or (c) the sale,
exchange or transfer of all or substantially all of the assets of the Company. A
transfer of control will also occur in the event of a liquidation or dissolution
of the Company.
DEFERRAL OF AWARDS. The Committee (in its sole discretion) may permit or
require the recipient of an award to have cash that otherwise would be paid to
him or her as a result of the exercise of an SAR or the settlement of stock
units credited to a deferred compensation account established for him or her as
an entry on the Company's books, to have shares of Common Stock that otherwise
would be delivered to him or her as a result of the exercise of an option or SAR
converted into an equal number of stock units, or to have shares that otherwise
would be delivered to him or her as a result of the exercise of an option or SAR
or the settlement of stock units converted into an amount credited to a deferred
compensation account established for him or her on the Company's books. The
amount to be credited is measured by reference to the fair market value of
Common Stock as of the date when shares otherwise would have been delivered to
the award recipient. A deferred compensation account established under this
provision may be credited with interest or other forms of investment return, as
determined by the Committee.
NUMBER OF RESERVED SHARES AND MAXIMUM AWARDS. The total number of shares of
the Company's Common Stock available for grants under the Incentive Plan is 2.45
million (subject to anti-dilution adjustments). If any options, SARs, restricted
shares or stock units are forfeited, or if options or SARs terminate for any
other reason prior to exercise, then they again become available for awards. If
options currently outstanding under the Predecessor Plan are forfeited or
otherwise terminate unexercised, they become available for awards under the
Incentive Plan. If stock units are settled, then only the number of shares (if
any) actually issued in settlement of such stock units reduces the number of
shares available under the Incentive Plan and the balance again becomes
available for awards under the Plan. If SARs are exercised,
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then only the number of shares (if any) actually issued in settlement of such
SARs reduces the number available and the balance again becomes available for
awards. No individual may receive options or SARs covering more than one million
shares in any calendar year (subject to anti-dilution adjustments), except that
the limit is 1.5 million shares for a new employee in the year in which he or
she is hired. In the case of an award that is subject to performance vesting
conditions, no individual may receive more than 300,000 restricted shares or
stock units in any calendar year (subject to anti-dilution adjustments).
NEW PLAN BENEFITS. Awards under the Incentive Plan are discretionary.
Therefore, it is not possible to determine the benefits that will be received in
the future by participants in the Incentive Plan or the benefits that would have
been received by such participants if the Incentive Plan had been in effect in
1996. To date, no grants have been made under the Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS. Neither the optionee nor the
Company incurs any federal tax consequences as a result of the grant of an
option. The optionee has no taxable income upon exercising an ISO (except that
the alternative minimum tax may apply), and the Company receives no deduction
when an ISO is exercised. Upon exercising an NSO, the optionee generally must
recognize ordinary income equal to the "spread" between the exercise price and
the fair market value of Common Stock on the date of exercise; the Company
ordinarily will be entitled to a deduction for the same amount. In the case of
an employee, the option spread at the time an NSO is exercised is subject to
income tax withholding, but the optionee generally may elect to satisfy the
withholding tax obligation by having shares of Common Stock withheld from those
purchased under the NSO. The tax treatment of a disposition of option shares
acquired under the Incentive Plan depends on how long the shares have been held
and on whether such shares were acquired by exercising an ISO or by exercising a
NSO. The Company is not entitled to a deduction in connection with a disposition
of option shares, except in the case of a disposition of shares acquired under
an ISO before the applicable ISO holding periods have been satisfied.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting, at which a quorum representing
a majority of all outstanding shares of Common Stock of the Company is present
and voting, either in person or by proxy, is required for approval of this
proposal. Abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. Abstentions will have the same
effect as a negative vote. Broker non-votes, on the other hand, will have no
effect on the outcome of the vote. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" APPROVAL OF THE MCAFEE ASSOCIATES, INC. 1997 STOCK INCENTIVE PLAN.
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected Coopers & Lybrand L.L.P.
as independent accountants to audit the financial statements of the Company for
the fiscal year ending December 31, 1997. Coopers & Lybrand L.L.P. has acted in
such capacity since its appointment during the fiscal year ended December 31,
1991. A representative of Coopers & Lybrand L.L.P. 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.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes cast at the Annual Meeting,
at which a quorum representing a majority of all outstanding shares of Common
Stock of the Company is present and voting, either in person or by proxy, is
required for approval of this proposal. Abstentions and broker non-votes will
each be counted as present for purposes of determining the presence of a quorum,
but will not be counted as having been voted on the proposal. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF COOPERS &
LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1997.
7
<PAGE> 11
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company as of April 8, 1997 are as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE
- ----------------------- ------------------------------------------------- ---
<S> <C> <C>
William L. Larson...... President, Chief Executive Officer and Chairman 41
of the Board
Dennis L. Cline........ Vice President of International Sales 36
Prabhat K. Goyal....... Chief Financial Officer, Vice President of 42
Finance and Administration, Treasurer and
Secretary
Zachary A. Nelson...... Vice President and General Manager of Network 35
Management
Peter R. Watkins....... Vice President and General Manager of Security 42
Mark Woodward.......... Vice President of North American Sales 38
</TABLE>
Mr. Larson joined the Company in September 1993 as its Chief Executive
Officer. In October 1993, Mr. Larson was appointed as a director of the Company
and was elected to the additional office of President. In April 1995, Mr. Larson
was also elected Chairman of the Board of Directors. From August 1988 to
September 1993, Mr. Larson was employed as a Vice President of SunSoft, Inc., a
system software subsidiary of Sun Microsystems, Inc., where he was responsible
for worldwide sales and marketing.
Mr. Cline joined the Company in September 1994 as Vice President of North
American Sales. Mr. Cline was Vice President of North American Channel Sales
from October 1995 to April 1996 and was Vice President of Worldwide Channel
Sales from April 1996 to October 1996 when he became Vice President of
International Sales. From November 1993 to September 1994, Mr. Cline performed
sales consulting services for various companies. From January 1993 to November
1993, Mr. Cline was Vice President of Worldwide Sales for Fifth Generation
Systems, a software utilities company. Mr. Cline was a Director of Sales for GCC
Technologies, Inc., a manufacturer of computer printers, from April 1992 to
January 1993. From June 1991 to March 1992, Mr. Cline served as Director for
Worldwide Sales for Alias Research, a graphics software company. Prior to that
time, from January 1988 to August 1991, Mr. Cline was a Sales Manager for Claris
Corporation, an applications software company.
Mr. Goyal joined the Company in March 1996 and was elected as Vice
President of Finance, Corporate Controller and Treasurer in April 1996. Mr.
Goyal became Chief Financial Officer, Vice President of Finance and
Administration and Secretary in October 1996. From July 1994 to March 1996 Mr.
Goyal was Director, Finance and OEM Development, Solaris Products Group for
SunSoft, Inc. From November 1991 to June 1994, Mr. Goyal served as Director,
Finance and Sales Operations of SunSoft, Inc.
Mr. Nelson joined the Company in March 1997 as Vice President and General
Manager of Network Management. From February 1993 to March 1997, Mr. Nelson was
employed in various capacities, most recently as Vice President of Marketing,
for Oracle Corporation. From January 1990 to February 1993, Mr. Nelson was
employed in various capacities, ultimately serving as Director of Corporate
Marketing, at SunSoft, Inc., a system software subsidiary of Sun Microsystems,
Inc.
Mr. Watkins joined the Company in May 1995 as Vice President of
International Operations. Mr. Watkins was Vice President of International
Operations from May 1995 to October 1996 and Vice President of Security from
October 1996 to January 1997 when he became Vice President and General Manager
of Security. From January 1991 to April 1995, Mr. Watkins was employed in
various capacities, ultimately serving as Managing Director of European
Operations, at SunSoft, Inc., a system software subsidiary of Sun Microsystems,
Inc.
Mr. Woodward joined the Company in October 1995 as Vice President of North
American Direct Sales. Mr. Woodward was Vice President of North American Direct
Sales from October 1995 to October 1996 and Vice President of Direct Sales from
October 1996 to January 1997 when he became Vice President of North American
Sales. From July 1995 to October 1995, Mr. Woodward was Senior Vice President of
Sales at Computer Associates International, Inc., a software company. From July
1989 to July 1995, Mr. Woodward was Vice President of Western Area Operations
for Legent Inc., a software company.
The Company's officers serve at the discretion of the Board of Directors.
There are no family relationships among any of the Company's directors and
executive officers.
8
<PAGE> 12
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1997,
except where noted, 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) each person named in the
Summary Compensation Table, and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) OF SHARES OF CLASS
- ----------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Putnam Investments, Inc.(2)............................................ 5,271,140 10.9%
One Post Office Square
Boston, MA 02109
American Century Companies, Inc.(3).................................... 3,375,900 7.0%
Twentieth Century Tower
4500 Main Street
Kansas City, MO 64111
Pilgrim Baxter & Associates(4)......................................... 3,596,237 6.8%
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Nicholas-Applegate Capital Management(5)............................... 2,603,036 5.4%
600 West Broadway, 29th Floor
San Diego, CA 92101
FMR Corp.(6)........................................................... 2,505,837 5.2%
82 Devonshire Street
Boston, MA 02109
William L. Larson(7)................................................... 410,226 *
President, Chief Executive Officer and Chairman of the Board
2710 Walsh Avenue
Santa Clara, CA 95051-0963
John C. Bolger(8)...................................................... 16,875 *
Leslie G. Denend(8).................................................... 1,875 *
Virginia Gemmell....................................................... 0 0
Edwin L. Harper........................................................ 0 0
Dennis L. Cline(9)..................................................... 29,768 *
R. Terry Duryea(10).................................................... 35,582 *
Peter R. Watkins(11)................................................... 45,358 *
Mark Woodward(12)...................................................... 28,684 *
Executive officers and directors as a group (10 persons)(13)........... 598,819 1.2%
Former Executive Officer:
Richard D. Kreysar(14)................................................. 1,868 *
</TABLE>
- ---------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the Company believes
that the persons named in the table 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.
(2) According to a Schedule 13G/A filed with the Securities and Exchange
Commission (the "Commission") on January 30, 1997, Putnam Investments, Inc.
has shared voting power with respect to 381,747 of these shares and shared
dispositive power with respect to all 5,271,140 shares.
(3) According to a Schedule 13G filed with the Commission on February 7, 1997.
(4) According to a Schedule 13G/A filed with the Commission on March 12, 1997,
Pilgrim Baxter & Associates has shared voting power with respect to all
3,596,237 of these shares.
9
<PAGE> 13
(5) According to a Schedule 13G filed with the Commission on February 5, 1997,
Nicholas-Applegate has sole voting power with respect to 1,970,471 of these
shares.
(6) According to a Schedule 13G filed with the Commission on February 13, 1997,
FMR Corp. has sole voting power with respect to 32,450 of these shares.
(7) Includes 409,532 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
(8) Represents shares subject to stock options that are currently exercisable
or will become exercisable within 60 days of March 31, 1997.
(9) Includes 29,220 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
(10) Includes 35,237 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
Mr. Duryea ceased to be an executive officer of the Company in January
1997.
(11) Includes 44,531 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
(12) Includes 28,125 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
(13) Includes 595,783 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of March 31, 1997.
(14) Mr. Kreysar resigned from his position as an executive officer of the
Company in November 1996.
10
<PAGE> 14
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 December 31, 1996 whose
total salary and bonus for the year ended December 31, 1996 exceeded $100,000,
as well as one former officer who would otherwise have been included in the
table but for his termination as an officer prior to December 31, 1996, in all
cases for services in all capacities to the Company during the years ended
December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
OTHER SECURITIES ALL OTHER
SALARY ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS($) COMPENSATION($) OPTIONS (#) ($)(2)
- ----------------------------- ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson(3) 1996 $248,260 $151,044 0 0 $2,375
President, 1995 220,008 229,676 0 1,181,250 2,310
Chief Executive Officer and 1994 200,000 198,688 0 0 2,310
Chairman of the Board
R. Terry Duryea(4) 1996 $164,664 $ 50,525 0 0 $2,375
Vice President of 1995 102,092 22,564 0 421,875 522
Corporate Development 1994 -- -- -- -- --
Peter R. Watkins(5) 1996 $144,488 $ 87,358 $ 108,748(6) 56,250 $2,202
Vice President and 1995 123,259 20,025 56,949(7) 421,875 0
General Manager of Security 1994 -- -- -- -- --
Dennis L. Cline(8) 1996 $109,503 $ 99,100 0 75,000 $2,375
Vice President of 1995 100,000 92,642 0 337,500 1,802
International Sales 1994 33,333 32,674 0 -- 0
Mark Woodward(9) 1996 $101,132 $ 97,037 $ 0 0 $2,202
Vice President of North 1995 19,360 0 0 337,500 0
American Sales 1994 -- -- -- -- --
Former Officer:
Richard D. Kreysar(10) 1996 $157,385 $ 41,983 0 0 $2,375
Vice President of 1995 128,752 37,011 0 371,250 2,310
Network Management 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) Represents contributions made by the Company pursuant to the Company's
401(k) Plan.
(3) Mr. Larson was elected Chairman of the Board in April 1995.
(4) Mr. Duryea joined the Company in May 1995 and ceased to be an executive
officer of the Company in January 1997.
(5) Mr. Watkins joined the Company in May 1995. Mr. Watkins was Vice President
of Security as of December 31, 1996 and was elected Vice President and
General Manager of Security in January 1997.
(6) Represents cost of living allowance for overseas assignment and amounts
reimbursed for payment of certain taxes.
(7) Represents cost of living allowance for overseas assignment.
(8) Mr. Cline joined the Company in September 1994. Mr. Cline was Vice
President of Europe and Channels as of December 31, 1996 and was elected
Vice President of International Sales in January 1997.
(9) Mr. Woodward joined the Company in October 1995. Mr. Woodward was Vice
President of Direct Sales as of December 31, 1996 and was elected Vice
President of North American Sales in January 1997.
(10) Mr. Kreysar joined the Company in January 1995 and resigned from his
position as an executive officer of the Company effective November 1, 1996.
11
<PAGE> 15
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the year ended
December 31, 1996 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
% OF VALUE AT
TOTAL ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ------------------------- ------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson........ 0 -- -- -- -- --
R. Terry Duryea(4)....... 0 -- -- -- -- --
Peter R. Watkins......... 56,250(5) 1.8% $ 19.33 01/25/06 $ 683,922 $1,733,192
Dennis L. Cline.......... 75,000(6) 2.3% $ 45.50 09/30/06 $2,207,186 $5,535,911
Mark Woodward............ 0 -- -- -- -- --
Richard D. Kreysar(7).... 0 -- -- -- -- --
</TABLE>
- ---------------
(1) Generally, initial grants of options made in 1996 under the Company's 1995
Stock Incentive Plan (the "Option Plan") vest at the rate of one-fourth on
the first anniversary of the optionee's date of hire and 1/48th per month
thereafter for each full month of the optionee's continuous employment with
the Company; subsequent option grants vest over a four year period at the
rate of one-fourth on the first anniversary of the date of grant and 1/48th
per month thereafter for each full month of the optionee's continuous
employment with the Company. Under the Option Plan, the Board retains
discretion to modify the terms of outstanding options. See also "Employment
and Change in Control Arrangements." Under the Option Plan, options will
become fully exercisable upon a transfer of control of the Company, unless
the option is assumed by the acquiring entity. See "Employment and Change in
Control Arrangements" below. However, the Company has entered into change of
control agreements with each of the executive officers providing for the
full acceleration of their options in connection with a transfer of control.
(2) All options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant. The exercise price may be paid in
cash, in shares of Common Stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of
the purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to exercise the option and pay any
withholding taxes incurred upon exercise.
(3) Potential gains are net of exercise price, but before taxes associated with
the exercise. These amounts represent hypothetical gains assuming rates of
appreciation specified by the Securities and Exchange Commission, and do not
represent the Company's estimate or projection of future Common Stock
prices. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Company, overall market conditions and the
optionees' continued employment through the vesting period. The amounts
reflected in this table may not be achieved.
(4) Mr. Duryea ceased to be an executive officer of the Company in January 1997.
(5) This option vests over a period of four years commencing in January 1996 at
a rate of one-fourth on the first anniversary of the date of grant and
1/48th per month thereafter for each full month of Mr. Watkins' continuous
employment with the Company.
(6) This option vests over a period of four years commencing in September 1996
at a rate of one-fourth on the first anniversary of the date of grant and
1/48th per month thereafter for each full month of Mr. Cline's continuous
employment with the Company.
(7) Mr. Kreysar resigned from his position as an executive officer of the
Company effective November 1, 1996.
12
<PAGE> 16
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock during the year ended December
31, 1996, and unexercised options held as of December 31, 1996, by the persons
named in the Summary Compensation Table:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT 12/31/96(#) 12/31/96($)(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson......... 728,760 $ 22,610,478 386,876 1,246,875 $15,548,836 $ 45,527,779
R. Terry Duryea(3)........ 158,000 $ 3,960,541 8,992 254,883 $ 320,382 $ 9,081,405
Peter R. Watkins.......... 149,413 $ 3,643,563 17,579 311,133 $ 626,335 $ 10,468,907
Mark Woodward............. 88,110 $ 2,931,903 10,327 239,063 $ 323,579 $ 7,490,633
Dennis L. Cline........... 84,375 $ 2,388,316 14,063 222,657 $ 581,270 $ 6,103,151
Richard D. Kreysar(4)..... 162,406 $ 3,498,637 15,484 193,360 $ 596,420 $ 7,447,937
</TABLE>
- ---------------
(1) Based on the closing price of $44.00 on December 31, 1996, less exercise
price.
(2) Market price on date of exercise, less exercise price.
(3) Mr. Duryea ceased to be an executive officer of the Company in January 1997.
(4) Mr. Kreysar resigned from his position as an executive officer of the
Company effective November 1, 1996. Effective February 1, 1997, Mr. Kreysar
resigned from his employment with the Company, resulting in the cancellation
of unexercisable options to purchase shares.
EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
William L. Larson currently serves as President and Chief Executive Officer
of the Company pursuant to an agreement dated April 14, 1995 which provides
that, in the event that Mr. Larson's employment is involuntarily terminated
other than for cause, he will be entitled to receive severance payments
consisting of his then current base salary and bonus for twelve (12) months
after such termination, which payments would cease in the event that he accepted
employment elsewhere.
Dennis L. Cline, who currently serves as Vice President of International
Sales of the Company, entered into an agreement with the Company that provides
that, in the event his employment with the Company is terminated within three
months of a merger of the Company or a sale of substantially all of the
Company's assets due to such transaction, he would be entitled to receive his
salary for nine months and payment of his full target bonus over such period.
The terms of the Company's 1995 Stock Incentive Plan (the "Option Plan")
applicable to options granted after April 14, 1995 provide that in the event of
a "transfer of control" of the Company, the acquiring corporation shall assume
the options outstanding under the Option Plan or substitute options on the
acquiring corporation's stock for the outstanding options. Should the acquiring
corporation elect not to assume outstanding options or substitute new options
for outstanding options, then all outstanding options shall become immediately
exercisable and fully vested as of the date ten days prior to the date of the
"transfer of control." In addition, the Board has discretion to provide for
accelerated vesting of assumed options. In April 1995, the Company entered into
agreements with each of its current executive officers and all new executive
officers since that date. Such agreements provide that, in the event of a
"transfer of control" of the Company, all stock options held by the executive
officer will become fully vested and immediately exercisable as of the date ten
days prior to the "transfer of control," conditioned upon consummation of the
"transfer of control" event.
13
<PAGE> 17
COMPENSATION OF DIRECTORS
The one employee director of the Company did not receive any cash
compensation for his services as member of the Board of Directors of the Company
in the year ended December 31, 1996. The non-employee directors of the Company
are eligible to receive up to $15,000 each on an annual basis for their services
as directors of the Company, based on attendance at meetings of the Company's
Board of Directors. The Company's Stock Option Plan for Outside Directors (the
"Directors Plan") provides for initial and annual automatic grants of
nonstatutory stock options to directors of the Company who are not employees of
the Company or of any affiliated corporation and who are not associated with any
entity or affiliated group of entities owning ten percent or more of the
Company's outstanding stock. Under the Directors Plan, each individual who first
becomes an outside Board member is granted an option to purchase 50,625 shares
on the date such individual joins the Board. In addition, on the anniversary
date of each grant, each outside director who received an initial grant will
receive an additional option grant to purchase 16,875 shares of Common Stock. In
1996, Messrs. Denend and Harper each received an option to purchase 16,875
shares, and Mr. Bolger and Ms. Gemmell each received an initial grant of an
option to purchase 50,625 shares. The Company intends to decrease the number of
options to be granted to outside directors who are elected subsequent to the
Annual Meeting to 25,000 shares for the initial grant and 10,000 shares for each
annual grant. Initial options vest annually in equal installments over a three
year period from the date of grant. Annual options vest on the third anniversary
of the date of grant. All options granted under the Directors Plan become fully
exercisable upon certain mergers, sales of asset or sales of all or
substantially all the voting stock of the Company.
Directors who are also employees of the Company are eligible to receive
options and be issued shares of Common Stock directly under the 1995 Stock
Incentive Plan and are also eligible to participate in the Company's Employee
Stock Purchase Plan and, if an executive officer of the Company, the Executive
Bonus Plan. Effective as of the date of the Annual Meeting, and subject to
stockholder approval, non-employee and employee directors of the Company will
also be eligible to participate in the Company's 1997 Stock Incentive Plan on a
discretionary basis. See "PROPOSAL NO. 2 -- APPROVAL OF THE MCAFEE ASSOCIATES,
INC. 1997 STOCK INCENTIVE PLAN."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Ms. Gemmell and Messrs. Kortschak, Chambers and Denend served as members of
the Board of Directors' Compensation Committee during 1996. None of the members
of the Compensation Committee was at any time during 1996 or at any other time
an officer or employee of the Company. No executive officer of the Company
served as a member of the board of directors of any entity that had one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnification agreements with each of its
officers and directors containing provisions that may require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' liability insurance if available on reasonable terms. The Company
maintains an insurance policy covering officers and directors under which the
insurer has agreed to pay the amount of any claim made against the officers or
directors of the Company for wrongful acts that such officers or directors may
otherwise be required to pay or for which the Company is required to indemnify
such officers and directors, subject to certain exclusions.
See "Employment and Change in Control Arrangements" for descriptions of
agreements regarding the employment of Mr. Larson and Mr. Cline and change of
control agreements entered into with each of the Company's executive officers.
14
<PAGE> 18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors was comprised of four
members during 1996 and currently is comprised of two members. No member of the
Compensation Committee was at any time during 1996 or at any other time a
current or former officer or employee of the Company. The Compensation Committee
is responsible for setting and administering policies governing compensation of
executive officers, including the annual Executive Bonus Plan and the Stock
Incentive Plan. In addition, the Compensation Committee reviews compensation
levels of other management level employees, evaluates the performance of
management and reviews other compensation-related issues.
COMPENSATION PHILOSOPHY
The Company applies a consistent compensation philosophy for all of its
employees, including its executive officers. The Company's compensation policy
is designed to enable the Company to attract, retain and reward executive
officers who are likely to contribute to the long-term success of the Company.
The Compensation Committee also believes that a strong correlation should exist
between executive compensation, business objectives and overall Company
performance.
In preparing the performance graph for this Proxy Statement, the Company
has selected the CRSP Total Return Industry Index for Nasdaq Computer and Data
Processing Services Stock Index ("CRSP Index"). The companies which the Company
uses for comparison of salary and compensation information are not necessarily
those included in the CRSP Index, because they were determined not to be
competitive with the Company for executive talent or because compensation
information was not available.
COMPONENTS OF COMPENSATION
There are three components of the Company's executive compensation program
which support the goal of aligning compensation with the value created for the
Company's stockholders while providing incentives to further the Company's
strategic objectives.
Salary
The Compensation Committee strives to offer salaries to its executive
officers which are competitive with salaries offered by companies of similar
size and capitalization in the software industry. Base salaries are reviewed on
an annual basis and are subject to adjustment based upon the individual's
contribution to the Company and changes in salary levels offered by comparable
companies. In determining executive officers' salaries, the Compensation
Committee considers information provided by the Company's Chief Executive
Officer with respect to individual officer responsibilities and performance, as
well as salary surveys and similar data available from independent sources.
William L. Larson joined the Company in September 1993 as Chief Executive
Officer. Mr. Larson's 1994 compensation package, including his annual base
salary of $200,000, was established by negotiation with Mr. Larson prior to his
commencement of employment in late 1993. The Compensation Committee therefore
did not adjust his compensation in 1994. In 1995, the Compensation Committee
increased Mr. Larson's base salary by ten percent (10%). In 1996, Mr. Larson's
base salary increased by approximately thirteen percent (13%). In determining
such adjustments, the Compensation Committee considered, among other things,
compensation data for chief executives of comparable companies and Mr. Larson's
performance in 1994 and 1995, respectively.
The Chief Executive Officer evaluates the performance of all other
executive officers on an annual basis and recommends salary adjustments which
are subject to review and approval by the Compensation Committee. Performance
evaluations for individual executive officers are based on predetermined
individual goals proposed by management and approved by the Compensation
Committee.
15
<PAGE> 19
Bonuses
Awards under the Company's Executive Bonus Plan for 1996 were contingent
upon the Company achieving certain performance goals established by the Board of
Directors. For executive officers other than the Chief Executive Officer, awards
are also contingent on the achievement by the officers of individual performance
objectives. Target amounts of bonuses for each executive officer are set
annually by the Compensation Committee and are specifically weighted for
identified financial, management, strategic and operational goals. Performance
against the established goals is determined quarterly by the Compensation
Committee and, based on such determination, the Committee approves payment of
the bonuses. In 1996, bonuses awarded under the plan to Mr. Larson, the
Company's Chief Executive Officer, totaled $151,044. The bonus received by Mr.
Larson under the plan comprised approximately 38% of his total compensation.
Bonuses awarded under the plan to other executive officers in 1996 represented
between 18% and 49% of the total compensation of such officers.
Equity Incentives
The Committee believes that employee equity ownership is highly motivating,
provides a major incentive to employees in building stockholder value and serves
to align the interests of employees with the interests of the Company's
stockholders. In determining the amount of equity compensation to be awarded to
executive officers in any fiscal year, the Committee considers the position of
the officer, the current stock ownership of the officer, the number of shares
which continue to be subject to vesting under outstanding options and the
expected future contribution of the officer to the Company's performance, giving
primary weight to the officer's position and his expected future contributions.
In addition, the Company compares the stock ownership and options held by each
officer with the other officers' equity positions and the officer's experience
and value to the Company.
Option grants during 1996 are described under the heading "EXECUTIVE
COMPENSATION AND OTHER MATTERS" in the table entitled "OPTION GRANTS IN LAST
FISCAL YEAR." In 1996, Mr. Larson was not granted any options to purchase shares
of Common Stock.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company has considered Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and related regulations that restrict the
deductibility for federal income tax purposes of 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 officer in any year, other than compensation that
qualifies for an exception under the Code or regulations. The stockholders
approved amendments to the Company's 1995 Stock Incentive Plan to enable
compensation recognized in connection with the exercise of options to qualify
for the "performance-based compensation" exception to the deduction limit. The
Committee does not believe that other components of the Company's compensation
will be likely to exceed $1,000,000 annually for any executive officer in the
foreseeable future and, therefore, concluded that no further action with respect
to qualifying such compensation for federal income tax deductibility was
necessary at this time. In the future, the Committee will continue to evaluate
the advisability of qualifying its executive compensation for such
deductibility. The Committee's policy is to qualify its executive compensation
for deductibility under applicable tax laws as practicable.
COMPENSATION COMMITTEE
Leslie G. Denend
Virginia Gemmell
16
<PAGE> 20
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 Common Stock with the cumulative
total return of the CRSP Total Return Index for the Nasdaq Stock Market (U.S.
Companies) ("Nasdaq US") and the CRSP Total Return Industry Index for Nasdaq
Computer and Data Processing Services Stocks ("C&DP Index") for the period
commencing on October 5, 1992(1) and ending on December 31, 1996. Stockholder
returns over the indicated period are based on historical data and the Company
cautions that the stock price performance shown in the graph is not indicative
of, nor intended to forecast, the potential future performance of the Company's
Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURNS
FROM OCTOBER 5, 1992 THROUGH DECEMBER 31, 1996(2):
MCAFEE ASSOCIATES, INC., NASDAQ US AND C&DP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD 'MCAFEE NASDAQ STOCK NASDAQ COMPUTER &
(FISCAL YEAR COVERED) ASSOCIATES, INC.' MARKET-US DATA PROCESSING
<S> <C> <C> <C>
10/5/92 100 100 100
DEC-92 113 120 116
DEC-93 50 138 122
DEC-94 134 135 149
DEC-95 436 190 226
DEC-96 984 234 280
</TABLE>
- ---------------
(1) The Company's initial public offering occurred on October 6, 1992. For
purposes of this presentation, the Company has assumed that its initial
offering price of $4.74 (as adjusted for subsequent stock dividends) would
have been the closing sales price on October 5, 1992, the day prior to
commencement of trading.
(2) Assumes that $100.00 was invested on October 5, 1992 in the Company's Common
Stock at the Company's initial offering price of $4.74 (as adjusted for
subsequent stock dividends) and at the closing sales price for each index on
that date and that all cash dividends were reinvested. No cash dividends
have been declared on the Company's Common Stock.
(3) December 30, 1994 was the last trading day in 1994.
(4) December 29, 1995 was the last trading day in 1995.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and the Stock Performance Graph are not deemed
filed with the Securities and Exchange Commission and shall not be deemed
incorporated by reference into any of those prior filings or into any future
filings made by the Company under those statutes.
17
<PAGE> 21
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section
16(a)reports that the Company received from such persons for the 1996 fiscal
year transactions in the Common Stock and their Common Stock holdings and (ii)
the written representations received from one or more of such persons that no
annual Form 5 reports were required to be filed by them for the 1996 fiscal
year, the Company believes that all reporting requirements under Section 16(a)
for such fiscal year were met in a timely manner by its executive officers,
Board members and greater than ten-percent stockholders, except for a late
filing of a Form 4 by (i) William L. Larson, the Company's President, Chief
Executive Officer and Chairman of the Board in connection with his sale of
Common Stock in October 1996, and (ii) Walter G. Kortschak, a former director of
the Company in connection with his sale of Common Stock in February 1996.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at 2710 Walsh Avenue, Santa Clara, California 95051-0963, not later
than December 19, 1997, and satisfy the conditions established by the Securities
and Exchange Commission for stockholder proposals to be included in the
Company's proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment 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
PRABHAT K. GOYAL
Secretary
April 30, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE ANNUAL MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
18
<PAGE> 22
4300-PS-97
<PAGE> 23
MCAFEE ASSOCIATES, INC.
1997 STOCK INCENTIVE PLAN
(AS ADOPTED EFFECTIVE JUNE 5, 1997)
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1. INTRODUCTION.....................................................................1
ARTICLE 2. ADMINISTRATION...................................................................1
2.1 Committee Composition...........................................................1
2.2 Committee Responsibilities......................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS......................................................2
3.1 Basic Limitation................................................................2
3.2 Additional Shares...............................................................2
3.3 Dividend Equivalents............................................................2
ARTICLE 4. ELIGIBILITY......................................................................2
4.1 Incentive Stock Options.........................................................2
4.2 Other Grants....................................................................2
4.3 Prospective Employees and Consultants...........................................2
ARTICLE 5. OPTIONS..........................................................................3
5.1 Stock Option Agreement..........................................................3
5.2 Number of Shares................................................................3
5.3 Exercise Price..................................................................3
5.4 Exercisability and Term.........................................................3
5.5 Effect of Transfer of Control...................................................3
5.6 Substitution of Options.........................................................4
5.7 Buyout Provisions...............................................................4
ARTICLE 6. PAYMENT FOR OPTION SHARES........................................................4
6.1 General Rule....................................................................4
6.2 Surrender of Stock..............................................................4
6.3 Exercise/Sale...................................................................4
6.4 Exercise/Pledge.................................................................5
6.5 Promissory Note.................................................................5
6.6 Other Forms of Payment..........................................................5
ARTICLE 7. STOCK APPRECIATION RIGHTS........................................................5
7.1 SAR Agreement...................................................................5
7.2 Number of Shares................................................................5
7.3 Exercise Price..................................................................5
7.4 Exercisability and Term.........................................................5
7.5 Effect of Transfer of Control...................................................6
7.6 Exercise of SARs................................................................6
7.7 Modification or Assumption of SARs..............................................6
</TABLE>
i
<PAGE> 25
<TABLE>
<S> <C> <C>
ARTICLE 8. RESTRICTED SHARES................................................................6
8.1 Restricted Stock Agreement......................................................6
8.2 Payment for Awards..............................................................6
8.3 Vesting Conditions..............................................................7
8.4 Effect of Transfer of Control...................................................7
8.5 Voting and Dividend Rights......................................................7
ARTICLE 9. STOCK UNITS......................................................................7
9.1 Stock Unit Agreement............................................................7
9.2 Payment for Awards..............................................................7
9.3 Vesting Conditions..............................................................7
9.4 Effect of Transfer of Control...................................................8
9.5 Voting and Dividend Rights......................................................8
9.6 Form and Time of Settlement of Stock Units......................................8
9.7 Death of Recipient..............................................................8
9.8 Creditors' Rights...............................................................9
ARTICLE 10. PROTECTION AGAINST DILUTION.....................................................9
10.1 Adjustments....................................................................9
10.2 Dissolution or Liquidation.....................................................9
10.3 Reorganizations................................................................9
ARTICLE 11. DEFERRAL OF AWARDS.............................................................10
ARTICLE 12. AWARDS UNDER OTHER PLANS.......................................................10
ARTICLE 13. LIMITATION ON RIGHTS...........................................................11
13.1 Retention Rights..............................................................11
13.2 Stockholders' Rights..........................................................11
13.3 Regulatory Requirements.......................................................11
ARTICLE 14. WITHHOLDING TAXES..............................................................11
14.1 General.......................................................................11
14.2 Share Withholding.............................................................11
ARTICLE 15. FUTURE OF THE PLAN.............................................................11
15.1 Term of the Plan..............................................................11
15.2 Amendment or Termination......................................................12
ARTICLE 16. DEFINITIONS....................................................................12
ARTICLE 17. EXECUTION......................................................................15
</TABLE>
ii
<PAGE> 26
MCAFEE ASSOCIATES, INC.
1997 STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective June 5, 1997. The
purpose of the Plan is to promote the long-term success of the Company and the
creation of stockholder value by (a) encouraging Employees, Outside Directors
and Consultants to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Employees, Outside Directors and Consultants with
exceptional qualifications and (c) linking Employees, Outside Directors and
Consultants directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, Options (which may constitute incentive stock
options or nonstatutory stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify
for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
The Board may also appoint one or more separate committees of the Board, each
composed of one or more directors of the Company who need not satisfy the
foregoing requirements, who may administer the Plan with respect to Employees
and Consultants who are not considered officers or directors of the Company
under section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all terms of such Awards.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The
<PAGE> 27
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 2,450,000 plus (b) the additional Common Shares described in
Section 3.2. The limitation of this Section 3.1 shall be subject to adjustment
pursuant to Article 10.
3.2 ADDITIONAL SHARES. If Restricted Shares, Stock Units, Options or
SARs granted under this Plan or the Predecessor Plan are forfeited or if Options
or SARs granted under this Plan or the Predecessor Plan terminate for any other
reason before being exercised, then the corresponding Common Shares shall become
available for Awards under this Plan. If Stock Units are settled, then only the
number of Common Shares (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of Common Shares (if any) actually issued in settlement of such
SARs shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. The foregoing notwithstanding,
the aggregate number of Common Shares that may be issued under the Plan upon the
exercise of ISOs shall not be increased when Restricted Shares are forfeited.
3.3 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary on the date of grant shall be eligible
for the grant of ISOs. In addition, an Employee who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company
or any of its Parents or Subsidiaries shall not be eligible for the grant of an
ISO unless the requirements set forth in section 422(c)(6) of the Code are
satisfied.
4.2 OTHER GRANTS. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
4.3 PROSPECTIVE EMPLOYEES AND CONSULTANTS. For purposes of this Article
4, (a) "Employees" shall include prospective Employees to whom Awards are
granted in connection with written offers of employment from the Company, a
Parent or a Subsidiary and (b) "Consultants" shall include prospective
Consultants to whom Awards are granted in connection with written offers of
engagement from the Company, a Parent or a Subsidiary. If an
2
<PAGE> 28
ISO is granted to a prospective Employee, the date when his or her service as an
Employee commences shall be deemed to be the date of grant of such ISO for all
purposes under the Plan (including, without limitation, Section 5.3). No Award
granted to a prospective Employee or prospective Consultant shall become
exercisable or vested unless and until his or her service as an Employee or
Consultant commences.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
1,000,000 Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than 1,500,000 Common Shares. The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance
with Article 10.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
5.5 EFFECT OF TRANSFER OF CONTROL. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the
3
<PAGE> 29
Common Shares subject to such Option in the event that a Transfer of Control
occurs with respect to the Company, except that the exercisability of an ISO
shall not be accelerated without the Optionee's written consent. In addition, a
separate agreement between the Optionee and the Company may provide that such
Optionee's Options shall become exercisable as to all or part of the Common
Shares subject to such Options in the event that a Transfer of Control occurs
with respect to the Company.
5.6 SUBSTITUTION OF OPTIONS. The Committee may accept the cancellation
of outstanding options granted by another issuer in return for the grant of new
Options under the Plan for the same or a different number of Common Shares and
at the same or a different Exercise Price.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the Common
Shares being purchased under the Plan and to deliver all or part of the sales
proceeds to the Company.
4
<PAGE> 30
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note; provided that the par value of the Common Shares being purchased under the
Plan shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of an SAR under the Plan shall be
evidenced by an SAR Agreement between the Optionee and the Company. Such SAR
shall be subject to all applicable terms of the Plan and may be subject to any
other terms that are not inconsistent with the Plan. The provisions of the
various SAR Agreements entered into under the Plan need not be identical. SARs
may be granted in consideration of a reduction in the Optionee's other
compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the number of
Common Shares to which the SAR pertains and shall provide for the adjustment of
such number in accordance with Article 10. SARs granted to any Optionee in a
single calendar year shall in no event pertain to more than 1,000,000 Common
Shares, except that SARs granted to a new Employee in the fiscal year of the
Company in which his or her service as an Employee first commences shall not
pertain to more than 1,500,000 Common Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article 10.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the Exercise Price.
An SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. An SAR
5
<PAGE> 31
granted under the Plan may provide that it will be exercisable only in the event
of a Transfer of Control.
7.5 EFFECT OF TRANSFER OF CONTROL. The Committee may determine, at the
time of granting an SAR or thereafter, that such SAR shall become exercisable as
to all or part of the Common Shares subject to such SAR in the event that a
Transfer of Control occurs with respect to the Company. In addition, a separate
agreement between the Optionee and the Company may provide that such Optionee's
SARs shall become exercisable as to all or part of the Common Shares subject to
such SARs in the event that a Transfer of Control occurs with respect to the
Company.
7.6 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee (or any
person having the right to exercise the SAR after his or her death) shall
receive from the Company (a) Common Shares, (b) cash or (c) a combination of
Common Shares and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of Common Shares received upon exercise of SARs
shall, in the aggregate, be equal to the amount by which the Fair Market Value
(on the date of surrender) of the Common Shares subject to the SARs exceeds the
Exercise Price. If, on the date when an SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion.
7.7 MODIFICATION OR ASSUMPTION OF SARS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical. Restricted Shares
may be granted in consideration of a reduction in the recipient's other
compensation.
8.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of newly issued Restricted Shares, the Award recipient, as a condition to
the grant of such Award, shall be required to pay the Company in cash or cash
equivalents an amount equal to the par value of such Restricted Shares. To the
extent that an Award is granted in the form of Restricted Shares from the
Company's treasury, no cash consideration shall be required of the Award
recipients. Any amount not paid in cash may be paid with a full-recourse
promissory note.
6
<PAGE> 32
8.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. The
Committee may include among such conditions the requirement that the performance
of the Company or a business unit of the Company for a specified period of one
or more years equal or exceed a target determined in advance by the Committee.
Such performance shall be determined by the Company's independent auditors. Such
target shall be based on one or more of the criteria set forth in Appendix A.
The Committee shall determine such target not later than the 90th day of such
period. In no event shall the number of Restricted Shares which are subject to
performance-based vesting conditions and which are granted to any Participant in
a single calendar year exceed 300,000, subject to adjustment in accordance with
Article 10. A Restricted Stock Agreement may provide for accelerated vesting in
the event of the Participant's death, disability or retirement or other events.
8.4 EFFECT OF TRANSFER OF CONTROL. The Committee may determine, at the
time of granting Restricted Shares or thereafter, that all or part of such
Restricted Shares shall become vested in the event that a Transfer of Control
occurs with respect to the Company. In addition, a separate agreement between
the Participant and the Company may provide that all or part of such
Participant's Restricted Shares shall become vested in the event that a Transfer
of Control occurs with respect to the Company.
8.5 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
ARTICLE 9. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.
9.2 PAYMENT FOR AWARDS. To the extent that an Award is granted in the
form of Stock Units, no cash consideration shall be required of the Award
recipients.
9.3 VESTING CONDITIONS. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. The
Committee may include among such conditions the requirement that the performance
of the Company or a business unit of the Company for a specified period of one
or more years equal or exceed a target determined in advance by the
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<PAGE> 33
Committee. Such performance shall be determined by the Company's independent
auditors. Such target shall be based on one or more of the criteria set forth in
Appendix A. The Committee shall determine such target not later than the 90th
day of such period. In no event shall the number of Stock Units which are
subject to performance-based vesting conditions and which are granted to any
Participant in a single calendar year exceed 300,000, subject to adjustment in
accordance with Article 10. A Stock Unit Agreement may provide for accelerated
vesting in the event of the Participant's death, disability or retirement or
other events.
9.4 EFFECT OF TRANSFER OF CONTROL. The Committee may determine, at the
time of granting Stock Units or thereafter, that all or part of such Stock Units
shall become vested in the event that a Transfer of Control occurs with respect
to the Company. In addition, a separate agreement between the Participant and
the Company may provide that all or part of such Participant's Stock Units shall
become vested in the event that a Transfer of Control occurs with respect to the
Company.
9.5 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Common Share while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of Common Shares, or in a combination of both. Prior to distribution, any
dividend equivalents which are not paid shall be subject to the same conditions
and restrictions as the Stock Units to which they attach.
9.6 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement of vested
Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Common Shares over a series of trading days.
Vested Stock Units may be settled in a lump sum or in installments. The
distribution may occur or commence when all vesting conditions applicable to the
Stock Units have been satisfied or have lapsed, or it may be deferred to any
later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is
settled, the number of such Stock Units shall be subject to adjustment pursuant
to Article 10.
9.7 DEATH OF RECIPIENT. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
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<PAGE> 34
Award recipient, then any Stock Units that become payable after the recipient's
death shall be distributed to the recipient's estate.
9.8 CREDITORS' RIGHTS. A holder of Stock Units shall have no rights
other than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
ARTICLE 10. PROTECTION AGAINST DILUTION.
10.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares and Stock
Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2, 7.2, 8.3 and 9.3;
(c) The number of Common Shares covered by each outstanding
Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award which
has not yet been settled.
Except as provided in this Article 10, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
10.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised
or settled, Options, SARs and Stock Units shall terminate immediately prior to
the dissolution or liquidation of the Company.
10.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Awards by the
surviving corporation or its parent or subsidiary, (c) the substitution
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<PAGE> 35
by the surviving corporation or its parent or subsidiary of its own awards for
the outstanding Awards, (d) full exercisability or vesting and accelerated
expiration of the outstanding Awards or (e) settlement of the full value of the
outstanding Awards in cash or cash equivalents followed by cancellation of such
Awards.
ARTICLE 11. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant
as a result of the exercise of an SAR or the settlement of Stock Units
credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Company's books;
(b) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have Common Shares that otherwise would be delivered to such
Participant as a result of the exercise of an Option or SAR, or the
settlement of Stock Units, converted into amounts credited to a deferred
compensation account established for such Participant by the Committee
as an entry on the Company's books. Such amounts shall be determined by
reference to the Fair Market Value of such Common Shares as of the date
when they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 11 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 11.
ARTICLE 12. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Common
Shares issued in settlement of Stock Units and shall, when issued, reduce the
number of Common Shares available under Article 3.
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<PAGE> 36
ARTICLE 13. LIMITATION ON RIGHTS.
13.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee or
Consultant at any time, with or without cause, subject to applicable laws and a
written employment agreement (if any).
13.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, if applicable, the time when he or she becomes
entitled to receive such Common Shares by filing any required notice of exercise
and paying any required Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
13.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 14. WITHHOLDING TAXES.
14.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
14.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when taxes otherwise would be withheld in
cash.
ARTICLE 15. FUTURE OF THE PLAN.
15.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on June 5, 1997. The Plan shall remain in effect until it is
terminated under Section 15.2, except that no ISOs shall be granted on or after
the 10th anniversary of the later of (a) the date when the Board adopted the
Plan or (b) the date when the Board adopted the most recent increase in the
number
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<PAGE> 37
of Common Shares available under Article 3 which was approved by the Company's
stockholders.
15.2 AMENDMENT OR TERMINATION. The Board or the Committee may, at any
time and for any reason, amend or terminate the Plan. An amendment of the Plan
shall be subject to the approval of the Company's stockholders only to the
extent required by applicable laws, regulations or rules. No Awards shall be
granted under the Plan after the termination thereof. The termination of the
Plan, or any amendment thereof, shall not affect any Award previously granted
under the Plan.
ARTICLE 16. DEFINITIONS.
16.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
16.2 "AWARD" means any award of an Option, an SAR, a Restricted Share or
a Stock Unit under the Plan.
16.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
16.4 "CODE" means the Internal Revenue Code of 1986, as amended.
16.5 "COMMITTEE" means a committee of the Board, as described in Article
2.
16.6 "COMMON SHARE" means one share of the Common Stock of the Company.
16.7 "COMPANY" means McAfee Associates, Inc., a Delaware corporation.
16.8 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
16.9 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
16.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
16.11 "EXERCISE PRICE," in the case of an Option, means the amount for
which one Common Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
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<PAGE> 38
16.12 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
16.13 "ISO" means an incentive stock option described in section 422(b)
of the Code.
16.14 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
16.15 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
16.16 "OPTIONEE" means an individual or estate who holds an Option or
SAR.
16.17 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
16.18 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
16.19 "PARTICIPANT" means an individual or estate who holds an Award.
16.20 "PLAN" means this McAfee Associates, Inc. 1997 Stock Incentive
Plan, as amended from time to time.
16.21 "PREDECESSOR PLAN" means the McAfee Associates, Inc. 1995 Stock
Incentive Plan, as amended.
16.22 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
16.23 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
16.24 "SAR" means a stock appreciation right granted under the Plan.
16.25 "SAR AGREEMENT" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
16.26 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
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<PAGE> 39
16.27 "STOCK UNIT" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
16.28 "STOCK UNIT AGREEMENT" means the agreement between the Company and
the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
16.29 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
16.30 "TRANSFER OF CONTROL" shall mean:
(a) The direct or indirect sale or exchange by the stockholders
of the Company of all or substantially all of the voting stock of the
Company wherein the stockholders of the Company immediately before such
sale or exchange do not retain in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately
before such event, directly or indirectly (including, without
limitation, through their ownership of shares of the voting stock of a
corporation which, as a result of such sale or exchange, owns the
Company either directly or through one or more subsidiaries), at least a
majority of the beneficial interest in the voting stock of the Company
immediately after such sale or exchange;
(b) A merger or consolidation wherein the stockholders of the
Company immediately before such merger or consolidation do not retain in
substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before such event, directly or
indirectly (including, without limitation, through their ownership of
shares of the voting stock of a corporation which, as a result of such
merger or consolidation, owns the Company either directly or through one
or more subsidiaries), at least a majority of the beneficial interest in
the voting stock of the Company immediately after such merger or
consolidation;
(c) The sale, exchange, or transfer of all or substantially all
of the assets of the Company (other than a sale, exchange, or transfer
to one or more corporations (the "Transferee Corporation(s)") wherein
the stockholders of the Company immediately before such sale, exchange,
or transfer retain in substantially the same proportions as their
ownership of shares of the Company's voting stock immediately before
such event, directly or indirectly (including, without limitation,
through their ownership of shares of the voting stock of a corporation
which owns the Transferee Corporation(s) either directly or through
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<PAGE> 40
one or more subsidiaries), at least a majority of the beneficial
interest in the voting stock of the Transferee Corporation(s)
immediately after such event; or
(d) A liquidation or dissolution of the Company.
ARTICLE 17. EXECUTION.
To record the adoption of the Plan by the Board, the Company has
caused its duly authorized officer to execute this document in the name of the
Company.
MCAFEE ASSOCIATES, INC.
By:______________________________
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<PAGE> 41
MCAFEE ASSOCIATES, INC. 1997 STOCK INCENTIVE PLAN
APPENDIX A
PERFORMANCE CRITERIA
<TABLE>
<S> <C>
Cash Flow Expense Reduction
Earnings per Share Growth in Bookings
Gross Margin Growth in Revenue
Net Income Stock Price Increase
Operating Income
Operating Margin
Pre-Tax Profit
Return on Assets
Return on Capital
Return on Stockholder Equity
Growth in any of the above
measures
</TABLE>
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<PAGE> 42
MCAFEE ASSOCIATES, INC. 1997 STOCK INCENTIVE PLAN
APPENDIX B
OPTION GRANTS IN THE NETHERLANDS
This Appendix B to the McAfee Associates, Inc. 1997 Stock Incentive Plan
(the "Plan") sets forth special rules under which Options may be granted to
Employees and Consultants in The Netherlands who are subject to Dutch tax laws
on the date of option grant, as specified in the applicable Stock Option
Agreement (the "Date of Option Grant"). Such Employees and Consultants are
referred to herein as the "Dutch Residents." To the extent that the rules in
this Appendix B are not consistent with the provisions of the Plan, this
Appendix B shall govern. In all other respects, the provisions of the Plan
(including its definitions) shall apply to this Appendix B.
1. EXERCISE PRICE. The Exercise Price of an Option granted to a Dutch
Resident, as specified in the applicable Stock Option Agreement (the "Exercise
Price"), shall not be less than the Fair Market Value of a Common Share on the
Date of Option Grant.
2. EXERCISABILITY. Options granted to a Dutch Resident shall be
exercisable immediately upon grant.
3. RIGHT OF REPURCHASE. If a Dutch Resident ceases to be an Employee or
Consultant for any reason before the fourth anniversary of the Date of Option
Grant, the Company shall have the right to repurchase all or a portion of the
Common Shares (if any) that such Dutch Resident acquired by exercising such
Option. The repurchase price per share shall be equal to the Exercise Price per
share. Prior to the first anniversary of the Date of Option Grant, the right of
repurchase shall apply to all of the Common Shares that the Dutch Resident
acquired by exercising the Option. After 12 months of continuous service as an
Employee or Consultant following the Date of Option Grant, the right of
repurchase shall lapse with respect to 25% of the Common Shares subject to the
Option. Thereafter, the right of repurchase shall lapse with respect to an
additional 2.08333% of the Common Shares subject to the Option for each
additional month of continuous service as an Employee or Consultant. A Dutch
Resident shall not sell, pledge or otherwise transfer the Common Shares that he
or she acquired by exercising an Option as long as such Common Shares remain
subject to the Company's right of repurchase.
4. EXPIRATION DATE. All Options granted to Dutch Residents shall expire
on the fifth anniversary of the Date of Option Grant.
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<PAGE> 43
MCAFEE ASSOCIATES, INC.
2710 WALSH AVENUE
SANTA CLARA, CA 95051
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William L. Larson and Prabhat K. Goyal as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares of
common stock of McAfee Associates, Inc. held of record by the undersigned on
April 8, 1997, at the Annual Meeting of Stockholders to be held on June 5, 1997,
or any adjournment thereof.
(Continued and to be signed on reverse side.)
<PAGE> 44
/x/ Please mark votes as in this example.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE ASSIGNED STOCKHOLDER. IF NO DIRECTION IS TAKEN THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
1. ELECTION OF CLASS II DIRECTOR:
Nominee: Leslie G. Denend
FOR WITHHELD
FOR AGAINST ABSTAIN
2. TO APPROVE THE MCAFEE ASSOCIATES, INC.
1997 STOCK INCENTIVE PLAN.
3. TO RATIFY THE APPOINTMENT OF COOPERS &
LYBRAND, L.L.P. AS THE INDEPENDENT
ACCOUNTANTS OF THE COMPANY FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1997.
4. AT THEIR DISCRETION, THE PROXIES ARE
AUTHORIZED TO VOTE UPON OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears to the left. When
shares are held in joint tenancy, all of such persons
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.
Signature: ______________ Date: ____ Signature: _____________ Date: ____
