<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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
Networks Associates, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
NETWORK ASSOCIATES LOGO
NETWORKS ASSOCIATES, INC.
3965 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
MAY 8, 1998
TO THE STOCKHOLDERS OF NETWORKS 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
Networks Associates, Inc. (the "Company") which will be held at the Santa Clara
Marriott, 2700 Mission College Blvd., Santa Clara, California 95054, on Friday,
May 29, at 8:30 a.m., local time.
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,
/s/ William L. Larson
William L. Larson
Chief Executive Officer
and Chairman of the Board
<PAGE> 3
NETWORK ASSOCIATES LOGO
NETWORKS ASSOCIATES, INC.
3965 FREEDOM CIRCLE
SANTA CLARA, CA 95054
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 1998
------------------------
The Annual Meeting of Stockholders (including any adjournments or
rescheduling thereof, the "Annual Meeting") of Networks Associates, Inc. (the
"Company"), will be held on Friday, May 29, 1998 at 8:30 a.m., local time, at
the Santa Clara Marriott, 2700 Mission College Blvd., Santa Clara, California
95054, for the following purposes:
1. To elect one (1) Class III director to hold office for a three-year
term, until a successor is elected and qualified.
2. To consider a proposal to approve an amendment to the Company's 1997
Stock Incentive Plan (the "Incentive Plan"), to increase the number of
shares of the Company's Common Stock reserved for issuance thereunder by
2,000,000 shares.
3. To consider a proposal to amend the Company's 1994 Employee Stock
Purchase Plan (as amended on January 20, 1997, the "Purchase Plan") to
increase the number of shares of the Company's Common Stock reserved for
issuance thereunder by 1,000,000 shares.
4. 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, 1998.
5. To transact such other business as may properly come before the Annual
Meeting.
Stockholders of record at the close of business on April 15, 1998 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 Networks Associates,
Inc.
On April 30, 1998, the Company's Board of Directors announced a 3-for-2
Common Stock Split (the "3-for-2 Stock Split"). The 3-for-2 Stock Split will be
effected through a stock dividend pursuant to which stockholders of record as of
the close of business on May 12, 1998, will be entitled to receive as a dividend
one share of Company Common Stock for every two shares of Company Common Stock
owned by them (with cash being paid in lieu of fractional shares after
aggregating all shares owned by such stockholder).THE FOREGOING PROPOSALS TO
INCREASE THE SHARES AVAILABLE UNDER THE INCENTIVE PLAN AND THE PURCHASE PLAN BY
2,000,000 SHARES AND 1,000,000 SHARES, RESPECTIVELY, ARE PRIOR TO GIVING
APPROPRIATE EFFECT TO THE 3-FOR-2 STOCK SPLIT EFFECTED BY A STOCK DIVIDEND.
By order of the Board of Directors,
PRABHAT K. GOYAL
Secretary
Santa Clara, California
May 8, 1998
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
NETWORKS ASSOCIATES, INC.
3965 FREEDOM CIRCLE
SANTA CLARA, CALIFORNIA 95054
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the Board of Directors of Networks
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 May 29, 1998, for the purposes set forth in
the accompanying Notice of Annual Meeting. The date of this Proxy Statement is
May 8, 1998, 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, 1997 is
enclosed with this Proxy Statement.
Voting Securities. Only stockholders of record as of the close of business
on April 15, 1998 will be entitled to vote at the Annual Meeting, including any
adjournment or rescheduling thereof. As of that date, there were 71,727,637
shares of Common Stock of the Company, par value $.01 per share, issued and
outstanding. In addition, as of April 15, 1998, there was one share of Series A
Preferred Stock outstanding. The share of Series A Preferred was issued in
connection with the Company's acquisition of FSA Corporation in September 1996.
The share of Series A Preferred Stock has the right to cast a number of votes
equal to the number of shares of Common Stock issuable in exchange for certain
exchangeable non-voting shares of FSA Corporation. As of April 15, 1998, such
exchangeable shares of FSA Corporation were exchangeable for 325,062 shares of
Networks Associates Common Stock. 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 Restated 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. 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
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against the proposals presented in this Proxy Statement will not be used to vote
in favor of any such adjournment.
Stock Dividend. On April 30, 1998, the Company's Board of Directors
announced a 3-for-2 Common Stock Split (the "3-for-2 Stock Split"). The 3-for-2
Common Stock Split will be effected through a stock dividend pursuant to which
stockholders of record on May 12, 1998 will be entitled to receive a stock
dividend of one share of Company Common Stock for every two shares of Company
Common Stock owned by them (with cash being paid in lieu of fractional shares
after aggregating all shares held by such stockholders). UNLESS OTHERWISE
INDICATED, REFERENCES HEREIN TO NUMBERS OF SHARES (INCLUDING WITH RESPECT TO THE
RESOLUTIONS TO INCREASE SHARES AVAILABLE UNDER THE COMPANY'S 1997 STOCK
INCENTIVE PLAN AND 1994 EMPLOYEE STOCK PURCHASE PLAN) DO NOT GIVE EFFECT TO THE
3-FOR-2 STOCK SPLIT AND THE RELATED STOCK DIVIDEND WHICH IS EXPECTED TO BE PAID
ON OR ABOUT MAY 29, 1998.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of two Class I
directors (Virginia Gemmell and Edwin L. Harper), two Class II directors (Leslie
G. Denend and Harry J. Saal), and one Class III director (William L. Larson),
who have been elected to serve until the Annual Meetings of Stockholders to be
held in 1999, 2000 and 1998, respectively, and until their respective successors
are duly elected and qualified. Effective April 30, 1998, John C. Bolger,
formerly a Class I director, resigned from the Board of Directors and, in
connection therewith, the Board of Directors was reduced to five members from
six. At each Annual Meeting of Stockholders, directors are elected for a full
term of three years to succeed those directors whose terms expire at each Annual
Meeting of Stockholders.
The nominee of the Board of Directors for election to Class III of the
Board of Directors at the Annual Meeting is William L. Larson.
If elected, the Board of Director's nominee will serve as director until
the Company's Annual Meeting of Stockholders in 2001, 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 III 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 III
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:
Virginia Gemmell............................... Director 49 1996
Edwin L. Harper................................ Director 53 1993
Class II directors whose terms expire at the 2000 Annual Meeting of
Stockholders:
Leslie G. Denend............................... Director 57 1995
Harry J. Saal.................................. Director 54 1997
Class III director whose term expires at the 1998 Annual Meeting of
Stockholders:
William L. Larson.............................. Chief Executive Officer and 42 1993
Chairman of the Board
</TABLE>
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 a
Managing Partner of Synectics, Inc., a consulting firm.
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<PAGE> 6
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 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
currently 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. In
December 1997 Mr. Denend was elected President of the Company. Effective April
30, 1998, Mr. Denend resigned as President of the Company. From June of 1993 to
December 1997, Mr. Denend was Chief Executive Officer and President of Network
General Corporation ("Network General"). From February of 1993 to June of 1993,
Mr. Denend was Senior Vice President of Network General. Mr. Denend serves as a
director of Rational Software, Proxim Inc., Informix Corporation and United
Services Automobile Association.
Dr. Saal has been a director of the Company since December 1997. He was a
founder of Network General, and served as Chairman of the Network General Board
of Directors from its inception until it merged with the Company in December
1997. Dr. Saal served as President of Smart Valley Inc., a trade association,
from September 1993 until December 1995. He served as President and Chief
Executive Officer of Network General from its inception in May 1986 until June
1993. He was also Network General's Chief Financial Officer from May 1986 until
November 1987. Dr. Saal is also a director of Imaging Technologies Corporation,
Borland International, Inc., and Globalnet Systems, Limited and serves as a
director of several privately-held companies and non-profit associations.
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. Mr. Larson served as
President until December 1997. 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, 1997, the Board of Directors held
fourteen (14) meetings. No director serving on the Board during 1997 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, 1997, the members of the Audit Committee were Messrs.
Harper and Bolger. The current members of the Audit Committee are Mr. Harper and
Dr. Saal. Effective April 30, 1998, Mr. Bolger resigned from the Board of
Directors. During the year ended December 31, 1997, 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, 1997, the
members of the Compensation Committee were Ms. Gemmell, Mr. Denend and Mr.
Harper. The current members of the Compensation Committee are Ms. Gemmell and
Mr. Harper. During the year ended December 31, 1997, the Compensation Committee
held four (4) meetings. For additional information concerning the Compensation
Committee, see "EXECU-
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<PAGE> 7
TIVE COMPENSATION AND OTHER MATTERS -- Compensation Committee Interlocks and
Insider Participation in Compensation Decisions" and "COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION."
PROPOSAL NO. 2 -- AMENDMENT OF NETWORKS ASSOCIATES, INC. 1997 STOCK INCENTIVE
PLAN -- INCREASE IN NUMBER OF SHARES ELIGIBLE FOR GRANT
At the Annual Meeting, the Company's stockholders will be asked to consider
and vote upon a proposal to amend the Networks Associates, Inc. 1997 Stock
Incentive Plan (the "Incentive Plan").
BACKGROUND OF THE INCENTIVE PLAN
The Company's Board of Directors and stockholders adopted and approved the
Incentive Plan in April 1997 and June 5, 1997, respectively. In connection with
the Company's merger with Network General, on December 1, 1997 the stockholders
approved an amendment to the Incentive Plan to increase the number of shares
issuable thereunder by 2 million shares. As a result of the Network General
merger, the Company's workforce effectively doubled. Currently a maximum of 5.85
million shares of Common Stock may be issued under the Incentive Plan. Of that
number, as of March 31, 1998, options to purchase 4,300,514 shares were
outstanding and 1,549,250 shares remained available for future grants. Since the
Network General merger, in addition to several significantly smaller
acquisitions, the Company has acquired the following companies: Pretty Good
Privacy, Inc. (a provider of encryption software), Magic Solutions
International, Inc. (an internal help desk company), Helix Software Company (a
developer of memory and performance enhancement software) and Trusted
Information Systems, Inc. (a provider of firewalls and network security software
products). In connection with these acquisitions, the Company has added or
expects to add approximately 150 additional employees. In addition, the Company
continually evaluates potential acquisitions of complementary businesses,
products and technologies. To provide an adequate reserve of shares for
continued operation of the Incentive Plan, the Board of Directors has amended
the Incentive Plan, subject to approval by the stockholders, to increase the
maximum number of shares of Common Stock issuable under the Incentive Plan by
another 2.0 million shares (or 3.0 million shares after giving effect to the
3-for-2 Stock Split). This will increase the total maximum number of shares to
7.85 million (or 11.78 million after giving effect to the 3-for-2 Stock Split).
As of April 15, 1998, the closing price of the Company's Common Stock on the
NASDAQ National Market was $63.50 per share.
The Company believes that stock options 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.
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 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
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other conditions. Employees, non-employee 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, 1998,
approximately 1,530 employees and 45 consultants would have been eligible to
participate in the Incentive Plan as compared to 589 employees and 223
consultants as of March 31, 1997.
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.
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 through a
"cashless exercise" in a broker assisted transaction.
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.
This appreciation may be in shares of Common Stock, 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 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
5
<PAGE> 9
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. This
performance is 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, 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, as
amended by the Board of Directors and subject to shareholder approval, is 7.85
million (subject to anti-dilution adjustments, including as a result of the
Company's pending stock dividend). 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, 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. To comply with the 162(m) limit,
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 (subject to anti-dilution adjustments) 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.
6
<PAGE> 10
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held between 12 and
18 months may be taxed at a maximum federal rate of 28%, while net capital gains
on shares held for more than 18 months may be taxed at a maximum federal rate of
20%. Capital losses are allowed in full against capital gains and up to $3,000
against other income. If these holding periods are not satisfied, the optionee
recognizes ordinary income at the time of disposition equal to the difference
between the exercise price and the lower of (i) the fair market value of the
shares at the date of the option exercise or (ii) the sale price of the shares.
Any gain or loss recognized on such a premature disposition of the shares in
excess of the amount treated as ordinary income is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon such a premature disposition may apply
if the optionee is also an officer, director, or 10% shareholder of the Company.
Unless limited by Section 162(m) of the Code, the Company is entitled to a
deduction in the same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held between 12 and
18 months may be taxed at a maximum federal rate of 28%, while net capital gains
on shares held for more than 18 months may be taxed at a maximum federal rate of
20%. Capital losses are allowed in full against capital gains and up to $3,000
against other income.
Restricted Shares. Restricted shares will generally be taxed in the same
manner as nonstatutory stock options. At the time of purchase, restricted shares
are subject to a "substantial risk of forfeiture" within the meaning of Section
83 of the Code, because the Company may repurchase the shares when the purchaser
ceases to provide services to the Company. As a result of this substantial risk
of forfeiture, the purchaser will not recognize ordinary income at the time of
purchase. Instead, the purchaser will recognize ordinary income on the dates
when the shares are no longer subject to a substantial risk of forfeiture (i.e.,
when the Company's right of repurchase lapses). The purchaser's ordinary income
is measured as the difference between the purchase price and the fair market
value of the shares on the date the shares are no longer subject to right of
repurchase.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and begin his or her capital gains holding period by
timely filing (i.e., within thirty days of the purchase), an election pursuant
to Section 83(b) of the Code. In such event, the ordinary income recognized, if
any, is measured as the difference between the purchase price and the fair
market value of the shares on the date of purchase, and the capital gain holding
period commences on such date. The ordinary income recognized by a purchaser who
is an employee will be subject to tax withholding by the Company. Different
rules may apply if the purchaser is also an officer, director, or 10%
shareholder of the Company.
Stock Appreciation Rights. No income will be recognized by a recipient in
connection with the grant of a stock appreciation right. When the stock
appreciation right is exercised, the recipient generally will be required to
include as taxable ordinary income in the year of exercise an amount equal to
the sum of the amount of cash received and the fair market value of any Common
Stock received on the exercise. In the case of a recipient who is also an
employee, an income recognized on exercise of a stock appreciation right will
7
<PAGE> 11
constitute wages for which withholding will be required. The Company will be
entitled to a tax deduction in the same amount. If the optionee receives Common
Stock upon the exercise of a stock appreciation right, any gain or loss on the
subsequent sale of such stock will be treated in the same manner as discussed
above under "Nonstatutory Stock Options."
Stock Units. The grant of a stock unit award produces no U.S. federal
income tax consequences for the participant or the Company. The payment of a
stock unit award results in taxable income to the participant equal to the
amount of the payment received, valued with reference to the market value of the
Common Stock on the payment date. The Company is entitled to a corresponding tax
deduction for the same amount.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES, HOLDERS OF STOCK PURCHASE RIGHTS, AND THE COMPANY WITH RESPECT
TO THE GRANT AND EXERCISE OF OPTIONS AND STOCK PURCHASE RIGHTS UNDER THE PLAN.
IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF
THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT
MAY RESIDE.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the voters 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 THIS PROPOSAL TO INCREASE BY
2,000,000 THE NUMBER OF SHARES ISSUABLE UNDER THE INCENTIVE PLAN.
PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO THE NETWORKS ASSOCIATES, INC. 1994
EMPLOYEE STOCK PURCHASE PLAN
The Networks Associates, Inc. 1994 Employee Stock Purchase Plan (the
"Purchase Plan") provides for the purchase of the Company's Common Stock by
employees of the Company. The Board of Directors and stockholders adopted and
approved the Purchase Plan on April 14, 1994 and June 8, 1994, respectively, and
subsequent amendments thereto from time to time. Currently a maximum of 506,250
shares of Common Stock may be issued to eligible employees pursuant to the
Purchase Plan. Of that number, as of March 31, 1998, a total of 116,322 shares
had been issued under the Purchase Plan and 389,928 shares remained available
for future purchase.
The Board of Directors believes that the Purchase Plan is an important
factor in attracting and retaining qualified employees, essential to the success
of the Company, and that an adequate reserve of shares available for issuance
under the Purchase Plan is therefore in the best interests of the Company and
the stockholders.
BACKGROUND OF THE PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which will be made
available to any stockholder upon written request.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. Each participant in the Purchase Plan is
granted at the beginning of each Offering Period under the plan (an "Offering
Period") the right to purchase through accumulated payroll deductions up to a
number of shares of the Common Stock of the company determined on the first day
of the Offering Period. The purchase right is automatically exercised on the
last day of the Offering Period unless the participant has withdrawn from
participation in the Offering Period or in the Purchase Plan prior to such date.
The Plan is administered by the Board of Directors and/or by a duly
appointed committee with powers specified by the Board of Directors (hereinafter
referred to as the "Board"). All questions of interpretation of the Purchase
Plan are determined by the Board, and such determinations are final and binding.
Subject to the
8
<PAGE> 12
provisions of the Purchase Plan, the Board determines all relevant terms and
conditions of Purchase rights provided that all Participants have the same
rights and privileges within the meaning of section 423(b) of the Code.
As amended, an aggregate of up to 1,506,250 (or 2,259,375 after giving
effect to the 3-for-2 Stock Split and the related dividend) of the authorized
but unissued shares of the Company's Common Stock may be issued upon the
exercise of Purchase Rights under the Purchase Plan (subject to anti-dilution
adjustments). If any Purchase Right expires or terminates, the shares subject to
the unexercised portion of such Purchase Right will again be available for sale
under the plan.
Any employee of the Company and its subsidiary corporations, is eligible to
participate in the Plan, as long as that employee has been continuously employed
by the Company for at least 30 days as of the commencement of an Offering
Period, and is customarily employed by the Company for more than 20 hours per
week. No person who, as a result of participation in the Plan, would own or hold
options to purchase stock of the Company possessing 5% or more of the total
combined voting power of value of all classes or stock of the Company may
participate in the Purchase Plan.
The Purchase Plan permits eligible employees to purchase shares of Common
Stock of the Company through payroll withholding. Generally, each offering of
Common Stock under the Purchase Plan is for a period of twelve months (the
"Offering Period"), and offering periods start on February 1 and August 1 of
each year and end on the first January 31 and July 31, respectively, thereafter.
Each Offering Period consists of two consecutive six-month purchase periods
(individually, a "Purchase Period"). Generally, participants in the Purchase
Plan purchase shares on the last day of a Purchase Period.
The purchase price of shares acquired in any Offering Period under the
Purchase Plan is set by the Board; provided, however, that the purchase price
will generally be, and cannot be less than, 85% of the lesser of (a) the fair
market value of the shares on the Offering Date, or (b) the fair market value of
the shares on the Purchase Date.
Participation in a Purchase Period under the Purchase Plan is limited to
eligible employees who authorize payroll deductions prior to the start of the
Purchase Period. A participating employee's payroll withholding may not exceed
15% of that employee's compensation during any period. No participant may
purchase more than 5,000 shares during any Offering Period or shares with a fair
market value (determined on the Offering Date) exceeding $25,000 for each
calendar year in which the participant participates in the Purchase Plan.
Generally, upon termination of participation in the Purchase Plan, all amounts
withheld on behalf of an employee for a current Purchase Period are refunded to
the employee. No interest is paid on the amounts withheld.
The Purchase Plan provides that in the event of a Transfer of Control, the
Board may arrange with the surviving, continuing, successor, or purchasing
corporation to assume the Company's rights and obligations under the Plan. All
Purchase Rights terminate effective as of the date of the Transfer of Control to
the extent that the Purchase Rights are neither exercised nor assumed.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE PLAN
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
Generally, there are no tax consequences to an employee of either becoming
a participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years of the Offering Date or within one year of the Purchase Date on
which the shares are acquired (a "disqualifying disposition"), the participant
recognizes ordinary income in the year of disposition in an amount equal to the
excess, if any, of the fair market value of the shares on the Purchase Date over
the purchase price. The participant's adjusted basis in the shares is the sum of
the purchase price plus the amount of ordinary
9
<PAGE> 13
income recognized. Any additional gain or resulting loss recognized by the
participant from the disposition of the shares is a capital gain or loss. If the
participant disposes of shares more than two years after the Offering Date and
more than one year after the Purchase Date on which the shares are acquired, the
participant recognizes ordinary income in the year of disposition in an amount
equal to the lesser of (i) 15% of the fair market value of the shares on the
Offering Date of the Offering in which the shares were acquired or (ii) the
amount by which the fair market value of the shares on the date of disposition
exceeded the purchase price. Any additional gain recognized by the participant
in excess of the participant's adjusted basis is capital gain. If the fair
market value of the shares on the date of disposition is less than the purchase
price, the participant recognizes no ordinary income and the loss is a capital
loss.
A capital gain or loss will be long-term if the participant holds the
shares for more than twelve months and short-term if the participant holds the
shares for twelve months or less. Presently long-term capital gains are subject
to a maximum federal income tax rate of 28%.
If the participant disposes of the shares in a disqualifying disposition
the Company should be entitled to a deduction equal to the amount of ordinary
income recognized by the participant as a result of the disposition, subject to
the deduction limit under section 162(m) of the Code. In all other cases, no
deduction is allowed to the Company.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting, 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 THIS PROPOSAL TO INCREASE BY 1,000,000 THE NUMBER OF
SHARES ISSUABLE UNDER THE PURCHASE PLAN.
PROPOSAL NO. 4 -- 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, 1998. 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, 1998.
10
<PAGE> 14
MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company as of April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE
---- ------------------------- ---
<S> <C> <C>
William L. Larson... Chief Executive Officer and Chairman of the Board 42
Dennis L. Cline..... Executive Vice President of Worldwide Sales 37
Prabhat K. Goyal.... Chief Financial Officer, Vice President of Finance and 43
Administration, Treasurer and Secretary
Zachary A. Nelson... Executive Vice President of Total Service Desk Division 36
Peter R. Watkins.... Executive Vice President of Total Virus and Defense Division 43
</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. Mr. Larson served as
President of the Company until December 1997. 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 became Executive Vice President of Worldwide Sales in January
1998. He 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. 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. In January 1998, he became General Manager of the
Company's Total Service Desk Division. 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, International
Sales. 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.
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.
11
<PAGE> 15
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of April 15, 1998,
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)(2) OF SHARES OF CLASS
------------------------------------------- --------- ----------
<S> <C> <C>
T. Rowe Price Associates, Inc. (3).......................... 5,667,633 7.9%
100 East Pratt Street
Baltimore, MD 21202
Equitable Companies, Inc. (4)............................... 3,902,041 5.5%
787 Seventh Ave.
New York, NY 10019
William L. Larson (5)....................................... 656,719 *
John C. Bolger (6).......................................... 17,750 *
Leslie G. Denend (7)........................................ 244,938 *
Virginia Gemmell (8)........................................ 10,750 *
Edwin L. Harper (9)......................................... 30,825 *
Harry J. Saal............................................... 659,477 *
Dennis L. Cline (10)........................................ 156,563 *
Prabhat K. Goyal (11)....................................... 122,500 *
Peter R. Watkins (12)....................................... 110,672 *
Executive officers and directors as a group (10
persons)(13).............................................. 1,923,631 2.7%
</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) Unless otherwise indicated in these notes, the address of each person named
above is in care of the Company at 3965 Freedom Circle Santa Clara, CA
95054.
(3) According to Schedule 13G filed with the Securities and Exchange Commission
(the "Commission") on February 10, 1998, T. Rowe Price Associates, Inc. has
sole voting power with respect to 542,270 of these shares and sole
dispositive power with respect to all 5,667,633 shares.
(4) According to Schedule 13G filed with the Commission on February 13, 1998,
Equitable Companies, Inc., has sole voting power, shared voting power, sole
dispositive power and shared dispositive power with respect to 962,920,
2,886,713, 3,900,067 and 1,974 shares, respectively.
(5) Includes 656,719 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
(6) Includes 17,750 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
Effective April 30, 1998, Mr. Bolger resigned as a director of the Company.
(7) Includes 239,406 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
225,540 of the shares subject to the aforementioned stock options were
granted to Mr. Denend pursuant to his employment with Network General and
subsequently converted into options to purchase shares of the Company's
Common Stock on December 1, 1997 when the Company acquired Network General
and Mr. Denend was elected President of the Company. Effective April 30,
1998, Mr. Denend resigned as President of the Company.
(8) Includes 10,750 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
12
<PAGE> 16
(9) Includes 30,825 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
(10) Includes 156,563 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
(11) Includes 122,500 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
(12) Includes 109,844 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
(13) Includes 1,257,794 shares subject to stock options that are currently
exercisable or will become exercisable within 60 days of April 15, 1998.
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, 1997 whose
total salary and bonus for the year ended December 31, 1997 exceeded $100,000,
in all cases for services in all capacities to the Company during the years
ended December 31, 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
OTHER SECURITIES ALL OTHER
SALARY ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS($) COMPENSATION($) OPTIONS (#) ($)(2)
--------------------------- ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson(3) 1997 $286,268 $279,600 0 800,000 $2,375
Chief Executive Officer and 1996 248,260 151,044 0 0 2,375
Chairman of the Board 1995 220,008 229,676 0 1,181,250 2,310
Leslie G. Denend (4) 1997 $426,313 $273,000 0 177,930 $2,375
President and Director 1996 311,250 241,421 0 0 2,375
1995 291,252 217,266 0 209,178 2,310
Prabhat K. Goyal (5) 1997 $188,469 $ 94,913 0 200,000 $2,375
Chief Financial Officer, 1996 111,591 45,858 0 300,000 1,684
Vice President of Finance and 1995 -- -- -- -- --
Administration, Treasurer and
Secretary
Dennis L. Cline 1997 $175,007 $103,865 $ 52,083(6) 200,000 $2,375
Vice President of 1996 109,503 99,100 0 75,000 2,375
Worldwide Sales 1995 100,000 92,642 0 337,500 1,802
Peter R. Watkins (7) 1997 $191,289 $ 66,577 $ 11,357(6) 200,000 $2,375
Vice President and General 1996 144,488 87,358 108,748(8) 56,250 2,202
Manager of Total Virus and 1995 123,259 20,025 56,949(9) 421,875 0
Defense Division
</TABLE>
- ---------------
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) Represents contributions made by the Company pursuant to the Company's
401(k) Plan.
(3) Mr. Larson was elected Chairman of the Board in April 1995.
(4) Mr. Denend joined the Company as President on December 1, 1997. Prior to
December 1, 1997, Mr. Denend served as President and Chief Executive
Officer of Network General. The compensation shown above for the years
1995, 1996 and 1997 (from January 1, 1997 through December 1, 1997)
represents compensation paid to Mr. Denend by Network General for his role
as President and Chief Executive Officer, prior to the Company's
acquisition of Network General. Mr. Denend resigned as President of the
Company effective April 30, 1998.
(5) Mr. Goyal joined the Company in March 1996.
13
<PAGE> 17
(6) Represents reimbursement of relocation costs.
(7) Mr. Watkins joined the Company in May 1995.
(8) Represents cost of living allowance for overseas assignment and amounts
reimbursed for payment of certain taxes.
(9) Represents cost of living allowance for overseas assignment.
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the year ended
December 31, 1997 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED(#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ------------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson......... 800,000(4) 13.4% $40.00 03/20/07 $20,124,628 $50,999,759
Leslie G. Denend.......... 166,680(5) 2.8% $36.30 05/06/07 $ 3,805,117 $ 9,642,913
11,250(6) 0.2% $61.75 06/16/07 $ 436,885 $ 1,107,153
Prabhat K. Goyal.......... 200,000(7) 3.3% $40.00 03/20/07 $ 5,031,157 $12,749,940
Dennis L. Cline........... 200,000(8) 3.3% $40.00 03/20/07 $ 5,031,157 $12,749,940
Peter R. Watkins.......... 200,000(9) 3.3% $40.00 03/20/07 $ 5,031,157 $12,749,940
</TABLE>
- ---------------
(1) Generally, initial grants of options made in 1997 under the Company's
Incentive 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.
However, all of the options noted above have the ability to vest at an
accelerated rate based on the individual's ability to attain certain
financial targets set forth by the Board. Under the Incentive Plan, the
Board retains discretion to modify the terms of outstanding options. See
also "Employment and Change in Control Arrangements." Under the Incentive
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) This option vests over a period of three years commencing in March 1997 at a
rate of one-third on each of the first, second and third anniversary of the
date of grant.
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<PAGE> 18
(5) This option was granted to Mr. Denend in May 1997 pursuant to his role as
President and Chief Executive Officer of Network General. On December 1,
1997, the option was converted at a rate of 0.4167 into the right to acquire
166,680 shares of the Company's Common Stock in connection with the
Company's acquisition of Network General and Mr. Denend's appointment as
President of the Company. This option vests over a period of four years
commencing in May 1997 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.
Denend's continuous employment with the Company. Mr. Denend resigned as
President of the Company effective April 30, 1998.
(6) This option was granted to Mr. Denend on June 16, 1997 pursuant to his role
as a director of the Company. This option vests three years from the date of
grant.
(7) This option vests over a period of three years commencing in March 1997 at a
rate of one-third on each of the first, second and third anniversary of the
date of grant.
(8) This option vests over a period of three years commencing in March 1997 at a
rate of one-third on each of the first, second and third anniversary of the
date of grant.
(9) This option vests over a period of three years commencing in March 1997 at a
rate of one-third on each of the first, second and third anniversary of the
date of grant.
The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock during the year ended December
31, 1997, and unexercised options held as of December 31, 1997, 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 12/31/97(#) 12/31/97($)(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William L. Larson...... 600,000 $30,923,507 356,407 1,477,344 $16,151,554 $39,581,404
Leslie G. Denend(3).... 50,421 $ 2,395,056 422,531 45,000 $ 7,566,534 $ 1,077,656
Prabhat K. Goyal....... 65,625 $ 2,171,667 56,249 378,126 $ 1,160,397 $ 6,764,469
Dennis L. Cline........ 70,313 $ 3,705,672 51,562 314,845 $ 1,584,956 $ 6,132,559
Peter R. Watkins....... 79,101 $ 3,896,244 70,899 378,712 $ 3,052,561 $10,207,330
</TABLE>
- ---------------
(1) Market price on date of exercise, less exercise price.
(2) Based on the closing price of $52.875 on December 31, 1997, less exercise
price.
(3) Mr. Denend was granted options to purchase approximately 1,004,994 shares of
Network General Common Stock pursuant to his role as President and Chief
Executive Officer of Network General prior to December 1, 1997. On December
1, 1997 -- upon consummation of the merger between the Company and Network
General and upon Mr. Denend's appointment as President of the Company -- Mr.
Denend's options to acquire Network General Common Stock were converted into
the right to acquire the Company's Common Stock at a conversion rate of
0.4167. Effective April 30, 1998, Mr. Denend resigned as President of the
Company.
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 Executive Vice President of
Worldwide Sales of the Company, entered into an agreement with the Company that
provides that, in the event his employment with the
15
<PAGE> 19
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.
Zachary A. Nelson, who currently serves as Executive Vice President of
McAfee Total Service Desk Division 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 Incentive Plan, applicable to options granted
after June 1997, provide that in the event of a "transfer of control" of the
Company, the acquiring corporation shall assume the options outstanding under
the Incentive 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. Since April 1995, the Company has entered into an agreement
with each of its executive officers which provides 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.
COMPENSATION OF DIRECTORS
The two employee directors of the Company, Messrs. Larson and Denend, did
not receive any cash compensation for their services as members of the Board of
Directors of the Company in the year ended December 31, 1997. 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 25,000 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
10,000 shares of Common Stock. Prior to an amendment of the Director's Plan in
April 1997, directors received an initial grant of 33,750 shares and annual
grants of 11,250 shares. In 1997, Ms. Gemmell and Messrs. Denend, Harper and
Bolger each received an option to purchase 11,250 shares, and Dr. Saal who
joined the Board in December 1997 received an initial grant of an option to
purchase 25,000 shares. 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 1997 Stock
Incentive Plan, 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Ms. Gemmell, Mr. Denend and Mr. Harper served as members of the Board of
Directors' Compensation Committee during fiscal 1997. On December 1, 1997, Mr.
Denend became President of the Company and subsequently ceased to be a member of
the Compensation Committee. At that time, Mr. Denend was replaced by Mr. Harper.
No members of the Compensation Committee were at any time during 1997 or at any
other time an officer or employee of the Company. No executive officer of the
Company served as a member of the
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<PAGE> 20
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, Mr. Cline and Mr. Nelson and
change of control agreements entered into with each of the Company's executive
officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors was comprised of two
members during 1997, and is still currently comprised of two members. No member
of the Compensation Committee was at any time during 1997 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'
17
<PAGE> 21
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 and 1997, Mr.
Larson's base salary increased by approximately thirteen percent (13%) and
fifteen percent (15%), respectively. 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,
1995 and 1996, 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.
Bonuses
Awards under the Company's Executive Bonus Plan for 1997 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 1997, bonuses awarded under the plan to Mr. Larson, the
Company's Chief Executive Officer, totaled $279,600. The bonus received by Mr.
Larson under the plan comprised approximately 49% of his total compensation.
Bonuses awarded under the plan to other executive officers in 1997 represented
between 26% and 39% 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 1997 are described under the heading "EXECUTIVE
COMPENSATION AND OTHER MATTERS" in the table entitled "OPTION GRANTS IN LAST
FISCAL YEAR." In 1997, Mr. Larson was granted options to purchase 800,000 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 the Incentive Plan and amendments to the Company's 1995 Stock Incentive
Plan both
18
<PAGE> 22
of which 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
Virginia Gemmell
Edwin Harper
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 December 31, 1993 and ending on December 31, 1997. 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 DECEMBER 31, 1993 THROUGH DECEMBER 31, 1997(1):
NETWORKS ASSOCIATES, INC., NASDAQ US AND C&DP INDEX
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD 'NETWORKS NASDAQ STOCK COMPUTER & DATA
(FISCAL YEAR COVERED) ASSOCIATES, INC.' MARKET-US PROCESSING
<S> <C> <C> <C>
DEC-93 100 100 100
DEC-94 270 98 121
DEC-95 878 138 185
DEC-96 1982 170 228
DEC-97 2382 209 280
</TABLE>
- ---------------
(1) Assumes that $100.00 was invested on January 1, 1993.
19
<PAGE> 23
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.
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 1997 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 1997 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) Mark Woodward, a former employee of the Company, in
connection with his sale of the Company's Common Stock in May, 1997, (ii) Dennis
Cline, the Company's Vice President of Worldwide Sales, in connection with his
sales of the Company's Common Stock in May, 1997 and July, 1997, (iii) Leslie
Denend, a director of the Company, in connection with his sale of the Company's
Common Stock in July, 1997, and (iv) Richard T. Duryea, a former employee of the
Company, in connection with his sale of the Company's Common Stock in July,
1997.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company must be received by the Company at
its offices at 3965 Freedom Circle, Santa Clara, California 95054, no later than
January 29, 1998, and satisfy the conditions established by the Securities and
Exchange Commission for stockholder proposals to be included in the Company's
proxy statement for that meeting.
20
<PAGE> 24
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
May 8, 1998
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.
21
<PAGE> 25
4300-PS-98
<PAGE> 26
DETACH HERE
PROXY
NETWORKS ASSOCIATES, INC.
3965 Freedom Circle
Santa Clara, California 95054
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 on the reverse side, all
the shares of common stock of Networks Associates, Inc. held of record by the
undersigned on April 15, 1998, at the Annual Meeting of Stockholders to be held
on May 29, 1998, or any adjournment thereof.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE (Continued and to be signed on reverse side) SIDE
- ----------- -----------
<PAGE> 27
DETATCH HERE
[ 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 1,2,3 and 4. The following proposals to
increase the number of shares available under the 1997 Stock Incentive
Plan and the 1994 Employee Stock Purchase Plan by 2,000,000 shares and
1,000,000 shares, respectively, are prior to giving appropriate effect
to the three for two stock split effected through a stock dividend.
1. Election of Class III Director.
Nominees: William L. Larson
For Withheld
[ ] [ ] MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW
[ ]
2. To approve an amendment to the 1997 Stock Incentive Plan to increase
the number of shares of the Company's Common Stock reserved for
Issuance thereunder by 2,000,000 shares.
For Against Abstain
[ ] [ ] [ ]
3. To approve an amendment to the 1994 Employee Stock Purchase Plan to
increase the number of shares of the Company's Common Stock reserved
for issuance thereunder by 1,000,000 shares.
For Against Abstain
[ ] [ ] [ ]
4. To ratify the appointment of Coopers & Lybrand L.L.P. as the
Independent accountants for the fiscal year ending December 31, 1998.
For Against Abstain
[ ] [ ] [ ]
5. At their discretion, the proxys are authorized to vote upon other
business as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPLY 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:_____________
