<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ARBOR SOFTWARE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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>
ARBOR SOFTWARE CORPORATION
1325 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
June 24, 1996
TO THE STOCKHOLDERS OF ARBOR SOFTWARE CORPORATION
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Arbor Software Corporation (the "Company"), which will be held at the Garden
Court Hotel, 520 Cowper Street, Palo Alto, California 94301, on Tuesday, July
23, 1996, at 4:00 p.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 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 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,
James A. Dorrian
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
<PAGE>
ARBOR SOFTWARE CORPORATION
1325 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1996
------------------------
The Annual Meeting of Stockholders ("Annual Meeting") of Arbor Software
Corporation (the "Company") will be held at the Garden Court Hotel, 520 Cowper
Street, Palo Alto, California 94301, on Tuesday, July 23, 1996, at 4:00 p.m. for
the following purposes:
1. To elect five members of the Board of Directors to serve until the
next Annual Meeting or until their successors have been duly elected and
qualified;
2. To approve an amendment to the Company's 1995 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 1,000,000 shares;
3. To approve an amendment to the Company's Certificate of
Incorporation increasing the number of shares of the Company's Common Stock
reserved for issuance thereunder by 25,000,000 shares;
4. To ratify the appointment of Price Waterhouse LLP as the Company's
independent public accountants for the fiscal year ending March 31, 1997;
and
5. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the attached
Proxy Statement.
Only stockholders of record at the close of business on June 14, 1996 are
entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 1325
Chesapeake Terrace, Sunnyvale, California, during ordinary business hours for
the ten-day period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert V. Gunderson, Jr.
SECRETARY
Sunnyvale, California
June 24, 1996
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 MEETING.
<PAGE>
ARBOR SOFTWARE CORPORATION
1325 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1996
------------------------
These proxy materials are furnished in connection with the solicitation of
proxies by the Board of Directors of Arbor Software Corporation, a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Garden Court Hotel, 520 Cowper Street, Palo Alto,
California 94301, on Tuesday, July 23, 1996, at 4:00 p.m., and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to stockholders on or about June 24, 1996.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders.
Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to vote at
the Annual Meeting. On June 14, 1996, the record date for determination of
stockholders entitled to vote at the Annual Meeting, there were [ ] shares of
Common Stock outstanding. Each stockholder of record on June 14, 1996 is
entitled to one vote for each share of Common Stock held by such stockholder on
June 14, 1996. Shares of Common Stock may not be voted cumulatively. All votes
will be tabulated by the inspector of election appointed for the meeting, who
will separately tabulate affirmative and negative votes, abstentions, and broker
non-votes.
QUORUM REQUIRED
The Company's bylaws provide that the holders of a majority of the Company's
Common Stock issued and outstanding and entitled to vote at the Annual Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-votes
will be counted as present for the purpose of determining the presence of a
quorum.
VOTES REQUIRED
PROPOSAL 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person or represented by proxy and entitled to
vote at the Annual Meeting. The five nominees for director receiving the highest
number of affirmative votes will be elected. Abstentions and broker non-votes
are not counted toward a nominee's total. Stockholders may not cumulate votes in
the election of directors.
PROPOSAL 2. Approval of the adoption of the amendment to the Company's 1995
Stock Option/ Stock Issuance Plan requires the affirmative vote of a majority of
those shares present in person or represented by proxy and entitled to vote at
the Annual Meeting. Abstentions will be treated as votes against the proposal.
Broker non-votes will be treated as not entitled to vote on this matter and thus
will have no effect on the outcome of the vote.
1
<PAGE>
PROPOSAL 3. Approval of the adoption of the amendment to the Company's
Certificate of Incorporation requires the affirmative vote of a majority of the
outstanding shares of the Company's Common Stock. Abstentions and broker
non-votes will be treated as votes against the proposal.
PROPOSAL 4. Ratification of the appointment of Price Waterhouse LLP as the
Company's independent public accountants for the fiscal year ending March 31,
1997 requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively at
the Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you are
urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR the Nominees of the Board of Directors (as set forth in
Proposal No. 1), FOR Proposals No. 2, No. 3 and No. 4 and, in the discretion of
the proxy holders, as to other matters that may properly come before the Annual
Meeting. You may also revoke or change your proxy at any time before the Annual
Meeting. To do this, send a written notice of revocation or another signed proxy
with a later date to the Secretary of the Company at the Company's principal
executive offices before the beginning of the Annual Meeting. You may also
automatically revoke your proxy by attending the Annual Meeting and voting in
person. All shares represented by a valid proxy received prior to the Annual
Meeting will be voted.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees, or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. The Company also has retained Morrow & Co. to assist in the
solicitation of proxies. Morrow & Co. will receive a fee for such services of
approximately $3,000 plus out-of-pocket expenses, which will be paid by the
Company. Except as described above, the Company does not presently intend to
solicit proxies other than by mail.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for election to the Board of Directors
(the "Nominees"), their ages as of May 31, 1996, their positions and offices
held with the Company and certain biographical information are set forth below.
The proxy holders intend to vote all proxies received by them in the
accompanying form FOR the Nominees listed below unless otherwise instructed. In
the event any Nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any Nominee who
is unable or will decline to serve as a director. The five Nominees receiving
the highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company to serve until the next
Annual Meeting or until their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NOMINEES AGE HELD WITH THE COMPANY
- ---------------------- --- ----------------------------------------
<S> <C> <C>
James A. Dorrian 43 President, Chief Executive Officer and
Director
John T. Chambers 46 Director
Douglas M. Leone 38 Director
Mark W. Perry 52 Director
Ann L. Winblad 44 Director
</TABLE>
Mr. Dorrian, co-founder of the Company, has served as its President and
Chief Executive Officer since the inception of the Company in April 1991. Prior
to co-founding the Company, Mr. Dorrian was the President of Solutions
Technology, Inc., a software consulting firm specializing in financial software
systems development. Previously, Mr. Dorrian was Western States Director for
Thorn EMI Computer Software, a developer of Executive Information Systems
software. Mr. Dorrian holds a B.A. in Economics from Indiana University.
Mr. Chambers has been a director of the Company since February 1995. Mr.
Chambers has also been with Cisco Systems, Inc. ("Cisco Systems"), a developer
of multiprotocol internetworking systems, since January 1991. His current
positions at Cisco Systems are director and President. Prior to his employment
at Cisco Systems, he was with Wang Laboratories for eight years, most recently
as Senior Vice President of U.S. Operations.
Mr. Leone has been a director of the Company since June 1991. Mr. Leone has
been a General Partner of Sequoia Capital VI, a venture capital investment firm,
since March 1993. From July 1988 to February 1993, Mr. Leone was an Associate at
Sequoia Capital, a venture capital investment firm. Mr. Leone holds a B.S. in
Mechanical Engineering from Cornell University, an M.S. in Industrial
Engineering from Columbia University, and an M.S. in Management from the
Massachusetts Institute of Technology.
Mr. Perry has been a director of the Company since February 1993. Mr. Perry
is also Chairman of Viewstar Corporation. From July 1985 to November 1993, Mr.
Perry was at Silicon Graphics, Inc., where his last position was Vice-Chairman.
Mr. Perry holds a B.A. in Economics from Amherst College and an M.B.A. from the
Harvard Business School.
Ms. Winblad has been a director of the Company since June 1991. Ms. Winblad
has been a General Partner of Hummer Winblad Venture Partners, a venture capital
investment firm, since 1989. Ms. Winblad holds B.A. degrees in Mathematics and
Business from College of St. Catherine and an M.A. in Education from the College
of St. Thomas.
3
<PAGE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1996, the Board of Directors held
eight meetings and acted by written consent on nine occasions. For the fiscal
year, each of the current directors during the term of their tenure attended or
participated in at least 75% of the aggregate of (i) the total number of
meetings or actions by written consent of the Board of Directors and (ii) the
total number of meetings held by all Committees of the Board of Directors on
which each such director served. The Board of Directors has two standing
committees: the Audit Committee and the Compensation Committee.
During the fiscal year ended March 31, 1996, the Audit Committee of the
Board of Directors met twice. The Audit Committee reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the Company's auditors, the performance of the
Company's auditors and the accounting practices of the Company. The members of
the Audit Committee are Messrs. Chambers and Leone.
During the fiscal year ended March 31, 1996, the Compensation Committee of
the Board of Directors met three times. The Compensation Committee reviews the
performance and sets the compensation of the Chief Executive Officer of the
Company, and approves the compensation of the executive officers of the Company
and reviews the compensation programs for other key employees, including salary
and cash bonus levels, as set by the Chief Executive Officer. The Compensation
Committee also administers the Company's 1995 Stock Option/Stock Issuance Plan
with respect to the Company's executive officers. The members of the
Compensation Committee are Mr. Perry and Ms. Winblad.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of the Company generally do
not receive compensation for services provided as a director. The Company also
does not pay compensation for committee participation or special assignments of
the Board of Directors.
Non-employee Board members are eligible for option grants pursuant to the
provisions of the Automatic Option Grant Program under the Company's 1995 Stock
Option/Stock Issuance Plan. Under the Automatic Option Grant Program, each
individual who first becomes a non-employee Board member after the date of the
Company's initial public offering will be granted an option to purchase 20,000
shares on the date such individual joins the Board, provided such individual has
not been in the prior employ of the Company. In addition, at each Annual
Stockholders Meeting, beginning with the 1996 Annual Meeting, each individual
who continues to serve and has served as a non-employee Board member for at
least six months prior to such Annual Meeting will receive an additional option
grant to purchase 5,000 shares of Common Stock, whether or not such individual
has been in the prior employ of the Company. For further information concerning
the terms of these automatic grants, please see the summary of the Automatic
Option Grant Program below under the heading, "Proposal No. 2: Amendment of the
1995 Stock Option/Stock Issuance Plan."
On August 31, 1995 (prior to the Company's initial public offering), Mr.
Perry was granted an option to purchase 10,156 shares of Common Stock at an
exercise price of $6.00 per share.
Non-employee Board members not serving on the Compensation Committee and
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 Option/Stock
Issuance Plan, and such employee-directors are also eligible to participate in
the Company's Employee Stock Purchase Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED HEREIN.
4
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to approve an
amendment to the Arbor Software Corporation 1995 Stock Option/Stock Issuance
Plan (the "Option Plan") to increase the number of shares of Common Stock
available for issuance under the Option Plan by 1,000,000 shares to a total of
2,286,408 shares of Common Stock. The Board of Directors (the "Board") adopted
the amendment on June 6, 1996, subject to stockholder approval at the 1996
Annual Meeting. The following is a description of the Option Plan. The Company
established the Option Plan as a successor to the 1992 Stock Option Plan
("Predecessor Plan") to provide a means whereby employees, officers, directors,
consultants, and independent advisers of the Company or parent or subsidiary
corporations may be given an opportunity to purchase shares of Common Stock. The
Option Plan was adopted by the Board on August 31, 1995 and approved by the
stockholders on September 15, 1995. The Board believes that option grants under
the Option Plan play an important role in the Company's efforts to attract,
employ, and retain employees, directors, and consultants of outstanding ability.
The principal terms and provisions of the Option Plan are summarized below.
The summary, however, is not intended to be a complete description of all the
terms of the Option Plan. A copy of the Option Plan will be furnished by the
Company to any stockholder upon written request to the Corporate Secretary at
the executive offices in Sunnyvale, California.
STRUCTURE. The Option Plan contains four separate equity incentive
programs: (i) a Discretionary Option Grant Program under which employees,
consultants and certain Board members may be granted stock options to purchase
shares of Common Stock, (ii) an Automatic Option Grant Program under which
option grants will be made at specified intervals to the non-employee Board
members, (iii) a Salary Investment Option Grant Program under which employees
may elect to have their base salary reduced each year in return for options to
purchase shares of Common Stock at a discount from current fair market value
equal to the amount of their salary reduction, and (iv) a Stock Issuance Program
under which eligible individuals may be issued shares of Common Stock directly,
through the immediate purchase of the shares, or as a bonus tied to the
performance of services.
ADMINISTRATION. The Compensation Committee of the Board, which is comprised
of two (2) or more Board members ("Committee"), administers the Option Plan.
Committee members serve for such period of time as the Board may determine. No
Board member may serve on the Committee if he or she has received an option
grant or stock award under the Option Plan or under any other stock plan of the
Company or its parent or subsidiary corporations within the twelve (12) month
period preceding his or her appointment to the Committee (or, if shorter, the
period commencing on the date of effectiveness of the Company's initial public
offering and ending with the date of appointment to the Committee), other than
grants under the Automatic Option Grant Program. The Option Plan may also be
administered by the Board or a secondary committee comprised of one or more
Board members with respect to optionees who are not executive officers subject
to the short-swing profit rules of Federal securities laws.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the
Option Plan) to determine the eligible individuals who are to receive grants
under the Option Plan, the number of shares to be covered by each granted
option, the date or dates on which the option is to become exercisable, the
maximum term for which the option is to remain outstanding, whether the granted
option will be an incentive stock option ("Incentive Option") which satisfies
the requirements of section 422 of the Internal Revenue Code (the "Code") or a
non-statutory option not intended to meet such requirements, and the remaining
provisions of the option grant. The Committee also has full authority to
determine the eligible individuals who are to receive stock issuances, the
number of shares to be issued to each
5
<PAGE>
participant, the time or times when such issuances are to be made, and the
remaining provisions of the stock issuance. The Committee has sole and exclusive
authority to select the individuals eligible to participate in the Salary
Investment Option Grant Program.
ELIGIBILITY. Employees (including officers), consultants and independent
contractors who render services to the Company or its subsidiary corporations
(whether now existing or subsequently established) are eligible to receive
option grants under the Discretionary Option Grant Program and stock issuances
under the Stock Issuance Program. A non-employee member of the board of
directors of the Company or any parent or subsidiary corporation is also
eligible for option grants under the Discretionary Option Grant Program and
stock issuances under the Stock Issuance Program, provided he or she is not a
member of the Committee. Only the Company's employees are eligible to
participate in the Salary Investment Option Grant Program, and only non-employee
directors of the Company are eligible to participate in the Automatic Option
Grant Program.
As of May 31, 1996, approximately 150 persons (including five officers and
five directors) were eligible to participate in the Option Plan.
SECURITIES SUBJECT TO OPTION PLAN. The number of shares of Common Stock
which may be issued over the term of the Option Plan shall not exceed 2,286,408
shares, including an increase of 1,000,000 shares, which is the subject of this
Proposal No. 2. Such share reserve will be subject to further adjustment in the
event of subsequent changes to the capital structure of the Company. The shares
may be made available either from the Company's authorized but unissued Common
Stock or from Common Stock reacquired by the Company, including shares purchased
on the open market.
No one person participating in the Option Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock per calendar year.
Should an option expire or terminate for any reason prior to exercise in
full, including options incorporated from the Predecessor Plan, the shares
subject to the portion of the option not so exercised will be available for
subsequent option grants under the Option Plan.
DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY. The option exercise price per share in the case
of an Incentive Option may not be less than one hundred percent (100%) of the
fair market value of the Common Stock on the grant date and, in the case of a
non-statutory option, eighty-five percent (85%) of the fair market value of the
Common Stock on the grant date. Options granted under the Discretionary Option
Grant Program become exercisable at such time or times, and during such period,
as the Committee may determine and set forth in the instrument evidencing the
option grant. In any event, options granted under the Option Plan may not have a
term in excess of 10 years.
The exercise price may be paid in cash or in shares of Common Stock. Options
may also be exercised through a same-day sale program, pursuant to which a
designated brokerage firm is to effect the immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale proceeds
on the settlement date, sufficient funds to cover the exercise price for the
purchased shares plus all applicable withholding taxes. The Committee may also
assist any optionee (including an officer or director) in the exercise of his or
her outstanding options by authorizing a Company loan to the optionee. The terms
and conditions of any such loan will be established by the Committee in its sole
discretion.
No optionee is to have any stockholder rights with respect to the option
shares until the optionee has exercised the option and paid the exercise price.
Options are not assignable or transferable other than by will or the laws of
descent and distribution, and during the optionee's lifetime, the option may be
exercised only by the optionee.
TERMINATION OF SERVICE. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated
post-service exercise period. Under no circumstances,
6
<PAGE>
moreover, may any option be exercised after the specified expiration date of the
option term. Each such option will normally, during such limited period, be
exercisable only to the extent of the number of shares of Common Stock in which
the optionee is vested at the time of cessation of service. The optionee will be
deemed to continue in service for so long as such individual performs services
for the Company (or any parent or subsidiary corporation), whether as an
employee, independent contractor, consultant or Board member.
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability of such options in whole or
in part. Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The shares of Common Stock acquired upon the exercise of one or more options
may be subject to repurchase by the Company at the original exercise price paid
per share upon the optionee's cessation of service prior to vesting in such
shares. The Committee has complete discretion in establishing the vesting
schedule to be in effect for any such unvested shares and may cancel the
Company's outstanding repurchase rights with respect to those shares at any
time, thereby accelerating the vesting of the shares subject to the canceled
rights.
INCENTIVE OPTIONS. Incentive Options may only be granted to individuals who
are employees of the Company or its parent or subsidiary corporation. During any
calendar year, the aggregate fair market value (determined as of the grant
date(s)) of the Common Stock for which one or more options granted to any
employee under the Option Plan (or any other option plan of the Company or its
parent or subsidiary corporations) may for the first time become exercisable as
incentive stock options under section 422 of the Code shall not exceed one
hundred thousand dollars ($100,000).
If an employee to whom an Incentive Option is granted is the owner of stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any of its parent or subsidiary corporations,
then the option price per share will be at least one hundred and ten percent
(110%) of the fair market value per share on the grant date, and the option term
will not exceed five (5) years, measured from the grant date.
LIMITED STOCK APPRECIATION RIGHTS. One or more officers of the Company
subject to the short-swing profit restrictions of the Federal securities laws
may, at the discretion of the Committee, be granted limited stock appreciation
rights in connection with their option grants under the Option Plan. Any option
with such a limited stock appreciation right in effect for at least six (6)
months may be unconditionally surrendered by the officer, to the extent
exercisable for one or more vested option shares, upon the successful completion
of a hostile tender offer for more than 50% of the Company's outstanding voting
stock. In return, the officer will be entitled to a cash distribution from the
Company in an amount per canceled option share equal to the excess of (i) the
highest price per share of Common Stock paid in the tender offer or, if greater,
the fair market value per share of the Common Stock over (ii) the option
exercise price.
TANDEM STOCK APPRECIATION RIGHTS. The Committee is authorized to issue
tandem stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide the
holders with the right, subject to the Committee's approval, to surrender their
options for a distribution from the Company equal in amount to the excess of (a)
the fair market value of the vested shares of Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for such
shares. Such distribution may, at the discretion of the Committee, be made in
cash or in shares of Common Stock.
7
<PAGE>
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
These special grants may be summarized as follows:
- Each individual who first becomes a non-employee Board member after the
date of the initial public offering, whether through election by the
stockholders or appointment by the Board, will automatically be granted,
at the time of such initial election or appointment, a nonstatutory stock
option to purchase 20,000 shares of Common Stock, provided such individual
has not previously been in the employ of the Company.
- On the date of each Annual Stockholders Meeting beginning with the 1996
Annual Meeting, each individual who is to continue as a non-employee Board
member will receive an additional grant of a nonstatutory stock option
under the Option Plan to purchase 5,000 shares of Common Stock, provided
such individual has been a member of the Board for at least six months.
Each option grant under the Automatic Option Grant Program will be subject
to the following terms and conditions:
1. The option price per share will be equal to 100% of the fair market
value per share of Common Stock on the automatic grant date and each option
is to have a maximum term of ten years measured from the grant date.
2. Each automatic option grant will be immediately exercisable for all
of the option shares, but the shares purchasable under the option will be
subject to repurchase at the original exercise price in the event the
optionee's Board service should cease prior to full vesting. With respect to
each initial grant, the repurchase right will lapse and the optionee vest in
a series of four (4) successive equal annual installments, measured from the
grant date, provided such optionee continues service as a Board member. Each
annual grant will vest upon the optionee's completion of one (1) year of
service as a Board member, measured from the option grant date.
3. The option will remain exercisable for a twelve (12)-month period
following the optionee's termination of service as a Board member for any
reason. Should the optionee die while serving as a Board member or during
the twelve (12)-month period following his or her cessation of Board
service, then such option may be exercised during the twelve (12)-month
period following such optionee's cessation of service by the personal
representatives of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after the expiration date of the option
term. During the applicable exercise period, the option may not be exercised
for more than the number of vested shares (if any) for which it is
exercisable at the time of the optionee's cessation of Board service.
4. The option shares will become fully vested in the event of a
Corporate Transaction (as defined below) or a Change in Control (as defined
below). The option shares will become fully vested in the event of the
optionee's cessation of Board service by reason of death or permanent
disability.
5. Upon the occurrence of a hostile tender offer, the optionee shall
have a thirty (30) day period in which to surrender to the Company each
automatic option which has been in effect for at least six (6) months
(whether or not the optionee is vested in such option) and the optionee will
in return be entitled to a cash distribution from the Company in an amount
per canceled option share equal to the excess of (i) the highest reported
price per share of Common Stock paid in the tender offer or, if greater, the
fair market value per share of the Common stock over (ii) the option
exercise price payable per share.
8
<PAGE>
6. Option grants under the Automatic Option Grant Program will be made
in strict compliance with the express provisions of that program. The
remaining terms and conditions of the options will in general conform to the
terms described above for option grants under the Discretionary Option Grant
Program and will be incorporated into the option agreement evidencing the
automatic grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty-five percent (85%) of fair market value, payable in cash or
through a promissory note payable to the Company. Shares may also be issued
solely in consideration of past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee will, however, have the discretionary authority
at any time to accelerate the vesting of any and all unvested shares outstanding
under the Option Plan.
All outstanding repurchase rights under the Stock Issuance Program will
terminate automatically (and all shares subject to such terminated rights will
fully vest) in the event of a Corporate Transaction (as defined below) unless
such repurchase rights are assigned. If the repurchase rights are assigned
pursuant to a Corporate Transaction, such rights will automatically terminate,
and the shares subject to such rights fully vest, if the participant's service
should subsequently terminate by reason of an involuntary or constructive
termination within eighteen (18) months following the effective date of such
Corporate Transaction.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Committee will have complete discretion in selecting the individuals who
are to participate in the Salary Investment Option Grant Program. As a condition
to such participation, each selected individual must, prior to the start of the
calendar year of participation, file with the Committee an irrevocable
authorization directing the Company to reduce, by a designated multiple of one
percent (1%), his or her base salary for the upcoming calendar year. Such salary
reduction will be in an amount not less than five percent (5%) of base salary.
To the extent the Committee approves one or more salary reduction
authorizations, the affected individuals will be granted options under the
program.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
- The exercise price per share will be equal to one-third of the fair market
value per share of Common Stock on the grant date.
- The number of option shares will be determined by dividing the total
dollar amount of the approved reduction in the participant's base salary
by two-thirds of the fair market value per share of Common Stock on the
grant date. As a result, the total spread on the option (the fair market
value of the option shares on the grant date less the aggregate exercise
price payable for those shares) will equal the dollar amount of the
reduction to the optionee's base salary to be in effect for the calendar
year for which the grant is made.
- Provided the optionee continues in service, the option will become
exercisable in a series of twelve (12) equal successive monthly
installments in the calendar year for which the salary reduction is in
effect.
- Each option will have a term of ten years measured from the grant date.
9
<PAGE>
GENERAL PROVISIONS
ACCELERATION OF OPTIONS/TERMINATION OF REPURCHASE RIGHTS. Upon the
occurrence of either of the following transactions (a "Corporate Transaction"):
(i) the sale, transfer, or other disposition of all, or substantially
all, of the Company's assets in complete liquidation or dissolution of the
Company, or
(ii) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such transaction,
each outstanding option under the Option Plan will, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for
all of the shares at the time subject to such option. However, an
outstanding option shall not accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent) or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to such option or (iii) the acceleration of such
option is subject to other limitations imposed by the Committee at the time
of the option grant. Immediately following the consummation of the Corporate
Transaction, all outstanding options will terminate and cease to be
exercisable, except to the extent assumed by the successor corporation.
Also upon a Corporate Transaction, the Company's outstanding repurchase
rights will terminate automatically unless assigned to the successor
corporation.
Any options which are assumed or replaced in the Corporate Transaction and
do not otherwise accelerate at that time shall automatically accelerate (and any
of the Company's outstanding repurchase rights which do not otherwise terminate
at the time of the Corporate Transaction shall automatically terminate and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full) in the event the optionee's service should subsequently terminate by
reason of an involuntary or constructive termination within eighteen (18) months
following the effective date of such Corporate Transaction. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the employment termination.
Upon the occurrence of the following transactions ("Change in Control"):
(i) any person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) acquires beneficial ownership of more than
fifty percent (50%) of the Company's outstanding voting stock without the
Board's recommendation, or
(ii) there is a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases by reason of a proxy contest to be comprised of individuals
who (a) have been Board members continuously since the beginning of such
period or (b) have been elected or nominated for selection as Board members
by a majority of the Board in (a) who were still in office at the time such
election or nomination was approved by the Board,
the Committee has the discretion to accelerate outstanding options and
terminate the Company's outstanding repurchase rights. The Committee also
has the discretion to accelerate outstanding options and terminate the
Company's outstanding repurchase rights upon the subsequent termination of
the optionee's service within a specified period following the Change in
Control.
10
<PAGE>
The acceleration of options in the event of a Corporate Transaction or
change in control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt, or other efforts
to gain control of the Company.
VALUATION. For purposes of establishing the option price and for all other
valuation purposes under the Option Plan, the fair market value of a share of
Common Stock on any relevant date will be the closing price per share of Common
Stock on that date, as such price is reported on the Nasdaq National Market. The
closing price of the Common Stock on May 31, 1996 was $63.75 per share.
CHANGES IN CAPITALIZATION. In the event any change is made to the Common
Stock issuable under the Option Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Option Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options, separately exercisable stock appreciation rights and direct stock
issuances per calendar year, (iii) the number and/or class of securities for
which automatic option grants are to be subsequently made per director under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and the exercise price per share in effect under each outstanding option
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option which is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply and pertain to the number
and class of securities which would otherwise have been issued, in consummation
of such Corporate Transaction, to the option holder had the option been
exercised immediately prior to the Corporate Transaction. Appropriate
adjustments will also be made to the option price payable per share and to the
class and number of securities available for future issuance under the Option
Plan on both an aggregate and a per-participant basis.
OPTION PLAN AMENDMENTS. The Board may amend or modify the Option Plan in
any and all respects whatsoever, except that the Automatic Option Grant Program
may not be amended more often than every six months. However, the Board may not,
without the approval of the Company's stockholders, (i) materially increase the
maximum number of shares issuable under the Option Plan (except in connection
with certain changes in capitalization), (ii) materially modify the eligibility
requirements for option grants, or (iii) otherwise materially increase the
benefits accruing to participants under the Option Plan.
Unless sooner terminated by the Board, the Option Plan will in all events
terminate on September 30, 2005. Any options outstanding at the time of such
termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
As of March 31, 1996 options covering 913,940 shares were outstanding under
the Option Plan, 302,561 shares remained available for future option grants, and
76,213 shares have been issued under the Option Plan. The expiration dates for
all such options range from June 2000 to February 2006.
NEW PLAN BENEFITS
Except as set forth above under the caption "Automatic Option Grant
Program," grants to be made under the Option Plan in the future are at the
discretion of the Committee and are not determinable at this time. No grants
other than option grants have been made under the Option Plan to date. The
following table shows all option grants made under the Option Plan during the
fiscal year
11
<PAGE>
ending March 31, 1996, to all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees
(including all current officers who are not executive officers) as a group,
respectively:
<TABLE>
<CAPTION>
NUMBER OF
GROUP OPTION SHARES
- ------------------------------------------------------------ -------------
<S> <C>
All current executive officers as a group (five persons).... 109,500
All current directors (other than executive officers) as a
group (four persons)....................................... 10,156
All employees, (including current officers who are not
executive officers), as a group (125 persons).............. 471,531
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE OPTION PLAN
Options granted under the Option Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased shares
are sold or otherwise made the subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two (2)
years after the grant date of the option and more than one (1) year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the excess of (i) the fair market
value of such shares on the date the option was exercised over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
The Company anticipates that any compensation deemed paid by the Company upon
one or more disqualifying dispositions of incentive stock option shares by the
Company's executive officers will remain deductible by the Company and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of the Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option.
The optionee will in general recognize ordinary income in the year in which
the option is exercised equal to the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for the
shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
12
<PAGE>
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized
by the optionee. The Company anticipates that the compensation deemed paid
by the Company upon the exercise of non-statutory options with exercise
prices equal to the fair market value of the option shares on the grant date
will remain deductible by the Company and will not have to be taken into
account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of
the Company.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
STOCK ISSUANCES. The tax principles applicable to direct stock issuances
under the Option Plan will be substantially the same as those summarized above
for the exercise of nonstatutory option grants.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1995 STOCK
OPTION/STOCK ISSUANCE PLAN.
13
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 1996 certain information with
respect to shares beneficially owned by (i) each person who is known by the
Company to be the beneficial owner of more than five percent of the Company's
outstanding shares of Common Stock, (ii) each of the Company's directors, and
the executive officers named in the Summary Compensation Table and (iii) all
current directors and executive officers as a group. Beneficial ownership has
been determined in accordance with Rule 13d-3 under the Exchange Act. Under this
rule, certain shares may be deemed to be beneficially owned by more than one
person (if, for example, persons share the power to vote or the power to dispose
of the shares). In addition, shares are deemed to be beneficially owned by a
person if the person has the right to acquire shares (for example, upon exercise
of an option or warrant) within sixty (60) days of the date as of which the
information is provided; in computing the percentage ownership of any person,
the amount of shares is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of such acquisition
rights. As a result, the percentage of outstanding shares of any person as shown
in the following table does not necessarily reflect the person's actual voting
power at any particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)(2)
----------------------------
NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES CLASS
- -------------------------------------------------- ----------- ---------------
<S> <C> <C>
James A. Dorrian (3).............................. 631,217 5.8%
George H. Colliat (4)............................. 95,971 *
Kirk A. Cruikshank (5)............................ 109,500 1.0
John M. Dillon (6)................................ 155,900 1.4
Stephen V. Imbler (7)............................. 110,900 1.0
John T. Chambers (8).............................. 62,501 *
Douglas M. Leone.................................. 36,338 *
Mark W. Perry (9)................................. 42,631 *
Ann L. Winblad (10)............................... 322,360 3.0
All directors and executive officers as a group (9
persons including those listed above) (11)....... 1,567,266 14.0
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. To the Company's knowledge, the entities named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within sixty (60)
days after May 31, 1996.
(3) Includes options exercisable into 22,500 shares of Common Stock under the
Option Plan.
(4) Includes options exercisable into 67,000 shares of Common Stock under the
Option Plan.
(5) Includes options exercisable into 50,000 shares of Common Stock under the
Option Plan.
(6) Includes options exercisable into 50,000 shares of Common Stock under the
Option Plan.
(7) Includes options exercisable into 100,000 shares of Common Stock under the
Option Plan.
(8) Includes options exercisable into 37,500 shares of Common Stock under the
Option Plan.
(9) Includes options exercisable into 10,156 shares of Common Stock under the
Option Plan.
(10) Includes options exercisable into 22,500 shares of Common Stock under the
Option Plan.
(11) Includes options exercisable into 359,656 shares of Common Stock under the
Option Plan.
14
<PAGE>
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into agreements with each of the Company's executive
officers pursuant to which the Company has agreed to accelerate the vesting of
up to 25% of the securities subject to vesting then held by each such officer
following the occurrence of certain changes in control, including by merger,
sale of assets or change in the composition of the Board of Directors. In
addition, should the affected officer's employment be involuntarily terminated
within the twenty-four (24) month period following such a change in control,
then all of such officer's option shares shall become fully vested.
The Compensation Committee as administrator of the Option Plan will have the
authority to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer and any other
executive officer or the shares of Common Stock subject to direct issuances held
by such individual, in connection with certain changes in control of the Company
or the subsequent termination of the officer's employment following the change
in control event.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Committee") has the authority to establish the level of base salary payable to
the Chief Executive Officer ("CEO") and to administer the Company's 1995 Stock
Option/Stock Issuance Plan and Employee Stock Purchase Plan. In addition, the
Committee has the responsibility for approving the individual bonus program to
be in effect for the CEO. The CEO has the authority to establish the level of
base salary payable to all other employees of the Company, including all
executive officers, subject to the approval of the Committee. In addition, the
CEO has the responsibility for approving the bonus programs to be in effect for
all other executive officers and other key employees each fiscal year, subject
to the approval of the Committee.
For fiscal 1996, the process utilized by the CEO in determining executive
officer compensation levels took into account both qualitative and quantitative
factors. Among the factors considered by the CEO were informal surveys conducted
by Company personnel among local companies. However, the CEO made the final
compensation decisions concerning such officers.
GENERAL COMPENSATION POLICY. The CEO's fundamental policy is to offer the
Company's executive officers competitive compensation opportunities based upon
overall Company performance, their individual contribution to the financial
success of the Company and their personal performance. It is the CEO's objective
to have a substantial portion of each officer's compensation contingent upon the
Company's performance, as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package consists of: (i) base
salary, (ii) cash bonus awards and (iii) long-term stock-based incentive awards.
In preparing the performance graph for this Proxy Statement, the Company has
selected the Nasdaq Stock Market U.S. Total Return Index and the Hambrecht &
Quist Software Sector Index. The companies included in the Company's informal
survey are not necessarily those included in the Indices, because the latter
were determined not to be competitive with the Company for executive talent or
because compensation information was not available to the Company.
BASE SALARY. The base salary for each executive officer is set on the basis
of personal performance and the salary level in effect for comparable positions
at companies that compete with the Company for executive talent on the basis of
informal surveys conducted by the Company.
ANNUAL CASH BONUSES. Each executive officer has an established bonus target
each fiscal year. The annual pool of bonuses for executive officers is
determined on the basis of the Company's achievement of the financial
performance targets established at the start of the fiscal year, a range for the
executive's contribution and a measure of customer satisfaction. For fiscal
1996, the Company
15
<PAGE>
exceeded its performance targets. Actual bonuses paid reflect an individual's
accomplishment of both corporate and functional objectives, with greater weight
being given to achievement of corporate rather than functional objectives.
LONG-TERM INCENTIVE COMPENSATION. During fiscal 1996, the Committee made an
option grant to Stephen V. Imbler under the 1995 Stock Option/Stock Issuance
Plan. Generally, a significant grant is made in the year that an officer
commences employment and no grant is made in the second year. Generally, the
size of each grant is set at a level that the Committee deems appropriate, to
create a meaningful opportunity for stock ownership based upon the individual's
position with the Company, the individual's potential for future responsibility
and promotion, the individual's performance in the recent period and the number
of unvested options held by the individual at the time of the new grant. The
relative weight given to each of these factors will vary from individual to
individual at the Committee's discretion.
Each grant allows the officer to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a four
year period, contingent upon the executive officer's continued employment with
the Company, and the vesting schedule is adjusted to reflect existing grants to
ensure a meaningful incentive in each year following the year of grant.
Accordingly, the option will provide a return to the executive officer only if
he remains in the Company's employ, and then only if the market price of the
Company's Common Stock appreciates over the option term.
CEO COMPENSATION. The annual base salary for Mr. Dorrian, the Company's
President and CEO, was established by the Committee in July 1995. The
Committee's decision was made primarily on the basis of Mr. Dorrian's personal
performance of his duties.
The remaining components of the CEO's fiscal 1996 incentive compensation
were entirely dependent upon the Company's financial performance and provided no
dollar guarantees. The bonus paid to the CEO for fiscal 1996 was based on the
same incentive plan as for all other officers who receive bonuses. Specifically,
a target incentive was established at the beginning of the fiscal year using an
agreed-upon formula based on Company revenue and profit before interest. Each
fiscal year, the annual incentive plan is reevaluated with a new achievement
threshold and new targets for revenue and profit before interest.
TAX LIMITATION. As a result of Federal tax legislation enacted in 1993, a
publicly-held company such as the Company will not be allowed a Federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will be in effect for all fiscal years of the Company ending after the Company's
initial public offering. The stockholders approved the Company's 1995 Stock
Option/Stock Issuance Plan, which includes a provision that limits the maximum
number of shares of Common Stock for which any one participant may be granted
stock options per calendar year. Accordingly, any compensation deemed paid to an
executive officer when he exercises an option under the 1995 Stock Option/Stock
Issuance Plan with an exercise price equal to the fair market value of the
option shares on the grant date will generally qualify as performance-based
compensation that will not be subject to the $1 million limitation. Since it is
not expected that the cash compensation to be paid to the Company's executive
officers for the 1997 fiscal year will exceed the $1 million limit per officer,
the Committee will defer any decision on whether to limit the dollar amount of
the cash compensation payable to the Company's executive officers to the $1
million cap.
Compensation Committee
Mark W. Perry
Ann L. Winblad
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was ormed in
June 1992, and the members of the Compensation Committee are Mr. Perry and Ms.
Winblad. Neither of these individuals was at any time during fiscal 1996, or at
any other time, an officer or employee of the Company. No executive officer of
the Company serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors or Compensation Committee.
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on the Company's Common Stock between November 7, 1995 (the date the Company's
Common Stock commenced public trading) and March 31, 1996 with the cumulative
total return of (i) the Nasdaq Stock Market Total Return Index (U.S. Companies)
(the "Nasdaq Stock Market-U.S. Index") and (ii) the Hambrecht & Quist Software
Sector Index (the "H&Q Software Sector Index"), over the same period. This graph
assumes the investment of $100.00 on November 7, 1995 in the Company's Common
Stock, the Nasdaq Stock Market-U.S. Index and the H&Q Software Sector Index, and
assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data and
the Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future performance
of the Company's Common Stock. Information used in the graph was obtained from
Hambrecht & Quist LLC, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ARBOR SOFTWARE CORPORATION,
THE NASDAQ STOCK MARKET-U.S. INDEX AND THE H&Q SOFTWARE SECTOR INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARBOR SOFTWARE NASDAQ STOCK H&Q SOFTWARE
<S> <C> <C> <C>
11/7/95 100 100 100
Nov-95 109.55 99.73 100.78
Dec-95 120.38 99.22 97.65
Jan-96 104.46 99.73 99.71
Feb-96 109.55 103.55 101.75
Mar-96 110.19 103.84 106.57
</TABLE>
The Company effected its initial public offering on November 6, 1995 at a
per share price of $17.00. The graph above, however, commences with the closing
price of $39.25 per share on November 7, 1995 -- the date the Company's Common
Stock commenced public trading.
17
<PAGE>
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 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.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and the four other most highly
compensated executive officers who were serving as such at the end of fiscal
1996 (collectively, the "Named Officers"), each of whose aggregate compensation
for fiscal 1996 exceeded $100,000 for services rendered in all capacities to the
Company and its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS (1) OPTIONS (2)
- ------------------------------------------------------------------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Dorrian................................................... 1996 152,500 42,886 --
President, Chief Executive Officer 1995 129,307 10,887 --
and Director
George H. Colliat (4).............................................. 1996 148,000 42,886 --
Vice President of Engineering 1995 86,000 6,351 --
Kirk A. Cruikshank................................................. 1996 134,375 42,886 --
Vice President of Marketing 1995 128,539 10,887 --
John M. Dillon (4)................................................. 1996 314,621 -- --
Vice President of Sales 1995 218,992 -- --
Stephen V. Imbler.................................................. 1996 94,231 68,591 109,500
Vice President of Finance and Chief 1995 -- -- --
Financial Officer
</TABLE>
- ------------------------
(1) Includes amounts deferred under the 401(k) plan.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive payments during the year covered by
the table.
(3) Salary amounts include commissions earned in the respective fiscal years.
18
<PAGE>
The following table contains information concerning the stock option grants
made to each of the Named Officers during the fiscal year 1996. No stock
appreciation rights were granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (2)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED IN 1996 PER SHARE DATE 5% 10%
- ------------------------------------ ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James A. Dorrain.................... -- -- -- -- -- --
George H. Colliat................... -- -- -- -- -- --
Kirk A. Cruikshank.................. -- -- -- -- -- --
John M. Dillon...................... -- -- -- -- -- --
Stephen V. Imbler................... 109,500 17.2% $ 3.33 7/16/05 $ 229,544 $ 581,710
</TABLE>
- ------------------------
(1) The option listed in the table was granted on July 17, 1995. The exercise
price for the option 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
pay the exercise price for the purchased shares, together with any federal
and state income tax liability incurred by the optionee in connection with
such exercise. The plan administrator has the discretionary authority to
reprice the option through the cancellation of that option and the grant of
a replacement option with an exercise price based on the fair market value
of the option shares on the regrant date. The option has a maximum term of
10 years measured from the option grant date, subject to earlier termination
in the event of the optionee's cessation of service with the Company. Under
the option, the option shares will vest upon an acquisition of the Company
by merger or asset sale, unless the Company's repurchase right with respect
to the unvested option shares is transferred to the acquiring entity.
(2) There can be no assurance provided to the executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grant made to the executive officer.
(3) The option is immediately exercisable, subject to deferral to satisfy tax
limitations on exercisability, but any shares purchased under the option are
subject to repurchase by the Company at the original exercise price paid per
share upon optionee's cessation of service prior to vesting. The repurchase
right lapses and the optionee vests as to 25% of the option shares one year
from the grant date and the balance ratably upon optionee's completion of
the next thirty-six (36) months of service thereafter.
19
<PAGE>
The following table sets forth information concerning option exercises in
fiscal 1996 and option holdings as of the end of fiscal 1996 with respect to
each of the Named Officers. No stock appreciation rights were exercised during
that year or outstanding at the end of that year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
VALUE REALIZED SECURITIES UNDERLYING VALUE OF UNEXERCISED
(MARKET PRICE AT UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES EXERCISE LESS AT FY-END (#) (1) AT FY-END ($) (2)(3)
ACQUIRED ON EXERCISE -------------------------------- ------------------------------
NAME EXERCISE (#) (1) PRICE) (2) EXERCISABLE (1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- --------------- ----------------- ------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
James A. Dorrian.......... -- -- 22,500 -- 961,875 --
George H. Colliat......... 42,500 636,300 67,000 -- 2,876,265 --
Kirk A. Cruikshank........ 109,500 335,175 -- -- -- --
John M. Dillon............ 109,500 85,905 -- -- -- --
Stephen V. Imbler......... 9,500 72,865 100,000 -- 3,992,000 --
</TABLE>
- ------------------------------
(1) The options are immediately exercisable for all the option shares but any
shares purchased thereunder will be subject to repurchase by the Company at
the original exercise price paid per share upon the optionee's cessation of
service to the Company prior to vesting in such shares. As of March 31,
1996, the repurchase right had lapsed as to approximately 6,093 option
shares for Mr. Dorrian, 32,625 shares for Mr. Colliat, 68,750 shares for Mr.
Cruikshank, and 48,937 shares for Mr. Dillon.
(2) Upon exercise of the options, an option holder did not receive the amount
reported above under the column "Value Realized." The amounts reported above
under the column "Value Realized" merely reflect the amount by which the
fair market value of the Common Stock of the Company on the date the option
was exercised exceeded the exercise price of the option. The option holder
does not realize any cash until the shares of Common Stock issued upon
exercise of the options are sold.
(3) Based on the closing price of the Common Stock of the Company at March 31,
1996, as reported on the Nasdaq National Market, of $43.25 per share, less
the exercise price payable for such shares.
BONUS PLAN. In fiscal 1996, the Company instituted a bonus program
pursuant to which bonuses will be paid to executive officers based on individual
and Company performance targets.
DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The following is a description of the Arbor Software Employee Stock Purchase
Plan (the "Purchase Plan"). The Purchase Plan was adopted by the Board on August
31, 1995, and approved by the stockholders on September 15, 1995. The Purchase
Plan, and the right of participants to make purchases thereunder, is intended to
meet the requirements of an "employee stock purchase plan" as defined in Section
423 of the Internal Revenue Code (the "Code"). This description is included to
satisfy the requirements of Rule 16b-3(b)(2) under the Federal securities laws
in order to ensure the favorable treatment of Rule 16b-3 for the officers
participating in the Purchase Plan. Rule 16b-3 exempts certain acquisitions of
Common Stock under the Purchase Plan from the Federal securities law rules which
prohibit short-swing trading by executive officers.
The following summary of certain Purchase Plan provisions is qualified, in
its entirety, by reference to the Purchase Plan. Copies of the Purchase Plan
document may be obtained by a stockholder upon written request to the Secretary
of the Company at the executive offices in Sunnyvale, California.
PURPOSE. The purpose of the Purchase Plan is to provide employees of the
Company and designated parent or subsidiary corporations (collectively,
"Participating Companies") an opportunity to participate in the ownership of the
Company by purchasing Common Stock of the Company through payroll deductions.
The Company currently is the only Participating Company in the Purchase Plan.
The Purchase Plan is intended to benefit the Company as well as its
stockholders and employees. The Purchase Plan gives employees an opportunity to
purchase shares of Common Stock at a
20
<PAGE>
favorable price. The Company believes that the stockholders will correspondingly
benefit from the increased interest on the part of participating employees in
the profitability of the Company. Finally, the Company will benefit from the
periodic investments of equity capital provided by participants in the Purchase
Plan.
ADMINISTRATION. The Purchase Plan is administered by the Committee. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants. All cash proceeds received by the Company from
payroll deductions under the Purchase Plan shall be credited to a non-interest
bearing bank account.
SHARES AND TERMS. The stock issuable under the Purchase Plan is the
Company's authorized but unissued or reacquired Common Stock. The maximum number
of shares of Common Stock that may be issued in the aggregate under the Purchase
Plan is 150,000, adjusted as described in the "Adjustments" section of this
description. Common Stock subject to a terminated purchase right shall be
available for purchase pursuant to purchase rights subsequently granted.
ADJUSTMENTS. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments shall
be made by the Company to the class and maximum number of shares subject to the
Purchase Plan, to the class and maximum number of shares purchasable by each
participant on any one purchase date, and the class and number of shares and
purchase price per share subject to outstanding purchase rights in order to
prevent the dilution or enlargement of benefits thereunder.
ELIGIBILITY. Generally, any individual who is customarily employed by a
Participating Company more than 20 hours per week and for more than five months
per calendar year is eligible to participate in the Purchase Plan. Approximately
149 employees (including four officers) were eligible to participate in the
Purchase Plan as of May 31, 1996.
OFFERING PERIODS. The Purchase Plan is implemented by offering periods
which generally have a duration of twenty-four months; each offering period is
comprised of a series of successive purchase periods, which have a duration of
six (6) months. The first offering period began on the date of execution of the
underwriting agreement in connection with the Company's initial public offering
and will end on October 31, 1997; the next offering period will commence on
November 1, 1997 and will end on the last business day in October 1999, unless
terminated earlier. The purchase periods during the initial offering period end
on April 30, 1996, October 31, 1996, April 30, 1997, and October 31, 1997. The
Committee in its discretion may vary the beginning date and ending date of the
offering periods, provided no offering period may exceed twenty-four (24) months
in length.
The participant will have a separate purchase right for each offering period
in which he or she participates. The purchase right will be granted on the
participant's entry date into an offering period and will be automatically
exercised in successive installments on the last day of each purchase period
within the offering period.
PURCHASE PRICE. The purchase price per share under the Purchase Plan is 85%
of the lower of (i) the fair market value of a share of Common Stock on the
first day of the applicable offering period or, if later, the participant's
entry date into the offering period, or (ii) the fair market value of a share of
Common Stock on the purchase date. If a participant's entry date is on a day
other than the first day of an offering period, the clause (i) amount will in no
event be less than the fair market value of the shares on the first day of such
offering period. Generally, the fair market value of the Common Stock on a given
date is the closing price of the Common Stock, as reported on the Nasdaq
National Market System. The market value of the Common Stock as reported on the
Nasdaq National Market as of May 31, 1996, was $63.75 per share.
21
<PAGE>
LIMITATIONS. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
1. No purchase right shall be granted to any person who immediately
thereafter would own, directly or indirectly, stock or hold outstanding
options or rights to purchase stock possessing five percent (5%) or more of
the total combined voting power or value of all classes of stock of the
Company or any of its parent or subsidiary corporations.
2. In no event shall a participant be permitted to purchase more than
500 shares on any one purchase date.
3. The right to purchase Common Stock under the Purchase Plan (or any
other employee stock purchase plan that the Company or any of its
subsidiaries may establish) in an offering intended to qualify under Section
423 of the Code may not accrue at a rate that exceeds $25,000 in fair market
value of such Common Stock (determined at the time such purchase right is
granted) for any calendar year in which such purchase right is outstanding.
The purchase right shall be exercisable only by the participant during the
participant's lifetime and shall not be assignable or transferable by the
participant.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during the
purchase period. The deductions may not exceed 10% of a participant's cash
compensation paid during a purchase period. Cash compensation includes regular
base pay, any pre-tax contributions made by a participant to any Code section
401(k) plan or section 125 cafeteria benefit program plus any of the following
amounts to the extent paid in cash: overtime payments, bonuses, commissions,
profit-sharing distributions and other incentive-type payments. However, cash
compensation does not include any contributions made on a participant's behalf
by the Corporation or any corporate affiliate to any deferred compensation plan
or welfare benefit program (other than a section 401(k) or 125 plan) now or
hereafter maintained by the Corporation.
The participant will receive a purchase right for each offering period in
which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price (subject to the
"Limitations" section). No fractional shares shall be purchased. Any payroll
deductions accumulated in a participant's account that are not sufficient to
purchase a full share will be retained in the participant's account for the
subsequent purchase period. No interest shall accrue on the payroll deductions
of a participant in the Purchase Plan.
TERMINATION AND CHANGE TO PAYROLL DEDUCTIONS. A purchase right shall
terminate at the end of the offering period or earlier if (i) the participant
terminates employment and then any payroll deductions which the participant may
have made with respect to a terminated purchase right will be refunded or (ii)
the participant elects to withdraw from the Purchase Plan. Any payroll
deductions which the participant may have made with respect to a terminated
purchase right under clause (ii) will be refunded unless the participant elects
to have the funds applied to the purchase of shares on the next purchase date.
Unless a participant has irrevocably elected otherwise, he or she may decrease
his or her deductions once during a purchase period.
AMENDMENT AND TERMINATION. The Purchase Plan shall continue in effect until
the earlier of (i) the last business day in October 2005, (ii) the date on which
all shares available for issuance under the Purchase Plan shall have been issued
or (iii) a Corporate Transaction, unless the Purchase Plan is earlier terminated
by the Board in its discretion.
The Board may at any time alter, amend, suspend or discontinue the Purchase
Plan, provided that, without the approval of the stockholders, no such action
may (i) alter the purchase price formula so as to reduce the purchase price
payable for shares under the Purchase Plan, (ii) materially increase
22
<PAGE>
the number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant, or (iii) materially increase the benefits
accruing to participants under the Purchase Plan or materially modify the
eligibility requirements.
In addition, the Company has specifically reserved the right, exercisable in
the sole discretion of the Board, to terminate the Purchase Plan immediately
following any six-month purchase period. If such right is exercised by the
Board, then the Purchase Plan will terminate in its entirety and no further
purchase rights will be granted or exercised, and no further payroll deductions
shall thereafter be collected under the Purchase Plan.
CORPORATE TRANSACTION. In the event of (i) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately prior
to such transaction or (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company (a "Corporate Transaction"), each purchase right
under the Purchase Plan will automatically be exercised immediately before
consummation of the Corporate Transaction as if such date were the last purchase
date of the offering period. The purchase price per share shall be equal to
eighty-five percent (85%) of the lower of the (i) fair market value per share of
Common Stock on the start date of the offering period (or on the participant's
entry date, if later) or (ii) the fair market value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. If a
participant's entry date is not the first day of the offering period, the clause
(i) amount will in no event be lesser than the fair market value of such shares
on the first day of the offering period. Any payroll deductions not applied to
such purchase shall be promptly refunded to the participant.
The grant of purchase rights under the Purchase Plan will in no way affect
the right of the Company to adjust, reclassify, reorganize, or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
PRORATION OF PURCHASE RIGHTS. If the total number of shares of Common Stock
for which purchase rights are to be granted on any date exceeds the number of
shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
FEDERAL INCOME TAX CONSEQUENCES. The following is a general description of
certain federal income tax consequences of the Purchase Plan. This description
does not purport to be complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Code. No income is recognized by a participant at
the time a right to purchase shares is granted. Likewise, no taxable income is
recognized at the time of the purchase, even though the purchase price reflects
a discount from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the Purchase Plan. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of section 423 have
been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of section 423, shares acquired under the Purchase Plan cannot be
disposed of within two years after the first day of the offering period during
which the shares were purchased (or within two years after the participant's
entry date, if that date is later than the beginning of the offering period) nor
within one year after the shares were purchased. The U.S. income tax
consequences of a qualifying disposition are as follows:
- The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the
disposition over the purchase price or (b) 15% of the fair market value of
the shares on the first day of the applicable offering period (or on the
participant's entry date, if that date is later than the first day of the
offering period and if the market value is higher on that date). The
Company will not be entitled to any deduction under these circumstances.
23
<PAGE>
- The excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of
ordinary income recognized (as described above) will be taxed as a
long-term capital gain. If a taxable disposition produces a loss (i.e.,
the fair market value of the shares on the date of the disposition is less
than the purchase price) and the disposition involves certain unrelated
parties, then the loss will be a long-term capital loss.
A participant who disposes of shares acquired under the Purchase Plan
without meeting the holding-period requirements makes a disqualifying
disposition of such shares. The U.S. income tax consequences of a disqualifying
disposition are as follows:
- The entire difference between the purchase price and the market value of
the shares on the date of purchase will be taxed to the participant as
ordinary income in the year of disposition. The Company will be entitled
to a deduction for the same amount, subject to certain conditions.
- The excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed
as a capital gain (long-term or short-term, depending on how long the
shares have been held). If the value of the shares on the date of
disposition is less than their value on the date of purchase, then the
difference will result in a capital loss (long-term or short-term,
depending upon the holding period), provided the disposition involves
certain unrelated parties. Any such loss will not affect the ordinary
income recognized upon the disposition.
The foregoing is only a summary of the federal income taxation consequences
to the participant and the Company with respect to the shares purchased under
the Purchase Plan. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any city, state
or foreign country in which the participant may reside.
NEW PURCHASE PLAN BENEFITS. Since purchase rights are subject to
discretion, including an employee's decision not to participate in the Purchase
Plan, awards under the Purchase Plan for the current fiscal year are not
determinable. However, each of the Named Officers, except James A. Dorrian, has
the right to purchase a maximum of 500 shares of Common Stock at a price that
will not exceed $17.00 per share on each of the April 30, 1996, October 31,
1996, April 30, 1997 and October 31, 1997 purchase dates.
24
<PAGE>
PROPOSAL NO. 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
On June 6, 1996, the Board authorized an amendment of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, par value $.001 per share ("Common Stock"), from 25,000,000 to
50,000,000. The stockholders are being asked to approve this proposed amendment.
As of March 31, 1996, approximately 10,860,000 shares of Common Stock were
issued and outstanding and 1,366,501 shares were reserved for issuance under the
Company's Option Plan and Purchase Plan.
The Board believes that the proposed increase is desirable so that, as the
need may arise, the Company will have more flexibility to issue shares of Common
Stock without the expense and delay of a special stockholders' meeting, in
connection with possible future stock dividends or stock splits, equity
financings, future opportunities for expanding the business through investments
or acquisitions, management incentive and employee benefit plans and for other
general corporate purposes.
Authorized but unissued shares of the Company's Common Stock may be issued
at such times, for such purposes and for such consideration as the Board of
Directors may determine to be appropriate without further authority from the
Company's stockholders, except as otherwise required by applicable law or stock
exchange policies.
The increase in authorized Common Stock will not have any immediate effect
on the rights of existing stockholders. However, the Board will have the
authority to issue authorized Common Stock without requiring future stockholder
approval of such issuances, except as may be required by applicable law or
exchange regulations. To the extent that the additional authorized shares are
issued in the future, they will decrease the existing stockholders' percentage
equity ownership and, depending upon the price at which they are issued, could
be dilutive to the existing stockholders. The holders of Common Stock have no
preemptive rights.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company. The Company
has previously adopted certain measures that may have the effect of helping to
resist an unsolicited takeover attempt.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION.
25
<PAGE>
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of Price
Waterhouse LLP as the Company's independent public accountants for the fiscal
year ending March 31, 1997. In the event the stockholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
appointment is ratified, the Board of Directors, in its discretion, may direct
the appointment of a different independent accounting firm at any time during
the year if the Board of Directors feels that such a change would be in the
Company's and its stockholders' best interests. Representatives of Price
Waterhouse LLP are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICE WATERHOUSE LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1997.
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 their fiscal 1995 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 10% stockholders, except that the following individuals and
entities filed a Form 3 late: Mr. Mark Perry, Mr. John Chambers, Ms. Ann
Winblad, Mr. John Hummer, Hummer Winblad Technology Fund, L.P., Hummer Winblad
Venture Partners, L.P., and Hummer Winblad Equity Partners, L.P.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
COMPANY'S FORM 10-K REPORT FOR FISCAL 1996, INCLUDING THE FINANCIAL STATEMENTS,
SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO ARBOR SOFTWARE
CORPORATION, 1325 CHESAPEAKE TERRACE, SUNNYVALE, CALIFORNIA 94089, ATTN: RICK
MORRIS, INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1997 Annual
Meeting that are eligible for inclusion in the Company's proxy statement and
related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than April 16, 1997 in order to be included. Such stockholder proposals should
be addressed to Arbor Software Corporation, 1235 Chesapeake Terrace, Sunnyvale,
California 94089, Attn: Rick Morris, Investor Relations.
26
<PAGE>
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder action
at the Annual Meeting. However, if other matters do properly come before the
Annual Meeting or any adjournments or postponements thereof, the Board intends
that the persons named in the proxies will vote upon such matters in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert V. Gunderson, Jr.
SECRETARY
Sunnyvale, California
June 24, 1996
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 MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
27
<PAGE>
ARBOR SOFTWARE CORPORATION 1995
STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to promote the
interests of Arbor Software Corporation, a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
(i) the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary reduced each year
in return for options to purchase shares of Common Stock,
(iii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary), and
(iv) the Automatic Option Grant Program under which Eligible Directors
shall automatically receive option grants at periodic intervals to purchase
shares of Common Stock.
B. The provisions of Articles One and Six shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to Section 16 Insiders. To the extent
required by Rule 16b-3 under the 1934 Act, no non-employee Board member shall be
eligible to serve on the Primary Committee if such individual has, during the
twelve (12)-month period immediately preceding the date of his or her
appointment to the Committee or (if shorter) the period commencing with the
Section 12(g) Registration Date and ending with the date of his or her
appointment to the Primary Committee, received an option grant or direct stock
issuance under the Plan or any stock option, stock appreciation, stock bonus or
other stock plan of the Corporation (or any Parent or Subsidiary), other than
pursuant to the Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to all other persons
eligible to participate in those programs may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with respect to all such persons.
The members of the Secondary Committee may be Board members who are Employees
eligible to receive discretionary option grants or direct stock issuances under
the Plan or any stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
<PAGE>
D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority to establish such rules
and regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs and to make such determinations under, and issue such interpretations
of, the provisions of such programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative functions under the
Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant, Salary Investment Option Grant or Stock Issuance
Program under its jurisdiction or any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board (other than those serving as
members of the Primary Committee) or the board of directors of any Parent or
Subsidiary, and
(iii) consultants and other independent advisors who provide services to
the Corporation (or any Parent or Subsidiary).
B. Only Employees shall be eligible to participate in the Salary Investment
Program.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, (i) with respect to the option grants under the
Discretionary Option Grant and Salary Investment Option Grant Programs, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant and/or Salary
Investment Program to effect stock issuances in accordance with the Stock
Issuance Program.
E. The individuals eligible to participate in the Automatic Option Grant
Program shall be (i) those individuals who are serving as non-employee Board
members on the Plan Effective Date or who are first elected or appointed as
non-employee Board members after the Plan Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders, and (ii)
those individuals who continue to serve as non-employee Board members after one
or more Annual Stockholders Meetings held after the Plan Effective Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to
2
<PAGE>
receive an option grant under the Automatic Option Grant Program on the Plan
Effective Date or at the time he or she first becomes a non-employee Board
member, but such individual shall be eligible to receive periodic option grants
under the Automatic Option Grant Program upon his or her continued service as a
non-employee Board member following one or more Annual Stockholders Meetings.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,300,721 shares.
Such authorized share reserve is comprised of (i) the number of shares which
remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders prior to
such date, including the shares subject to the outstanding options incorporated
into the Plan and any other shares which would have been available for future
option grants under the Predecessor Plan (estimated to be 1,050,721 shares), and
an increase of 250,000 shares authorized by the Board under the Plan, and
approved by the stockholders on September 15, 1995; plus (ii) an additional
increase of 1,000,000 shares authorized by the Board under the Plan, subject to
stockholder approval.
B. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
500,000 shares of Common Stock in the aggregate per calendar year, beginning
with the 1995 calendar year.
C. Shares of Common Stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options (including
any options incorporated from the Predecessor Plan) expire or terminate for any
reason prior to exercise in full or (ii) the options are canceled in accordance
with the cancellation-regrant provisions of Article Two. All shares issued under
the Plan (including shares issued upon exercise of options incorporated from the
Predecessor Plan), whether or not those shares are subsequently repurchased by
the Corporation pursuant to its repurchase rights under the Plan, shall reduce
on a share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of an
option under the Plan (including any option incorporated from the Predecessor
Plan) be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities for which the share
reserve is to increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances per calendar
year, (iv) the number and/or class of securities for which automatic option
grants are to be subsequently made per Eligible Director under the Automatic
Option Grant Program and (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option (including any
option incorporated from the Predecessor Plan) in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments deter-mined by the Plan
Administrator shall be final, binding and conclusive.
3
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved
by the Plan Administrator; PROVIDED, however, that each such document shall
comply with the terms specified below. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the Plan applicable
to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Six and the
documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment
of the exercise price for the purchased shares must be made on the Exercise
Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options held
by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth in
the documents evidencing the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at the
time of death may be subsequently exercised by the personal representative
of the Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws
of descent and distribution.
(iii) During the applicable post-Service exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares
for which the option is exercisable on the
4
<PAGE>
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for Misconduct, then all
outstanding options held by the Optionee shall terminate immediately and
cease to be outstanding.
(v) In the event of an Involuntary Termination following a Corporate
Transaction, the provisions of Section III of this Article Two shall govern
the period for which the outstanding options are to remain exercisable
following the Optionee's cessation of Service and shall supersede any
provisions to the contrary in this section.
2. The Plan Administrator shall have the discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in whole or in part during Optionee's lifetime in accordance with
the terms of a Qualified Domestic Relations Order. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to such Qualified Domestic Relations Order. The terms applicable
to the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Six shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall NOT be subject to the terms of this Section II.
5
<PAGE>
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall be
made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan on both an aggregate and per Optionee
basis following the consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
6
<PAGE>
E. Any options which are assumed or replaced in the Corporate Transaction
and do not otherwise accelerate at that time shall automatically accelerate (and
any of the Corporation's outstanding repurchase rights which do not otherwise
terminate at the time of the Corporate Transaction shall automatically terminate
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full) in the event the Optionee's Service should
subsequently terminate by reason of an Involuntary Termination within eighteen
(18) months following the effective date of such Corporate Transaction. Any
options so accelerated shall remain exercisable for fully-vested shares until
the EARLIER of (i) the expiration of the option term or (ii) the expiration of
the one (1)-year period measured from the effective date of the Involuntary
Termination.
F. The Plan Administrator shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) upon the occurrence of a Change in Control or
(ii) condition any such option acceleration (and the termination of any
outstanding repurchase rights) upon the subsequent Involuntary Termination of
the Optionee's Service within a specified period following the effective date of
such Change in Control. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration or sooner
termination of the option term.
G. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the Corporation
in an amount equal to the excess of (a) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is at the time
vested under the surrendered option (or surrendered portion thereof) over
(b) the aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless it is approved
by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled
7
<PAGE>
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash, as
the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
LATER of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in no
event may such rights be exercised more than ten (10) years after the option
grant date.
C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such individual
holding one or more options with such a limited stock appreciation right in
effect for at least six (6) months shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile Take-Over)
to surrender each such option to the Corporation, to the extent the option
is at the time exercisable for vested shares of Common Stock. In return for
the surrendered option, the Optionee shall receive a cash distribution from
the Corporation in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock which are at the time vested under each
surrendered option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.
(iii) Neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option surrender and
cash distribution.
(iv) The balance of the option (if any) shall continue in full force and
effect in accordance with the documents evidencing such option.
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
Each Employee selected by the Plan Administrator to participate in the
Salary Investment Program for any calendar year must, prior to the start of that
calendar year, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by a designated multiple of one percent (1%), but
in no event less than five percent (5%). The Plan Administrator shall determine
whether to approve, in whole or in part, such authorization. To the extent the
Plan Administrator approves the authorization, the individual who filed that
authorization shall be granted an option under this Salary Investment Program.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; PROVIDED, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and one-third percent
(33 1/3%) of the Fair Market Value per share of Common Stock on the option grant
date.
8
<PAGE>
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject
to the option shall be determined pursuant to the following formula (rounded
down to the nearest whole number):
X = A DIVIDED BY (B X 66 2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's
base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. EXERCISE AND TERM OF OPTIONS. Provided the Optionee continues in
Service, the option shall become exercisable for the option shares in a series
of twelve (12) successive equal monthly installments on the last day of each of
the twelve (12) calendar months in the calendar year for which the option is
granted. Each option shall have a maximum term of ten (10) years measured from
the option grant date.
D. EFFECT OF TERMINATION OF SERVICE.
1. Should the Optionee cease Service for any reason AFTER his or her
outstanding option has become exercisable in whole or in part, then that option
shall remain exercisable, for any or all of the shares for which the option is
exercisable on the date of such cessation of Service, until the expiration of
the option term. After the Optionee's death, such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's death, by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution. Such
right of exercise shall lapse, and the option shall terminate, upon the
expiration of the option term. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to the
extent it is not exercisable on the date of such cessation of Service.
2. Should the Optionee die BEFORE his or her outstanding option becomes
exercisable for any of the option shares, then the personal representative of
the Optionee's estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise such option for up to that number
of option shares equal to (i) one-twelfth (1/12) of the total number of option
shares multiplied by (ii) the number of full calendar months which have elapsed
between the first day of the calendar year for which the option is granted and
the last day of the calendar month during which the Optionee ceases Service.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of the expiration of the option term or the third anniversary of the
date of the Optionee's death. However, the option shall, immediately upon the
Optionee's death, terminate and cease to be outstanding with respect to the
balance of the shares subject to that option.
3. Should the Optionee become Permanently Disabled and cease by reason
thereof to remain in Service BEFORE his or her outstanding option becomes
exercisable for any of the option shares, then the Optionee shall have the right
to exercise such option for up to that number of option shares equal to (i)
one-twelfth (1/12) of the total number of option shares multiplied by (ii) the
number of full calendar months which have elapsed between the first day of the
calendar year for which the option is granted and the last day of the calendar
month during which the Optionee ceases Service. Such right of exercise shall
lapse, and the option shall terminate, upon the expiration of the option term.
However, the option shall, immediately at the time Optionee becomes Permanently
Disabled, terminate and cease to be outstanding with respect to the balance of
the shares subject to that option.
9
<PAGE>
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each such option shall terminate, unless assumed by
the successor corporation (or parent thereof).
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Program shall automatically accelerate so that each such option shall
immediately become fully exercisable for all of the shares of Common Stock at
the time subject to such option and may be exercised for any or all of such
shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the expiration of the option term.
C. The grant of options under the Salary Investment Program shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan Administrator,
but shall not be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Six, shares of Common
Stock may be issued under the Stock Issuance Program for any of the following
items of consideration which the Plan Administrator may deem appropriate in each
individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested upon
issuance or may vest in one or more installments over the Participant's period
of Service or upon attainment of specified performance objectives. The elements
of the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
10
<PAGE>
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance Program or
should the performance objectives not be attained with respect to one or more
such unvested shares of Common Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the Participant shall have
no further stockholder rights with respect to those shares. To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-completion of the vesting schedule applicable
to such shares. Such waiver shall result in the immediate vesting of the
Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the Stock Issuance
Program shall terminate automatically, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
of any Corporate Transaction, except to the extent (i) those repurchase rights
are assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the Corporate Transaction
shall automatically terminate, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event the
Participant's Service should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of such
Corporate Transaction.
C. The Plan Administrator shall have the discretion, exercisable either at
the time the unvested shares are issued or at any time while the Corporation's
repurchase right remains outstanding, to (i) provide for the automatic
termination of one or more outstanding repurchase rights and the immediate
vesting of the shares of Common Stock subject to those rights upon the
occurrence of a
11
<PAGE>
Change in Control or (ii) condition any such accelerated vesting upon the
subsequent Involuntary Termination of the Participant's Service within a
specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified below:
1. Each Eligible Director who is first elected or appointed as a
non-employee Board member after the Plan Effective Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase 20,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning with the 1996
Annual Meeting, each individual who is to continue to serve as an Eligible
Director after such meeting, shall automatically be granted, whether or not such
individual is standing for re-election as a Board member at that Annual Meeting,
a Non-Statutory Option to purchase an additional 5,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months prior to the date of such Annual Meeting. There shall be no limit
on the number of such 5,000-share option grants any one Eligible Director may
receive over his or her period of Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of four (4) equal and
successive annual installments over the Optionee's period of continued service
as a Board member, with the first such installment to vest upon the Optionee's
completion of one (1) year of Board service measured from the option grant date.
Each annual grant shall vest, and the Corporation's repurchase right shall
lapse, upon the Optionee's completion of one (1) year of Board service measured
from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom the
option is transferred pursuant to the
12
<PAGE>
Optionee's will or in accordance with the laws of descent and distribution)
shall have a twelve (12)-month period following the date of such cessation
of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason of
death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve
(12)-month exercise period following such cessation of Board service, be
exercised for all or any portion of such shares as fully-vested shares of
Common Stock.
(iv) In no event shall the option remain exercisable after the expiration
of the option term. Upon the expiration of the twelve (12)-month exercise
period or (if earlier) upon the expiration of the option term, the option
shall terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not exercisable for vested shares on the
date of such cessation of Board service.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Immediately following the consummation of the Corporate Transaction, each
automatic option grant shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior to
the effective date of the Change in Control, become fully exercisable for all of
the shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares as fully-vested shares of Common
Stock. Each such option shall remain exercisable for such fully-vested option
shares until the expiration or sooner termination of the option term or the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each automatic
option held by him or her for a period of at least six (6) months. The Optionee
shall in return be entitled to a cash distribution from the Corporation in an
amount equal to the excess of (i) the Take-Over Price of the shares of Common
Stock at the time subject to the surrendered option (whether or not the Optionee
is otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
No approval or consent of the Board shall be required in connection with such
option surrender and cash distribution.
D. The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
13
<PAGE>
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
To the extent required by Rule 16b-3 under the 1934 Act, the provisions of
this Automatic Option Grant Program, together with the option grants outstanding
thereunder, may not be amended at intervals more frequently than once every six
(6) months, other than to the extent necessary to comply with applicable Federal
income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price for shares issued under the Stock Issuance Program by delivering
a promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or stock appreciation rights or upon the issuance or vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) STOCK WITHHOLDING: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
(ii) STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than
in connection with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
14
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant, Salary Investment and Stock Issuance
Programs shall become effective on the Plan Effective Date and options may be
granted under the Discretionary Option Grant Program from and after the Plan
Effective Date. The Automatic Option Grant Program shall also become effective
on the Plan Effective Date and the initial options under the Automatic Option
Grant Program shall be made to the Eligible Directors at that time.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan as of such
date shall, immediately upon the Plan Effective Date, be incorporated into the
Plan and treated as outstanding options under the Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. On June 6, 1996, the Board approved an increase in the number of shares
issuable under the Plan by 1,000,000 shares to 2,050,721 shares, subject to
approval by the Corporation's stockholders at the 1996 Annual Stockholders
Meeting. No options may be exercised and no shares may be issued on the basis of
the 1,000,000 share increase prior to stockholder approval of such increase.
Should stockholder approval not be obtained, then any options granted on the
basis of such share increase shall expire. Except as so limited, the Plan
Administrator may grant options at any time before expiration of the Plan. The
provisions in the 1996 restatement of the Plan shall apply only to options and
stock awards granted under the Plan from and after the effective date of such
restatement. All options and stock awards granted under the Plan immediately
prior to the effective date of such restatement shall continue to be governed by
the terms and conditions of the Plan (and the instrument evidencing each such
option or stock award) as in effect on the date each such option or stock award
was previously granted, and nothing in the 1996 restatement shall be deemed to
affect or otherwise modify the rights or obligations of the holders of such
options or stock awards with respect to the acquisition of shares of Common
Stock thereunder.
E. The Plan shall terminate upon the EARLIEST of (i) September 30, 2005,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all options and unvested stock issuances outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, (i) no such amendment or
modification shall adversely affect the rights and obligations with respect to
options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitations of that program. In addition, the Board shall
not, without the approval of the Corporation's stockholders, (i) materially
increase the maximum number of shares issuable under the Plan, the number of
shares for which options may be granted under the Automatic Option Grant Program
or the maximum number of shares for which any one person may be granted options,
separately exercisable stock appreciation
15
<PAGE>
rights and direct stock issuances per calendar year, except for permissible
adjustments in the event of certain changes in the Corporation's capitalization,
(ii) materially modify the eligibility requirements for Plan participation or
(iii) materially increase the benefits accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
are held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically canceled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
(i) upon the exercise of any option or stock appreciation right or (ii) under
the Stock Issuance Program shall be subject to the Corporation's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options and stock appreciation rights granted under it and
the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
16
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept,
or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still
in office at the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such transaction;
or
(ii) the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
G. CORPORATION shall mean Arbor Software Corporation, a Delaware
corporation.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
17
<PAGE>
L. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market
or any successor system. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) For purposes of option grants made on the date the Underwriting
Agreement is executed and the initial public offering price of the Common
Stock is established, the Fair Market Value shall be deemed to be equal to
the established initial offering price per share.
N. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to accept,
and
(ii) more than fifty percent (50%) of the securities so acquired are
accepted from persons other than Section 16 Insiders.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in corporate-
performance based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
18
<PAGE>
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee, Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant or Automatic Option
Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of
the Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
However, solely for the purposes of the Automatic Option Grant Program,
Permanent Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board member
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
X. PLAN shall mean the Corporation's 1995 Stock Option/Stock Issuance Plan,
as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common Stock
is established.
AA. PREDECESSOR PLAN shall mean the Corporation's existing 1992 Stock
Option Plan.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.
CC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
DD. SALARY INVESTMENT PROGRAM shall mean the salary reduction grant program
in effect under the Plan.
EE. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant,
Salary Investment Option Grant and Stock Issuance Programs with respect to
eligible persons other than Section 16 Insiders.
19
<PAGE>
FF. SECTION 16 INSIDER shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
GG. SECTION 12(g) Registration Date shall mean the first date on which the
Common Stock is registered under Section 12(g) of the 1934 Act.
HH. SERVICE shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee
member of the board of directors or a consultant or independent advisor, except
to the extent otherwise specifically provided in the documents evidencing the
option grant or stock issuance.
II. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
JJ. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
KK. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
under the Plan.
LL. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
MM. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.
NN. TAXES shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
OO. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
PP. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation
and the underwriter or underwriters managing the initial public offering of the
Common Stock.
20
<PAGE>
ARBOR SOFTWARE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, JULY 23, 1996
P
R
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
X ARBOR SOFTWARE CORPORATION
Y
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held on July 23,
1996 and the Proxy Statement and appoints Stephen V. Imbler and Teresa
Malo, and each of them, the Proxy of the undersigned, with full power of
substitution, to vote all shares of Common Stock of Arbor Software
Corporation (the "Company") which the undersigned is entitled to vote,
either on his or her own behalf or on behalf of any entity or entities, at
the Annual Meeting of Stockholders to be held at the Garden Court Hotel,
520 Cowper Street, Palo Alto, California 94301 on Tuesday, July 23, 1996,
at 4:00 p.m. local time and at any adjournment or postponement thereof
(the "Annual Meeting"), with the same force and effect as the undersigned
might or could do if personally present thereat. The shares represented by
this Proxy shall be voted in the manner set forth on the reverse side.
--------------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
---------------
<PAGE>
/ / PLEASE MARK VOTES
AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
BELOW AND A VOTE FOR THE OTHER PROPOSALS. THIS PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED AS SPECIFIED BELOW. THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED BELOW AND FOR THE OTHER PROPOSALS IF NO
SPECIFICATION IS MADE.
1. To elect the following
directors to serve for
a term ending upon the
1997 Annual Meeting of
Stockholders or until
their successors are
elected and qualified:
NOMINEES: James A. Dorrian, John T. Chambers,
Douglas M. Leone, Mark W. Perry and Ann L. Winblad.
FOR WITHHOLD
ALL / / / / AUTHORITY
NOMINEES TO VOTE FOR
ALL NOMINEES
/ / ___________________________
For all nominees, except for any nominee(s) whose
name is written in the space provided above.
2. To approve an amendment to the FOR AGAINST ABSTAIN
Company's 1995 Stock Option/Stock / / / / / /
Issuance Plan to increase the
number of shares of Common Stock
authorized for issuance
thereunder by 1,000,000 shares.
3. To approve an amendment to the FOR AGAINST ABSTAIN
Company's Certificate of / / / / / /
Incorporation increasing the
number of shares of the Company's
Common Stock reserved for
issuance thereunder by 25,000,000
shares.
4. To ratify the appointment of FOR AGAINST ABSTAIN
Price Waterhouse LLP as the / / / / / /
Company's independent auditors
for the fiscal year ending March
31, 1997.
5. To transact such other business as may properly come before the
Annual Meeting and at any adjournment or postponement thereof.
MARK HERE
FOR ADDRESS / /
CHANGE AND
NOTE AT LEFT
Please sign your name.
Signature: ______________________________ Date: __________
Signature: ______________________________ Date: __________
