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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-26934
ARBOR SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0277772
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1344 CROSSMAN AVENUE,
SUNNYVALE, CALIFORNIA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (408) 744-9500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant as of May 31, 1997 was $332,529,376.
The number of shares outstanding of the registrant's common stock as of
May 31, 1997 was 11,177,458.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be issued in
connection with the registrant's Annual Meeting of Stockholders to be held
August 13, 1997.
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ARBOR SOFTWARE CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
INDEX
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PART I
Item 1. Business ........................................................................................ 1
Item 2. Properties ...................................................................................... 13
Item 3. Legal Proceedings ............................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ............................................. 14
Item 4a. Executive Officers of the Registrant ............................................................ 15
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ............................ 16
Item 6. Selected Consolidated Financial Data ............................................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 17
Item 8. Financial Statements and Supplementary Data ..................................................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............ 38
PART III
Item 10. Directors and Executive Officers of the Registrant .............................................. 39
Item 11. Executive Compensation........................................................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and Management .................................. 39
Item 13. Certain Relationships and Related Transactions .................................................. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................. 40
Signatures ...................................................................................... 42
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PART I
The discussion in this Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" as well as those discussed in this section and elsewhere in
this Report.
ITEM 1. BUSINESS
GENERAL
Arbor Software Corporation ("Arbor" or the "Company") develops and
markets enterprise software for management reporting, analysis and planning. The
Company's Essbase software is a powerful on-line analytical processing ("OLAP")
solution that integrates data from throughout an enterprise, including data from
relational databases, data warehouses and other data repositories, and allows
users to perform multidimensional analysis on this data utilizing spreadsheets,
query tools, report writers and web browsers. Essbase users can easily access
and organize large volumes of historical and projected data, rapidly perform
interactive what-if scenario analyses and share this information with users
throughout the enterprise. The powerful Arbor Essbase OLAP solution enables
users to easily organize and view in multiple dimensions large volumes of
historical and projected data from heterogeneous sources, to rapidly perform
interactive scenario analyses and to share information with other users
throughout the enterprise without significant utilization of MIS (Management
Information Services) resources.
The Company believes that to succeed in today's increasingly
competitive markets, businesses must accelerate the rate at which they identify
and respond to changing business conditions. An organization's market agility
and ultimate success are dependent upon its ability to rapidly collect, organize
and analyze data to make effective business decisions. Many organizations have
begun to implement business process reengineering initiatives to improve
planning and analysis and decision making. Consequently, they have made
substantial investments in information systems to automate many activities,
resulting in the generation of large quantities of data. Spreadsheets,
databases, data warehouses and query and reporting tools are used to store,
manipulate and review this data. Each performs specific functions but does not
fully address an organization's need to transform data into useful information
upon which decisions can be based.
Essbase consists principally of the Essbase Server, Essbase Spreadsheet
Client and Essbase Application Manager, and may be augmented with optional tools
to extend and enhance the functionality of the Essbase solution. Essbase is easy
to use and rapidly deployable, possesses robust calculation capabilities,
provides rapid response to user requests and incorporates user-generated
scenario data. Essbase also has the flexibility to reorganize and present data
from a variety of perspectives without disturbing the integrity of the
underlying historical data or causing the degradation of network performance.
The Company believes that its future success will be largely dependent
upon its ability to establish Essbase as a standard platform for on-line
analytical processing. To accelerate the adoption of Essbase as a standard for
OLAP, the Company plans to maintain its technology leadership in performance,
analytical power, deployability, and open architecture and to foster strategic
relationships with providers of software applications, tools, services and
hardware platforms. In addition, to further the establishment of Essbase as a
standard platform for on-line analytical processing, the Company intends to
ensure that Essbase adheres to key industry standards, leverages existing
customer investments in information technology and focuses on solutions in a
broad range of markets.
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ESSBASE SOFTWARE
Essbase is a comprehensive on-line analytical processing solution
comprised of the Essbase Server, Essbase Spreadsheet Client and Essbase
Application Manager. In addition, the Company offers optional modules and tools
that extend and enhance Essbase functionality.
The Essbase Server. Essbase is an OLAP server multidimensional database
engine that supports simultaneous, multi-user access, analysis and write-back of
data using multiple dimensions such as channel, geography, customer, fiscal
period or budget versus actual. The analytical model, all data and data security
controls reside at the Essbase Server, where data computation functions are
performed. This approach to analytical calculations maximizes data integrity,
reduces network traffic requirements and eliminates the need for
high-performance client PCs and workstations. Specifically implemented as a
client/server solution, Essbase can support simultaneous reading and writing by
multiple users without perceptible impact on network performance and presents
data to the user through a spreadsheet client or other common client interface.
A version of Essbase was ported by a third party for the AS/400 platform in
fiscal 1997. Additionally, the Company signed a joint development agreement with
International Business Machines Corporation ("IBM") in fiscal 1997 that will
integrate the Essbase OLAP server directly with IBM's DB2 and other relational
database software to create a new Essbase product configuration option as well
as a new IBM based product offering tentatively called the IBM DB2 OLAP server.
The Essbase Server operates on Windows NT, OS/2 and various Unix operating
systems.
The Essbase Spreadsheet Client. The Essbase Spreadsheet Client enables
users with Microsoft Excel (Windows and Macintosh) and Lotus 1-2-3 for Windows
to connect and seemlessly interact with Essbase. Users work within the
spreadsheet interface to activate special Essbase features through mouse clicks
and familiar "drag and drop" operations. For example, to retrieve data into a
spreadsheet from the Essbase Server, the user chooses the "Retrieve" command
from the pull-down Essbase menu, and clicks the mouse. The requested data is
immediately displayed and available to be analyzed, manipulated and charted
within the user's spreadsheet. Besides providing immediate data access, the
Essbase Spreadsheet Client provides multidimensional analysis capabilities such
as drill down and pivoting. Because of the tight integration of the Essbase
Spreadsheet Client with the most widely used spreadsheet applications, the
Essbase Spreadsheet Client can be easily deployed throughout the organization.
The Essbase Application Manager. The primary functions of the Essbase
Application Manager are:
o Model definition. The analytical model is defined using an intuitive
outline format and is stored separately from the actual database.
During the definition of the analytical model, the Essbase Application
Manager provides a visual representation of dimensions, hierarchical
structures within dimensions and embedded dimensional calculations.
o Data loading. The Essbase Application Manager provides powerful
functions for loading data into an Essbase database and building tight
links between data repositories and Essbase applications. Data can be
loaded from relational databases, data warehouses, legacy database
repositories, production systems, flat file extracts and spreadsheet
files or any combination of each. Users can select, manipulate or
substitute incoming data values as desired. Once defined, these rules
can be stored and used on all subsequent data loads.
o Dimension building. The Essbase Application Manager allows new
dimensions to be defined and new members of a dimension to be added to
an existing outline, off-line from the actual database. Essbase
dimension building capabilities are designed for quick and flexible
adaptation of data structures to changing business conditions. New
dimensions can be added automatically when new data is loaded. In
addition, users can automatically aggregate data to new dimensions
without having to reload the entire database.
o Calculations definition. The Essbase Application Manager allows users
to define analytical calculations which are executed by the powerful
Essbase calculation engine. In addition to allowing users to create
custom calculation formulas and scripts, the Essbase Application
Manager can utilize over 100 pre-defined
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analytical functions, such as net present value and internal rate of
return which are commonly required for planning and analysis
applications.
o Security. The Essbase Application Manager has an intuitive graphical
interface that allows administrators to limit access to applications or
databases, specific dimensions, members, ranges of members or
modification capabilities. The ability to define security groups also
simplifies assigning access privileges. Access privileges, such as
read, read-write and no access, can be created for specified groups and
individuals and can be assigned to such groups without having to
recreate the individual security profile for each user.
Optional Tools to Extend and Enhance Essbase Functionality. The Company
markets additional separately sold modules that extend Essbase's functionality.
These modules include the following:
o Application Programming Interface ("API"). The Essbase API enables
developers to use standard tools for creating custom applications that
take advantage of the robust data storage, computational and retrieval
capabilities of Essbase. For example, the API can be used to design
customized data entry screens or screens for executive access to data.
The API supports Microsoft Visual Basic, C or C++ and works with
Windows, Macintosh, OS/2 and various Unix clients.
o Extended Spreadsheet Toolkit. The Extended Spreadsheet Toolkit includes
more than 20 macros and Visual Basic for Applications functions,
enabling users to build customized third-party spreadsheet applications
incorporating Essbase functions.
o SQL Interface. The Essbase SQL Interface provides access to more than
20 relational and PC data sources by making the Essbase Server operate
as an open database connectivity ("ODBC") client. The SQL Interface is
used to move data from diverse sources into the Essbase Server for user
access and analysis.
o SQL Drill-Through. The Essbase SQL Drill-Through module creates tight
links between summary data residing in Essbase and detail data residing
in relational stores for OLTP or data warehouse repositories. The SQL
Drill-Through module generates SQL queries that enable users without
any knowledge of SQL commands to retrieve detail data from the RDBMS
that corresponds to specific data cells in the Essbase Server thereby
providing powerful, fully-integrated analysis capabilities.
o Currency Conversion. The Essbase Currency Conversion module translates,
analyzes and reports foreign financial data. The Essbase Currency
Conversion Module allows users to model exchange rate scenarios and
perform ad hoc conversions directly from their spreadsheets.
o Essbase Web Gateway. The Essbase Web Gateway is a multi-threaded server
application which enables high-speed, interactive, read and write
access to Essbase for OLAP applications over the World Wide Web. The
Essbase Web Gateway provides customers a comprehensive, web-based
solution that delivers sophisticated management reporting, provides
ad-hoc multidimensional analysis, and enables development of
comprehensive OLAP applications including planning, budgeting, and
forecasting over intranets or the internet.
o Crystal Info for Essbase. Crystal Info for Essbase integrates Seagate
Software's Crystal Reports, the industry leading production report
writer, reporting server and scheduling system with the power of
Essbase to deliver a comprehensive enterprise reporting system for OLAP
applications. With Crystal Info for Essbase, customers are able to use
an OLAP aware, high-volume production reporting solution with powerful
distribution and flexible processing capabilities. This product was
released for general availability in May 1997.
o Arbor Essbase Adjustment Module. The Arbor Essbase Adjustment Module
accelerates the management reporting process by integrating secure,
auditable controls for corporate adjustments into a comprehensive
reporting, analysis and planning environment. It automates recurring
adjustments and reconciles
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intercompany balances, reducing the adjustment period and increasing
the accuracy and timeliness of management information. This
functionality can be applied to a wide range of applications including
budgeting, sales forecasting, consolidations, intercompany elimination
management reporting. Additionally, the product provides user
independence for loading and calculating data. This product was
released for general availability in May 1997.
The Company licenses its Essbase software for one-time license fees
which are determined on a per server and per port basis. The minimum
installation consists of one Essbase Server with five ports. Ports are defined
by the number of concurrent users that can access a given server. The base fees
for each Essbase Server and each port are currently listed at $25,000 and
$2,500, respectively, with discounts based on quantity.
To provide customers with a strategic platform for rapidly deploying a
wide range of financial management applications, the Company announced in May
1997 the availability of the Arbor Essbase Financial Mart, an integrated
platform for rapidly deploying a wide range of financial management
applications. The Arbor Essbase Financial Data Mart is a packaging of the Arbor
Essbase OLAP Server, Arbor Essbase Adjustment Module, Arbor Essbase Application
Manager, Crystal Info for Essbase Module, Arbor Essbase Spreadsheet Client,
Arbor Essbase Currency Conversion Module, Best Practices Templates and Education
and Support Services.
The Arbor Essbase Financial Data Mart provides robust financial
management capabilities across disparate financial systems by unifying
processing, modeling and management reporting within a single platform. The
Arbor Essbase Financial Data Mart helps customers deliver high quality
management information and eliminate unnecessary or redundant processes.
Customers can utilize the Arbor Essbase Financial Data Mart to rapidly deploy
enterprise-scale financial applications, including consolidation and budgeting,
product profitability, activity-based costing, performance measurement and
Executive Information Systems ("EIS").
SALES AND MARKETING
The Company markets and sells Essbase in the United States, Canada, Europe and
the Pacific Rim through the Company's direct sales force and worldwide through
original equipment manufacturers ("OEMs"), value-added resellers ("VARs") and
distributors. The direct sales process involves the generation of sales leads
through direct mail, seminars and telemarketing or requests for proposal from
prospects. The Company's field sales force conducts multiple presentations and
demonstrations of the Company's products to management and users at the customer
site as part of the direct sales effort. Sales cycles generally last from three
to six months. The direct sales force is responsible for local partner support,
joint sales efforts and channel management. The direct sales force is
compensated for sales made through indirect channel partners as well as direct
sales to ensure appropriate cooperation with the Company's OEMs and VARs.
The Company's sales and marketing organization consisted of 130
employees as of March 31, 1997. The sales and marketing staff is based at the
Company's corporate headquarters in Sunnyvale, California. The Company also has
field sales offices in the metropolitan areas of Atlanta; Boston; Chicago;
Dallas; Houston; Los Angeles; Washington, D.C; Vancouver, BC, Canada; Frankfurt,
Hamburg and Munich, Germany; London, England; Paris, France; and Sydney,
Australia. To support its sales force, the Company conducts comprehensive
marketing programs, which include direct mail, public relations, advertising,
seminars, trade shows, education and user group conferences.
In January 1997, the Company promoted John Dillon, the Company's former
Senior Vice President of Sales and Services, to President and Chief Operating
Officer.
The Company has been able to leverage sales and marketing through its
partnering strategy with indirect channel partners that distribute or resell the
Company's products in their respective markets. Indirect channel partners
accounted for approximately 25%, 28% and 29% of the Company's total revenues in
fiscal 1997, 1996 and 1995, respectively. The Company's indirect channel
partners include Comshare, Inc. ("Comshare"), Fiserv CIR, Inc.; Fujitsu Limited;
International Business Machines Corporation ("IBM"); Lawson Software;
PeopleSoft, Inc.;
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Shell Services Corporation; ShowCase Corporation; SQL Financials, International
Inc. and Walker Interactive Systems. See "Risk Factors -- Dependence Upon
Comshare and Other Indirect Channel Partners."
The Company's largest indirect channel partner is Comshare, a provider
of executive information systems that currently markets a family of products
that employ Essbase. Essbase distributed by Comshare is supported by Comshare
and their agents and channel partners around the world. Under the Company's
December 1993 license agreement with Comshare (the "Comshare License
Agreement"), Comshare has been granted a license to use, copy, distribute and
sublicense Essbase worldwide. The Company is paid a percentage of license fees
generated by Comshare with minimum commitments owed to the Company in order to
maintain the scope of Comshare's distribution rights. The agreement provides for
standard confidentiality and non-disclosure obligations and commits standard
warranty and indemnification rights to Comshare. Revenues from Comshare
accounted for 19%, 26% and 26% of the Company's total revenues for fiscal 1997,
1996 and 1995, respectively. The Comshare License Agreement provides that, in
the event that certain competitors of Comshare were to acquire at least a twenty
percent equity interest in the Company, in substantially all of the Company's
assets or in substantially all of the intellectual property rights to the
Company's Essbase software, the license revenues payable by Comshare to the
Company under the agreement would be reduced by fifty percent, and Comshare
could elect to terminate the Comshare License Agreement. Accordingly, the
possibility of termination of the Comshare License Agreement or a fifty percent
reduction in license revenues from Comshare could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. In addition, the Comshare License Agreement contains a provision
prohibiting the Company from licensing its products to or through certain of
Comshare's competitors, and the elimination of any potential customers limits
the Company's potential market share to some degree. Comshare does not report to
the Company the revenues generated by its sales of the Company's Essbase
software for a particular quarter until 45 days after quarter-end; accordingly,
the Company records such revenues in that subsequent quarter. No assurance can
be given that revenues derived from Comshare and other indirect channel partners
will not fluctuate significantly in subsequent periods or will not terminate
entirely. The loss of, or a significant reduction in revenues from Comshare
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company is currently in litigation with
Comshare with respect to the Comshare License Agreement and related matters. The
outcome of the litigation is uncertain at this time and no assurance can be
given as to the outcome of the litigation. However, management does not believe
that the outcome of the litigation will have a material adverse effect on the
Company although it does anticipate unpredictable variations in royalty
revenues and substantial legal costs during the course of the litigation. See
"Legal Proceedings" in Item 3 below. See also "Risk Factors - Dependence Upon
Comshare and Other Indirect Channel Partners;" "Risks Associated with Litigation
and Related Costs" and "Fluctuations in Quarterly Results; Future Operating
Results Uncertain."
International revenues from the Company's direct sales force accounted
for 11%, 9% and 5% of total revenues in fiscal 1997, 1996 and 1995,
respectively. In addition, although the Company records revenues from its United
States based indirect channel partners as domestic revenues, such partners may
sell Essbase to international customers. The Company's largest indirect channel
partner, Comshare, accounts for a significant portion of the Company's
international revenues. Based on reports received from Comshare, the Company
believes that approximately 60%, 50% and 37% of revenues generated by Comshare
were derived from sales to international customers in fiscal 1997, 1996 and
1995, respectively. The Company believes that in order to increase sales
opportunities and profitability it will be required to expand its international
operations. The Company recently opened offices in Vancouver, BC, Canada; Paris,
France; Frankfurt, Hamburg and Munich, Germany and Sydney, Australia. See
"Properties" in Item 2 below. See also "Principles of Consolidation" in Note 1
of Notes to Consolidated Financial Statements. The Company continues to expand
its direct and indirect sales and marketing activities worldwide, which will
require significant management attention and financial resources. The Company
has committed and continues to commit significant time and financial resources
to developing international sales and support channels. There can be no
assurance, however, that the Company will be able to maintain or increase
international market demand for Essbase. To the extent that the Company is
unable to do so in a timely manner, the Company's international sales will be
limited, and the Company's business, operating results and financial condition
would be materially adversely affected. See "Risk Factors -- Risks Associated
with International Operations."
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CUSTOMER MAINTENANCE AND SUPPORT
The Company believes that a high level of customer support is important
to the successful marketing and sale of Essbase. Maintenance and support
contracts, which are typically for twelve months, are offered with the initial
license, and may be renewed annually and are set at a fixed percentage of the
total license fee. Substantially all of the Company's direct sales to customers
have maintenance and support contracts that entitle the customers to patches,
updates and upgrades, at no additional cost, if and when available, and
technical hotline support. In addition, the Company offers classes and training
programs available at the Company's headquarters, local training centers and
customer sites. Telephone hotline support is complemented by an offering of a
number of web-based support services, available 24 hours a day. These include
access to TechTips and FAQs (frequently asked questions), an interactive search
engine for finding known problems, a patch download area, and an interface to
the Company's technical support department's problem-tracking database, which
allows customers to submit cases, and view the status of any of their current
cases on-line. Users of Essbase can attend regional user group conferences
throughout the year, at which Essbase skills and solutions are exchanged.
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part
on its ability to maintain and enhance its leadership in OLAP server technology
and develop new products that meet an expanding range of customer requirements.
The Company's research and development organization is divided into teams
consisting of development engineers, quality assurance engineers and technical
writers. As of March 31, 1997, the Company's research and development
organization consisted of 49 full-time employees including 30 development
engineers, 12 quality assurance engineers and 7 technical writers. The Company
is presently searching for a Vice President of Product Development. The research
and development organization uses a phase oriented development process which
includes constant monitoring of quality, schedule, functionality, costs and
customer satisfaction. The product definition is based upon a consolidation of
the requirements from existing customers, from technical support and from
engineering. These are prioritized by the Company's management to fit business
priorities and to meet the Company's vision.
The Company's core technology is based upon a proprietary technology
that exploits the sparse and dense characteristics of multidimensional data. The
majority of the Company's current research and development effort is spent
improving the performance, analytical power, deployability and open architecture
of the server implementation of this technology. The Company licenses an API
(Application Program Interface) to encourage partners to connect their client
tools to the core Essbase Server. The Company's server technology is platform
independent so that it can be easily ported to Windows NT, Windows 95, OS/2 and
various Unix operating systems.
The software industry, and specifically the market in which the Company
competes, is characterized by rapid technological change, frequent introductions
of new products, changes in customer demands and evolving industry standards.
The introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
life cycle of each version of Essbase is difficult to estimate. The Company's
future success will depend upon its ability to address the increasingly
sophisticated needs of its customers by developing and introducing enhancements
to Essbase on a timely basis that keep pace with technological developments and
emerging industry standards and customer requirements. There can be no assurance
that the Company will be successful in developing and marketing enhancements to
Essbase that respond to technological change or evolving industry standards or
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of such
enhancements or that such enhancements will adequately meet the requirements of
the marketplace and achieve any significant degree of market acceptance. The
Company has in the past experienced delays in the release dates of enhancements
to Essbase. If release dates of any future Essbase enhancements are delayed or
if when released they fail to achieve market acceptance, the Company's business,
operating results and financial condition could be materially and adversely
affected. There can be no assurance that the introduction or announcement of new
product offerings by the Company or the Company's competitors will not cause
customers to defer or forgo purchases of current versions of Essbase, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors - Risks Associated with New
Versions and New Products; Rapid Technological Change."
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Software products as internally complex as Essbase frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. Despite extensive product testing by the Company, the
Company has in the past released versions of Essbase with defects and has
discovered software errors in Essbase and certain enhanced versions of Essbase
after their introduction. Although the Company has not experienced material
adverse effects resulting from any such defects and errors to date, there can be
no assurance that, despite testing by the Company and by current and potential
customers, defects and errors will not be found in new versions or enhancements
after commencement of commercial shipments, resulting in loss of revenues or
delay in market acceptance, which could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company
anticipates that it will continue to commit substantial resources to research
and development in the future. See "Risk Factors - Risk of Software Defects."
The functioning of Arbor Essbase is not affected by dates containing
the year 2000 or subsequent years. This is due to the fact that Essbase does not
store any date information as a data type in its database and does not perform
any date calculations. In addition, the definition of dates in Essbase is in
the control of the user.
COMPETITION
The market in which the Company competes is intensely competitive,
highly fragmented and characterized by rapidly changing technology and evolving
standards. The Company's current and potential competitors offer a variety of
planning and analysis software solutions and generally fall within three
categories: (i) vendors of multidimensional database and analysis software such
as Oracle Corporation (Express), Pilot Software, Inc., a division of Cognizant
Corporation (Pilot Analysis Server); Gentia Software plc ("Gentia Software")
(formerly known as Planning Sciences International plc and Planning Sciences,
Inc.) (Gentia); Applix, Inc. (TM1); and Microsoft Corporation ("Microsoft"),
through its acquisition of OLAP technology from Panorama Software of Tel Aviv,
Israel ("Panorama"); (ii) vendors of dedicated software applications for
budgeting and financial consolidation such as Hyperion Software Corporation
(Hyperion and FYPlan); and (iii) vendors of OLAP/relational database software
(ROLAP) such as Information Advantage, Inc. (Decision Suite); Informix
Corporation (Metacube); Holistic Systems, a division of Seagate Technology, Inc.
(Holos) and Microstrategy, Inc. (DSS Agent). The Company does not believe that
the Panorama technology, as acquired by Microsoft, is currently competitive with
the Company's Essbase product. However, there can be no assurance that Microsoft
will not enhance such technology in order to market a competitive product in the
future. See "Risk Factors - Competition" and "Risks Associated with Litigation
and Related Costs."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company currently has one United
States patent and corresponding patent applications pending in Europe, Canada
and Australia. There can be no assurance that the Company's patent will not be
invalidated, circumvented or challenged, that the rights granted thereunder will
provide competitive advantages to the Company or that any of the Company's
pending or future patent applications, whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology or design around the patents owned by the Company.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the
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United States or abroad will be adequate or that competitors will not
independently develop similar technology. The Company has entered into source
code escrow agreements with a number of its customers and indirect channel
partners requiring release of source code under certain conditions. Such
agreements provide that such parties will have a limited, non-exclusive right to
use such code in the event that there is a bankruptcy proceeding by or against
the Company, if the Company ceases to do business or if the Company fails to
meet its contractual obligations. The provision of source code may increase the
likelihood of misappropriation by third parties.
The Company expects that software product developers will increasingly
be subject to infringement claims as the number of products and competitors in
the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
license the infringed or similar technology, the Company's business, operating
results and financial condition would be materially adversely affected.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in Essbase to perform key functions. There can be no
assurance that these third-party software licenses will continue to be available
to the Company on commercially reasonable terms. The loss of, or inability to
maintain, any such software licenses could result in shipment delays or
reductions until equivalent software could be developed, identified, licensed
and integrated, which would materially adversely affect the Company's business,
operating results and financial condition.
Currently, the Company is engaged in litigation with Gentia Software
concerning the enforcement and validity of the Company's U.S. patent. See "Legal
Proceedings" in Part I, Item 3 below. See "Risk Factors -- Fluctuations in
Quarterly Results; Future Operating Results Uncertain;" and "Risks Associated
with Litigation and Related Costs."
EMPLOYEES
As of March 31, 1997, the Company had a total of 252 employees,
including 49 in research and development, 130 in sales and marketing, 38 in
services, which includes customer support services and 35 in administration. Of
these employees, 206 were located in the United States and 46 were located in
the United Kingdom, Germany, France, Australia and Canada. None of the Company's
employees are represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations with
its employees to be good.
The Company is presently searching for a Vice President of Product
Development. See "Risk Factors - Personnel."
The Company's future operating results depend in significant part upon
the continued service of its key technical and senior management personnel none
of whom is bound by an employment agreement. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will retain its key managerial or
technical personnel or attract such personnel in the future. The Company has at
times experienced and continues to experience difficulty in recruiting qualified
personnel and there can be no assurance that the Company will not experience
such difficulties in the future. The Company, either directly or through
personnel search firms, actively recruits qualified research and development,
financial and sales personnel. If the Company is unable to hire and retain
qualified personnel in the future, such inability could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Risk Factors - Personnel."
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<PAGE> 11
RISK FACTORS
In addition to the other information in this Report on Form 10-K, the
following risk factors should be considered carefully in evaluating the Company
and its business:
Fluctuations in Quarterly Results; Future Operating Results Uncertain.
The Company's quarterly operating results have in the past varied significantly
and will likely in the future vary significantly depending on factors such as:
demand for the Company's Essbase software; the Company's relationship with its
indirect channel partners, particularly Comshare, and the consistency of sales
made by such indirect channel partners; the level of price and product
competition; changes in pricing policies by the Company or its competitors;
changes in the mix of indirect channels through which Essbase is offered; the
number, timing and significance of product enhancements and new product
announcements by the Company and its competitors; the ability of the Company to
develop, introduce and market new and enhanced versions of Essbase on a timely
basis; the size, timing and structure of significant licenses; changes in the
Company's sales incentive strategy; the timing of revenue recognition under the
Company's agreements; customer order deferrals in anticipation of enhancements
to Essbase or enhancements of new products of its competitors; the impact of
acquisitions of competitors and indirect channel partners; the level of the
Company's international revenues; foreign currency exchange rates; the renewal
of maintenance and support agreements; product life cycles; software defects and
other product quality problems; personnel changes; changes in Company strategy;
changes in the level of operating expenses and general domestic and
international economic and political conditions, among others. The operating
results of many software companies reflect seasonal trends, and the Company's
business, operating results and financial condition may experience comparatively
slower growth in its first fiscal quarter and summer months, which overlap into
its second fiscal quarter. The Company sells substantially more product towards
the end of each quarter, due in part to established buying patterns within the
software industry. As a result, the magnitude of any quarterly fluctuations may
not become evident until late in the quarter. Essbase orders are typically
shipped shortly after receipt, and consequently in the past, order backlog at
the beginning of any quarter has represented only a small portion of that
quarter's expected revenues. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. In
addition, a significant portion of each year's revenues are derived from sales
of the Company's Essbase software by Comshare. The Company's pending litigation
could have a significant impact on Comshare's sales of Essbase. See "Legal
Proceedings" in Item 3 below. See also "Risk Factors -- Dependence Upon Comshare
and Other Indirect Channel Partners" and "Risks Associated with Litigation and
Related Costs."
Due to all of the foregoing, revenues for any future quarter are not
predictable with any significant degree of accuracy. Quarterly revenues are also
difficult to forecast because the Company's sales cycle, from initial evaluation
to license and maintenance and support purchases, varies substantially from
customer to customer. Accordingly, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance. Although the Company
has experienced significant growth in total revenues in recent years, the
Company does not believe that historical growth rates are sustainable.
Accordingly, the rate at which the Company has grown in the past should not be
considered to be indicative of future revenue growth, if any, or future
operating results. There can be no assurance that the Company will remain
profitable on a quarterly or annual basis. The Company's limited operating
history makes the prediction of future operating results difficult, if not
impossible.
The Company's expense levels are based in significant part on the
Company's expectations of future revenues and therefore are higher than past
expense levels, and are relatively fixed in the short run. If revenue levels are
below expectations, net income is likely to be disproportionately affected.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. In addition, it is
possible that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
or in the event that adverse conditions prevail or are perceived to prevail
generally or with respect to the Company's business, the price of the Company's
Common Stock would likely be materially and adversely affected.
Dependence Upon Comshare and Other Indirect Channel Partners. In
addition to its direct sales force, the Company relies on indirect channel
partners such as OEMs, VARs and distributors for licensing and support of its
products in the United States and internationally. The Company's indirect
channel partners generally offer
9
<PAGE> 12
products of several different companies, including, in some cases, products that
compete with Essbase. The Company's largest indirect channel partner is
Comshare, a leading provider of executive information systems that currently
markets a family of products that employ Essbase. Revenues from Comshare
accounted for 19%, 26% and 26% of the Company's total revenues for fiscal 1997,
1996 and 1995, respectively. There can be no assurance that the Company's
current indirect channel partners will elect, or be able, to market or support
Essbase effectively, that the Company will be able to effectively manage channel
conflicts, that economic conditions or industry demand will not adversely affect
these or other indirect channel partners or that these indirect channel partners
will not devote greater resources to marketing and supporting the products of
other companies. No assurance can be given that revenues derived from Comshare
and other indirect channel partners will not fluctuate significantly in
subsequent periods or will not terminate entirely. The loss of, or a significant
reduction in revenues from Comshare could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company is currently in litigation with Comshare. The outcome of
the litigation is uncertain at this time and no assurance can be given as to the
outcome of the litigation. However, management does not believe that the outcome
of the litigation will have a material adverse effect on the Company although it
does anticipate unpredictable variations in royalty revenues and substantial
legal costs during the course of the litigation. See "Business - Sales and
Marketing." See also "Legal Proceedings" in Item 3 below. See also "Risk Factors
- - Fluctuations in Quarterly Results; Future Operating Results Uncertain,"
"Dependence Upon Comshare and Other Indirect Channel Partners" and "Risks
Associated with Litigation and Related Costs."
Product Concentration; Dependence upon the Emerging Market for OLAP
Server Software. All of the Company's revenues to date have been derived from
licenses for Essbase and related products and services. The Company currently
expects that Essbase-related revenues, including maintenance and support
contracts, will continue to account for all or substantially all of the
Company's revenues for the foreseeable future. As a result, the Company's future
operating results are dependent upon continued market acceptance of Essbase and
enhancements thereto. There can be no assurance that Essbase will achieve
continued market acceptance or that the Company will be successful in marketing
Essbase or enhancements thereto. A decline in demand for, or market acceptance
of, Essbase as a result of competition, technological change or other factors
would have a material adverse effect on the Company's business, operating
results and financial condition. The Company intends to continue its efforts to
improve and enhance Essbase by maintaining its commitment to an open
architecture, extending its partnerships, integrating third party technologies,
tightening its linkage with leading general-purpose database management systems,
continuing to evolve the Essbase OLAP server, and developing new application
development products and middleware tools. No assurance can be given that such
efforts will enhance the value of the Company's product offerings to customers.
Although sales of Essbase have increased in recent years, the market in
which the Company competes is undergoing rapid change and there can be no
assurance that sales of Essbase will continue to increase or potential customers
will purchase Essbase. The Company has spent, and intends to continue to spend,
considerable resources educating potential customers about Essbase and its
functions and on-line analytical processing generally. However, there can be no
assurance that such expenditures will enable Essbase to achieve any additional
degree of market acceptance, and if the market for Essbase fails to grow or
grows more slowly than the Company currently anticipates, the Company's
business, operating results and financial condition would be materially
adversely affected. Historically, the software industry has experienced
significant periodic downturns, often in connection with, or in anticipation of,
declines in general economic conditions during which MIS budgets often decrease.
As a result, the Company's business, operating results and financial condition
may in the future reflect substantial fluctuations from period to period as a
consequence of patterns and general economic conditions in the software
industry.
Potential Volatility of Stock Price. The market price of the Company's
Common Stock is highly volatile and may be significantly affected by factors
such as actual or anticipated fluctuations in the Company's operating results,
relationships with indirect channel partners, announcements relating to the
Company's pending litigation with Comshare and Gentia Software, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, conditions and trends in the software and other technology industries,
adoption of new accounting standards affecting the software industry, general
market conditions and other factors. In addition, the stock market has from time
to time experienced significant price and volume fluctuations that have
particularly affected the market prices
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<PAGE> 13
for the common stocks of technology companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
Risks Associated with International Operations. International sales are
subject to inherent risks, including the impact of possible recessionary
environments in economies outside the United States, costs of localizing
products for foreign countries, longer receivables collection periods and
greater difficulty in accounts receivable collection, unexpected changes in
regulatory requirements, difficulties and costs of staffing and managing foreign
operations, reduced protection for intellectual property rights in some
countries, potentially adverse tax consequences and political and economic
instability. There can be no assurance that the Company or its indirect channel
partners will be able to sustain or increase international revenues from
international licenses and maintenance, support and other contracts, or that the
foregoing factors will not have a material adverse effect on the Company's
future international revenues and, consequently, on the Company's business,
operating results and financial condition. The Company's direct international
sales are currently denominated in either United States dollars, British pounds
sterling, German deutsche marks or French francs and the Company does not
currently engage in hedging activities. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in the currency exchange rates in the future will not have a
material adverse impact on revenues from direct international sales and thus the
Company's business, operating results or financial condition. Sales generated by
the Company's indirect channel partners, including Comshare, currently are paid
to the Company in United States dollars. If, in the future, international
indirect sales are denominated in local currencies, foreign currency
translations may contribute to significant fluctuations in, and could have a
material adverse effect upon, the Company's business, operating results and
financial condition. See "Business - Sales and Marketing."
Competition. The Company has experienced and expects to continue to
experience increased competition from current and potential competitors, many of
whom have significantly greater financial, technical, marketing and other
resources than the Company. Such competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sale of their products than
the Company. Also, certain current and potential competitors have greater name
recognition or more extensive customer bases that could be leveraged, thereby
gaining market share to the Company's detriment. The Company expects additional
competition as other established and emerging companies enter into the OLAP
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which would materially adversely
affect the Company's business, operating results and financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. Further, competitive pressures, such as those
resulting from competitors discounting of their products, may require the
Company to reduce the price of Essbase, which would materially adversely affect
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Business - Competition."
Personnel. The effective management of the Company's business will
depend, in large part, upon the Company's ability to retain its highly skilled
technical, managerial and marketing personnel as well as its ability to attract
and maintain additions to such personnel in the future. If the Company is unable
to retain its key managerial, sales and technical personnel, or attract,
assimilate and retain additional qualified personnel, particularly those in key
positions, the Company's business, operating results and financial condition
would be materially adversely affected. See "Business - Employees."
Risks Associated with Litigation and Related Costs. The Company's
ongoing litigation with Comshare and Gentia Software (formerly known as Planning
Sciences, Inc.) has and will lead to increased legal costs to the
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<PAGE> 14
Company. There is no guarantee as to when these litigation proceedings will be
resolved or that management will not be distracted from their normal duties as a
result of these litigation proceedings. The Company believes that it has
meritorious claims against Comshare and that it has meritorious defenses to each
of Comshare's counterclaims, and intends to vigorously pursue its claims and
defend itself against the counterclaims. The outcome of the litigation is
uncertain at this time and no assurance can be given as to the outcome of the
litigation. However, management does not believe that the outcome of the
litigation will have a material adverse effect on the Company although it does
anticipate unpredictable variations in royalty revenues and substantial legal
costs during the course of the litigation. See "Legal Proceedings" in Item 3
below.
Risk Associated with New Versions and New Products; Rapid Technological
Change. The software industry, and specifically the market in which the Company
competes, is characterized by rapid technological change, frequent introductions
of new products, changes in customer demands and evolving industry standards.
The introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
life cycle of each version of Essbase is difficult to estimate. The Company's
future success will depend upon its ability to address the increasingly
sophisticated needs of its customers by developing and introducing enhancements
to Essbase on a timely basis that keep pace with technological developments and
emerging industry standards and customer requirements. There can be no assurance
that the Company will be successful in developing and marketing enhancements to
Essbase that respond to technological change, evolving industry standards or
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and sale of such
enhancements or that such enhancements will adequately meet the requirements of
the marketplace and achieve any significant degree of market acceptance. The
Company has in the past experienced delays in the release dates of enhancements
to Essbase. If release dates of any future Essbase enhancements are delayed or
if when released they fail to achieve market acceptance, the Company's business,
operating results and financial condition could be materially and adversely
affected. There can be no assurance that the introduction or announcement of new
product offerings by the Company or the Company's competitors will not cause
customers to defer or forgo purchases of current versions of Essbase, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
Risk of Software Defects. Software products as internally complex as
Essbase frequently contain errors or defects, especially when first introduced
or when new versions or enhancements are released. Despite extensive product
testing by the Company, the Company has in the past released versions of Essbase
with defects and has discovered software errors in Essbase and certain enhanced
versions of Essbase after their introduction. Although the Company has not
experienced material adverse effects resulting from any such defects and errors
to date, there can be no assurance that, despite testing by the Company and by
current and potential customers, defects and errors will not be found in new
versions or enhancements after commencement of commercial shipments, resulting
in loss of revenues or delay in market acceptance, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Need to Manage Changing Business. The Company has recently experienced
a period of significant expansion. In the future, the Company will be required
to improve its financial and management controls, reporting systems and
procedures on a timely basis and expand, train and manage its work force. There
can be no assurance that the Company will be able to do so effectively, and
failure to do so when necessary would have a material adverse effect upon the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Proprietary Rights and Risks of Infringement. The Company relies
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection. The Company currently has one United States patent and
corresponding patent applications pending in Europe, Canada and Australia. There
can be no assurance that the Company's patent will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company. Unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult. Software piracy can be expected to be a persistent
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<PAGE> 15
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States.
The Company is not aware that it is infringing any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company with respect to Essbase or enhancements
thereto.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in Essbase to perform key functions. There can be no
assurance that these third-party software licenses will continue to be available
to the Company on commercially reasonable terms. See "Business - Proprietary
Rights."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of federal, state or local laws or ordinances enacted in
the future or unfavorable judicial decisions. Although the Company has not
experienced any product liability claims to date, the sale and support of
Essbase by the Company may entail the risk of such claims. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition.
ITEM 2. PROPERTIES
The Company's principal administrative, sales, marketing, and research
and development facility occupies approximately 100,000 square feet in
Sunnyvale, California pursuant to a lease which expires in December 2002. The
Company is currently subleasing approximately 20,000 square feet and expects to
expand into this space within the next two years. In addition, the Company also
leases sales offices in the metropolitan areas of Atlanta; Boston; Chicago;
Dallas; Houston; Los Angeles; Washington, D.C.; Vancouver, BC, Canada; London,
England; Frankfurt, Hamburg and Munich, Germany; Paris, France; and Sydney,
Australia. The Company believes that its existing facilities are adequate for
its current needs but anticipates that it will need to seek additional space in
the future. The Company believes that suitable additional or alternative space
will be available in the future on commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
PENDING AND POTENTIAL LITIGATION
On September 27, 1996, the Company filed an action against Comshare in
the United States District Court for the Northern District of California. The
action alleges that Comshare has breached its obligations under its license
agreement with the Company by underpaying royalties and that Comshare
fraudulently induced the Company into entering into the agreement. The action
seeks monetary and injunctive relief with respect to future distribution of
Essbase. On October 21, 1996, Comshare filed its answer and counterclaim against
the Company alleging interference with prospective economic advantage, unfair
competition, defamation and disparagement, and breach of contract. In its
counterclaim, Comshare alleged that the Company disseminated false and
misleading information concerning Comshare's rights under the agreement and that
the Company violated certain provisions of the agreement. On January 21, 1997,
the Court entered an order denying Comshare's motion for a preliminary
injunction and denying Comshare's motion to dismiss the Company's fraud claim
and to strike the Company's request for exemplary damages. On January 31, 1997,
the Company filed its first amended complaint for fraud and breach of written
contract. On May 6, 1997, the Court entered an order denying Comshare's motion
to dismiss the Company's amended fraud claim and to strike the Company's request
for injunctive relief and attorney's fees, and granting Comshare's motion to
strike the Company's request for exemplary damages. On May 20, 1997, Comshare
filed its answer to the first amended complaint as well as its first amended
counterclaim against the Company alleging fraud, breach of contract,
interference with prospective economic advantage, unfair competition, and
defamation and disparagement. Comshare claims that the Company fraudulently
induced Comshare into entering into the agreement, has violated certain
provisions of the agreement, and has disseminated false and misleading
information concerning Comshare's rights under the agreement, and that Comshare
has overpaid royalties to
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<PAGE> 16
the Company by at least $711,828 as a result of alleged improper and
inaccurate information provided by the Company. Comshare seeks monetary
damages, injunctive relief, a declaratory judgment regarding the parties'
rights and obligations under the agreement, and attorney's fees. The parties
are presently engaged in discovery and a jury trial is set for May 4, 1998.
The Company believes that it has meritorious claims against Comshare
and that it has meritorious defenses to each of Comshare's counterclaims, and
intends to vigorously pursue its claims and defend itself against the
counterclaims. The outcome of the litigation is uncertain at this time and no
assurance can be given as to the outcome of the litigation. However, management
does not believe that the outcome of the litigation will have a material adverse
effect on the Company although it does anticipate unpredictable variations in
royalty revenues and substantial legal costs during the course of the
litigation.
On April 16, 1996, Gentia Software filed an action against the Company
in the United States District Court for the District of Massachusetts (the
"Massachusetts action") seeking a declaratory judgment that U.S. Patent No.
5,359,724 (the "'724 patent"), owned by the Company, is invalid and not
infringed by Gentia Software's products. On April 18, 1996, the Company filed an
action against Gentia Software in the United States District Court for the
Northern District of California (the "California action") alleging that Gentia
Software infringes the '724 patent, and seeking a permanent injunction and
monetary damages, including treble damages. On May 8, 1996, Gentia Software
filed its answer in the California action, including a counterclaim seeking to
declare the '724 patent invalid. Gentia Software also filed a motion to dismiss,
stay or transfer the action to Massachusetts, which the California court denied
on December 12, 1996. On May 13, 1996, the Company filed a motion to transfer
the Massachusetts action to California, which was granted on November 18, 1996.
The Company filed its answer and a counterclaim for patent infringement in the
transferred case on December 12, 1996. On April 7, 1997, the Court consolidated
both actions into a single case pending in the United States District Court for
the Northern District of California. The parties are presently engaged in
discovery and a jury trial is set for October 5, 1998.
The Company believes that it has meritorious claims against Gentia
Software and that it has meritorious defenses against Gentia Software's claims
that the '724 patent is invalid, and intends to vigorously pursue its claims and
defend itself against Gentia Software's claims. The outcome of the litigation is
uncertain at this time and no assurance can be given as to the outcome of the
litigation. However, management does not believe that the outcome of the
litigation will have a material adverse effect on the Company.
The preceding pending litigation and any future litigation against the
Company or its employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the Company and significant diversion of
attention by the Company's management personnel. See "Risk Factors - Dependence
Upon Comshare and Other Indirect Channel Partners" and "Risks Associated with
Litigation and Related Costs."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
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<PAGE> 17
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are biographical summaries of the executive officers of
the Company, as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ------ --------
<S> <C> <C>
James A. Dorrian............................ 44 Chairman of the Board of Directors and
Chief Executive Officer
John M. Dillon.............................. 47 President, Chief Operating Officer and
Director
Stephen V. Imbler........................... 45 Senior Vice President and Chief Financial
Officer
Kirk A. Cruikshank.......................... 41 Senior Vice President of Marketing
</TABLE>
Mr. Dorrian, the Company's co-founder, Chief Executive Officer and
Chairman of the Board, is responsible for strategic issues including overall
corporate vision, strategic initiatives, product direction and business
alliances. Prior to co-founding the Company in 1991, Mr. Dorrian was President
of Solutions Technology, Inc., a San Francisco-based software consulting firm
specializing in financial software systems development. Previously, he was
Western States Director at Thorn EMI Computer Software, a developer of Executive
Information Systems ("EIS") software. Mr. Dorrian holds a B.A. in Economics from
Indiana University.
Mr. Dillon joined the Company in December 1993 as Vice President of
Sales. Presently, Mr. Dillon is the Company's President and Chief Operating
Officer and is responsible for worldwide field operations (sales, support,
consulting and education), marketing, product development, finance and
administration. In addition, Mr. Dillon has been a director of the Company since
December 1996. Mr. Dillon previously served as Senior Vice President of the
Company's worldwide field operations organization - Customer Advocacy (Customer
Support and Education), North American Sales, EMEA (Europe, Middle East &
Africa) Sales, Channel Sales and Field Marketing. Mr. Dillon also served three
years as Vice President of Worldwide Sales. Before joining the Company, Mr.
Dillon was a field Vice President for Interleaf, a major document management
software company. He spent five years at Oracle Corporation in various sales
management positions for the company's RDBMS, financial applications and tools
products, and held sales management positions at GRiD Systems and Tymshare/
McDonnell Douglas. Mr. Dillon served in the U.S. Navy for five years and earned
a B.S. in Engineering from the United States Naval Academy. Mr. Dillon also
holds an M.B.A. from Golden Gate University, San Francisco.
Mr. Imbler joined the Company in July 1995 as Vice President and Chief
Financial Officer. Presently, Senior Vice President and Chief Financial Officer,
Mr. Imbler is responsible for the Company's overall financial and administrative
operations. Mr. Imbler joined the Company from Gupta (now known as Centura
Software Corporation), where he was Senior Vice President of Finance and
Operations and Chief Financial Officer, responsible for managing finance,
investor relations, human resources, MIS and manufacturing facilities. Prior to
Centura Software he was Vice President and Chief Financial Officer at Quick
Response Services, Inc. He also held several executive positions at Oracle
Corporation, including Vice President, U.S. Finance and Operations, and Vice
President of Finance (Oracle Corporate). He was also a Senior Tax Manager at
Peat Marwick, San Francisco. Mr. Imbler holds a master's degree in public
accounting from the University of Texas at Austin and holds a bachelor's degree
in Piano Performance from Wichita State University.
Mr. Cruikshank joined the Company in February 1993 as Vice President of
Marketing. Presently, Senior Vice President of Marketing, Mr. Cruikshank is
responsible for product marketing, marketing communications and channel
marketing. Prior to joining the Company, Mr. Cruikshank was Vice President of
Marketing for GRiD Systems Corporation, a leading developer and retailer of
mobile computer products for government and corporate organizations worldwide.
Previously, he was the Director of Grid's Federal Systems Division. Mr.
Cruikshank holds a B.S. in Economics from Ohio Wesleyan University and a M.B.A.
from the University of Michigan.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on The Nasdaq National
Market under the symbol ARSW since the completion of the Company's initial
public offering on November 7, 1995. According to the records of the Company's
transfer agent, the Company had approximately 145 stockholders of record as of
June 20, 1997. The Company believes that a significant number of beneficial
owners of its Common Stock hold shares in street name. The following table sets
forth the high and low sale prices as of the close of market of the Company's
Common Stock in each of the Company's last two fiscal years commencing with the
completion of the Company's initial public offering during the third quarter of
fiscal 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
Fiscal 1996:
- ------------
<S> <C> <C>
Third Quarter (from November 7, 1995)........ $48.00 $34.88
Fourth Quarter............................... 47.00 29.75
Fiscal 1997:
First Quarter................................ $79.25 $43.25
Second Quarter............................... 61.63 34.00
Third Quarter................................ 42.75 21.75
Fourth Quarter............................... 36.50 24.13
</TABLE>
The Company has not declared or paid dividends and does not anticipate
declaring or paying dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Total revenues......................... $ 47,383 $ 25,134 $ 11,520 $ 4,268 $ 1,106
Gross profit........................... 42,799 23,519 10,847 3,933 1,047
Income (loss) from operations.......... 7,522 3,126 527 (2,128) (2,375)
Net income (loss)...................... 5,826 2,878 374 (2,180) (2,402)
Net income per share (1)............... $ 0.50 $ 0.27 $ 0.04 -- --
CONSOLIDATED BALANCE SHEET DATA:
Total assets........................... $ 59,589 $ 45,883 $ 6,494 $ 4,289 $ 2,302
Lease obligations, long-term........... 279 1,093 833 406 307
Stockholders' equity................... 42,572 34,306 2,305 1,920 1,108
</TABLE>
(1) For an explanation of the number of shares used to compute net income per
share, see Note 1 of Notes to Consolidated Financial Statements. Net income
per share prior to fiscal 1995 has not been presented since such amounts are
not deemed meaningful due to the significant change in the Company's capital
structure that occurred in connection with the Company's initial public
offering.
16
<PAGE> 19
QUARTERLY FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- --------- --------- ----------- --------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total revenues.......................... $ 9,270 $ 10,795 $ 12,474 $ 14,844
Gross profit............................ 8,383 9,695 11,266 13,455
Income from operations.................. 1,461 1,836 1,898 2,327
Net income.............................. 1,194 1,417 1,503 1,712
Net income per share.................... $ 0.10 $ 0.12 $ 0.13 $ 0.15
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- --------- --------- ----------- --------- -------
Total revenues.......................... $ 4,766 $ 5,382 $ 6,759 $ 8,227
Gross profit............................ 4,476 5,080 6,356 7,607
Income from operations.................. 409 506 862 1,349
Net income.............................. 310 353 813 1,402
Net income per share.................... $ 0.03 $ 0.04 $ 0.07 $ 0.12
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in Item 1 under the heading"Risk
Factors" as well as those discussed in this section and elsewhere in this
Report.
OVERVIEW
The Company was founded in April 1991 to develop, market and support
enterprise software for management reporting, analysis and planning. The Company
commenced commercial shipments of its Essbase software in April 1992. Since
inception, all of the Company's revenues have been derived from licenses for
Essbase and related maintenance and support, training and consulting. The
Company currently expects that Essbase-related revenues will continue to account
for all or substantially all of the Company's revenues for the foreseeable
future. As a result, the Company's future operating results are dependent upon
continued market acceptance of Essbase and enhancements thereto.
17
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
consolidated statements of operations as a percentage of total revenues for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Revenues:
License.......................... 82.5% 85.7% 89.1%
Maintenance, support and other... 17.5 14.3 10.9
---------- --------- ----------
Total revenues................ 100.0 100.0 100.0
---------- --------- ----------
Cost of revenues:
License.......................... 1.5 2.8 2.2
Maintenance, support and other... 8.2 3.6 3.6
---------- --------- ----------
Total cost of revenues........ 9.7 6.4 5.8
---------- --------- ----------
Gross profit....................... 90.3 93.6 94.2
---------- --------- ----------
Operating expenses:
Sales and marketing.............. 50.1 55.9 61.5
Research and development......... 14.6 14.7 17.3
General and administrative....... 9.7 10.6 10.8
---------- --------- ----------
Total operating expenses...... 74.4 81.2 89.6
---------- --------- ----------
Income from operations............. 15.9 12.4 4.6
Interest and other income.......... 3.6 3.1 .3
Interest expense................... (0.6) (1.2) (1.4)
----------- ---------- -----------
Income before income taxes......... 18.9 14.3 3.5
Provision for income taxes......... (6.6) (2.8) (0.2)
----------- ---------- -----------
Net income......................... 12.3% 11.5% (3.3)%
========== ========= ===========
</TABLE>
REVENUES
The Company's total revenues are derived from license revenues for its
Essbase software as well as software maintenance and support, training and
consulting revenues from Essbase licensees. Revenues for maintenance and support
services, training and consulting are charged separately from the license of
Essbase. License revenues are recognized upon shipment of the product if no
significant vendor obligations remain and collection of the resulting receivable
is probable. In instances where a significant vendor obligation exists, revenue
recognition is delayed until such obligation has been satisfied. Allowances for
estimated future returns, which to date have been immaterial, are provided for
upon shipment. Maintenance and support revenues consist of ongoing support and
product updates and are recognized ratably over the term of the contract, which
is typically twelve months. Revenues from training and consulting are recognized
when the services are performed. The Company has recognized revenue, for all
periods presented, in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition."
Revenues are gross revenues less allowances for estimated future
returns which are estimated and provided for at the time of shipment of the
product. The Company's total revenues increased from $11.5 million in fiscal
1995 to $25.1 million in fiscal 1996 and to $47.4 million in fiscal 1997,
representing increases of 118% and 89%, respectively. License revenues increased
from $10.3 million in fiscal 1995 to $21.5 million in fiscal 1996 and to $39.1
million in fiscal 1997, representing increases of 110% and 82%, respectively.
The increases were primarily a due to an increase in the number of licenses sold
and the average transaction size, reflecting the expansion of the Company's
direct sales organization and increased customer acceptance of Essbase. During
fiscal 1997, the Company signed new reseller agreements with a significant
number of indirect channel partners and opened international offices in Paris,
France; Frankfurt, Hamburg and Munich, Germany; and Sydney, Australia.
International revenues from the Company's direct sales force accounted for 11%,
9% and 5% of total revenues in fiscal 1997, 1996 and 1995, respectively.
Maintenance, support and other revenues increased from $1.3 million in fiscal
1995 to $3.6 million in fiscal 1996 and to $8.3 million in fiscal 1997,
primarily as a result of a larger installed base in each successive year. The
percentage of the Company's total revenues attributable to software licenses
decreased from 89% in fiscal 1995 to 86% in fiscal 1996 and to 83% in fiscal
1997 due to an increase in the
18
<PAGE> 21
Company's installed base, which resulted in incremental maintenance, support and
other revenues. Comshare accounted for 26%, 26% and 19% of the Company's total
revenues in fiscal 1995, 1996 and 1997. See "Risk Factors -- Dependence Upon
Comshare and Other Indirect Channel Partners" and "Risks Associated with
International Operations."
COST OF REVENUES
Cost of license revenues consists primarily of product packaging,
documentation, production costs and royalties paid for licensed technologies.
Cost of license revenues increased as a percentage of license revenues from 2.5%
in fiscal 1995 to 3.3% in fiscal 1996, and decreased to 2.0% in fiscal 1997. The
increase in the cost of license revenues as a percentage of license revenues
from fiscal 1995 to fiscal 1996 was primarily due to certain costs attributable
to licensed technologies. The decrease in the cost of license revenues as a
percentage of license revenues from fiscal 1996 to fiscal 1997 was primarily
attributable to increases in sales volume and the average transaction size.
Cost of maintenance, support and other revenues consists primarily of
customer support costs and direct costs associated with providing other
services. Customer support includes telephone question and answer services,
newsletters, on-site visits and other support. Cost of maintenance, support and
other revenues decreased as a percentage of maintenance, support and other
revenues from 34% in fiscal 1995 to 25% in fiscal 1996 and increased to 46% in
fiscal 1997. The decrease from fiscal 1995 to fiscal 1996 was primarily due to
increased maintenance revenues (which have a lower cost structure than support
and training) on a larger installed customer base in each successive year. The
increase from fiscal 1996 to fiscal 1997 was primarily due to increased costs
resulting from the establishment of the Customer Advocacy Group, which is
comprised of the Technical Support, Field Services, Services Marketing and
Courseware Development departments, during the first quarter of fiscal 1997. The
Customer Advocacy Group's mission is to coordinate services for the Company's
customers. The Company expects to continue to invest in its service organization
in anticipation of supporting the increasing number of users in the customer
installed base and therefore anticipates that cost of services will increase in
absolute dollars in future periods.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, including sales commissions, of all personnel involved in the
sales process, as well as costs of advertising, public relations, seminars and
trade shows. Sales and marketing expenses increased from $7.1 million in fiscal
1995 to $14.1 million in fiscal 1996 and to $23.7 million in fiscal 1997. The
increase in dollar amount was primarily due to costs associated with the
expansion of the direct sales force in the U.S. and Europe, including new
offices in France and Germany. Other factors included personnel increases in the
marketing group, and increased costs associated with advertising, public
relations, seminars and trade shows. Sales and marketing expenses represented
62%, 56% and 50% of total revenues in fiscal 1995, 1996 and 1997, respectively.
The decrease as a percentage of total revenues was due to growth in the
Company's total revenues. Additionally, in fiscal 1996 the Company incurred
higher sales and marketing expenses to help establish the OLAP market and to
build infrastructure. The Company believes that its sales and marketing expenses
will increase in absolute dollar amounts in fiscal 1998 as the Company continues
to hire additional sales and marketing personnel, and continues to increase
promotion and advertising expenditures.
Research and Development. Research and development expenses consist
primarily of salaries and other personnel-related expenses, consultants,
depreciation of development equipment and supplies. Research and development
expenses increased from $2.0 million in fiscal 1995 to $3.7 million in fiscal
1996 and to $7.0 million in fiscal 1997. The increase from fiscal 1995 to fiscal
1996 was primarily attributable to an increase in personnel. The increase from
fiscal 1996 to fiscal 1997 was primarily due to an increase in personnel as well
as increased consulting fees relating to product development, joint development
projects and associated support required to develop Essbase enhancements.
Research and development expenses represented 17%, 15% and 15% of total revenues
in fiscal 1995, 1996 and 1997, respectively. The decrease as a percentage of
total revenues from fiscal 1995 to 1996 was due to growth in the Company's total
revenues. The Company believes that a significant level of investment for
product research and development is required to remain competitive and,
accordingly, the Company anticipates that it will continue to devote substantial
resources to product research and development and that
19
<PAGE> 22
research and development expenses will increase in absolute dollars in fiscal
1998. To date, all research and development costs have been expensed as
incurred. See Note 1 of Notes to Consolidated Financial Statements.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, investor relations, legal and
contracts, MIS, human resources and general management, as well as bad debt,
insurance and professional expenses. General and administrative expenses
increased from $1.2 million in fiscal 1995 to $2.6 million in fiscal 1996 and to
$4.6 million in fiscal 1997. Expenses increased in each period primarily due to
increased staffing necessary to manage and support the Company's growth. General
and administrative expenses represented 11%, 11% and 10% of total revenues in
fiscal 1995, 1996 and 1997, respectively. The decrease as a percentage of total
revenues from fiscal 1996 to fiscal 1997 was due to growth in the Company's
total revenues. The Company believes that its general and administrative
expenses will increase in absolute dollar amounts in fiscal 1998 as the Company
expands its administrative staff, adds infrastructure and incurs additional
costs related to being a public company, such as expenses related to directors'
and officers' insurance, investor relations programs and increased professional
fees, which include legal fees resulting from the Comshare and Gentia Software
litigation. See "Legal Proceedings" in Item 3 above. See also "Risk Factors --
Risks Associated with Litigation and Related Costs."
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income represents interest income earned on the
Company's cash, cash equivalents and short-term investments, and other income
including foreign exchange gains and losses. Interest and other income increased
from $39,000 in fiscal 1995 to $772,000 in fiscal 1996 and to $1.7 million in
fiscal 1997. Interest income increased in each period primarily due to the
investment of the proceeds from the Company's initial public offering completed
in November 1995. Foreign exchange gains and losses have been immaterial to
date. Interest expense represents interest expense on capital equipment leases.
PROVISION FOR INCOME TAXES
The Company provided $24,000 in alternative minimum income tax for
fiscal 1995. The provision for income tax was $716,000 in fiscal 1996 and $3.1
million in fiscal 1997. The Company's effective income tax rate was 20% for
fiscal 1996 and 35% for fiscal 1997. The Company expects that its effective tax
rate will increase to approximately 37% in fiscal 1998.
The Company had gross deferred tax assets of $4.2 million at March 31,
1997. No valuation allowance has been provided since such deferred tax assets
are expected to be realized through the Company's carryback capacity generated
during fiscal 1997 and expected future income in the next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $28.9 million in cash, cash
equivalents and short-term investments. Cash and cash equivalents are highly
liquid investments with original maturities of ninety days or less. Net cash
provided by operating activities was $1.1 million in fiscal 1995, $6.9 million
in fiscal 1996, and $1.4 million in fiscal 1997. For fiscal 1997, net cash
provided by operating activities of $1.4 million was primarily attributable to
net income of $5.8 million and increases in accrued expenses and other current
liabilities of $3.0 million, and deferred revenue of $2.2 million as well as
depreciation and amortization of $2.4 million, offset by an increases in
accounts receivable of $8.8 million and deferred income taxes of $3.3 million.
The Company used $10.8 million of cash in fiscal 1997 for the
acquisition of property and equipment primarily due to the relocation of the
Company's headquarters which was completed in December 1996. The capital
expenditures were primarily for tenant improvements for the Company's new
corporate facilities, and related furniture and equipment, as well as for
computer equipment used throughout the Company. The Company expects significant
capital expenditures in fiscal 1998 for branch office tenant improvements,
related furniture and
20
<PAGE> 23
equipment and computer equipment. The Company also expects increases in
operating expenses going forward due to increased depreciation charges and
facility costs relating to the new and larger corporate headquarters.
The Company's current line of credit allows for borrowings of up to
$5.0 million at the bank's prime rate and expires in December 1997. As of March
31, 1997, the Company had no outstanding borrowings under its credit facility.
See Note 4 of Notes to Consolidated Financial Statements.
As of March 31, 1997, the Company's principal commitments consisted of
obligations under operating and capital leases. As of March 31, 1997, the
Company had approximately $1.0 million in outstanding borrowings under capital
leases which are payable through 1998.
The Company believes its current cash and short-term investment
balances, its credit facility and the cash flows generated from operations, if
any, will be sufficient to meet its anticipated cash needs for working capital
and capital expenditures for at least the next 12 months. Capital expenditures
are expected to increase significantly in fiscal 1998 in line with the expected
growth rate of the Company.
21
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants................................................................... 23
Consolidated Balance Sheets as of March 31, 1997 and 1996........................................... 24
Consolidated Statements of Operations for the Years Ended March 31, 1997, 1996 and 1995............. 25
Consolidated Statements of Cash Flows for the Years Ended March 31, 1997, 1996 and 1995............. 26
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1997, 1996
and 1995.......................................................................................... 27
Notes to Consolidated Financial Statements.......................................................... 28
The following financial statement schedule of the Registrant is filed
as part of this report:
Schedule II -- Valuation and Qualifying Accounts.................................................... 41
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or
notes thereto.
22
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Arbor Software Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Arbor Software Corporation and its subsidiaries at March 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
April 18, 1997
23
<PAGE> 26
ARBOR SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 5,647 $ 10,698
Short-term investments.................................................. 23,204 25,965
Accounts receivable, net of allowances of $783 and $388................. 12,877 4,505
Deferred tax assets..................................................... 4,203 900
Prepaid expenses and other current assets............................... 1,051 485
------------- -------------
Total current assets................................................. 46,982 42,553
Property and equipment, net................................................. 11,424 2,923
Other assets................................................................ 1,183 407
------------- -------------
$ 59,589 $ 45,883
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 2,183 $ 1,109
Accrued expenses and other current liabilities.......................... 7,840 4,883
Deferred revenue........................................................ 5,954 3,781
Current portion of lease obligations.................................... 761 711
------------- -------------
Total current liabilities............................................ 16,738 10,484
------------- -------------
Lease obligations, long-term................................................ 279 1,093
------------- -------------
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none
issued and outstanding............................................... -- --
Common stock, $0.001 par value; 50,000,000 and 25,000,000 shares
authorized; 11,126,000 and 10,859,000 shares issued and
outstanding.......................................................... 11 11
Additional paid-in capital.............................................. 39,223 36,813
Retained earnings (deficit)............................................. 3,307 (2,519)
Cumulative translation adjustment....................................... 31 1
------------- -------------
Total stockholders' equity........................................... 42,572 34,306
------------- -------------
$ 59,589 $ 45,883
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 27
ARBOR SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
================================================
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
License........................................... $ 39,087 $ 21,538 $ 10,268
Maintenance, support and other.................... 8,296 3,596 1,252
------------- ------------- -------------
Total revenues................................. 47,383 25,134 11,520
------------- ------------- -------------
Cost of revenues:
License........................................... 731 706 253
Maintenance, support and other.................... 3,853 909 420
------------- ------------- -------------
Total cost of revenues......................... 4,584 1,615 673
------------- ------------- -------------
Gross profit.......................................... 42,799 23,519 10,847
------------- ------------- -------------
Operating expenses:
Sales and marketing............................... 23,732 14,060 7,081
Research and development.......................... 6,954 3,685 1,999
General and administrative........................ 4,591 2,648 1,240
------------- ------------- -------------
Total operating expenses....................... 35,277 20,393 10,320
------------- ------------- -------------
Income from operations................................ 7,522 3,126 527
Interest and other income............................. 1,683 772 39
Interest expense...................................... (242) (304) (168)
------------- ------------- -------------
Income before income taxes............................ 8,963 3,594 398
Provision for income taxes............................ (3,137) (716) (24)
------------- ------------- -------------
Net income .......................................... $ 5,826 $ 2,878 $ 374
============= ============= =============
Net income per share.................................. $ 0.50 $ 0.27 $ 0.04
============= ============= =============
Shares used to compute net income per share........... 11,729 10,502 9,718
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
ARBOR SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
================================================
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 5,826 $ 2,878 $ 374
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other..................... 2,355 1,062 515
Loss on fixed asset disposition.......................... 26 -- --
Deferred income taxes.................................... (3,303) (900) --
Provision for doubtful accounts.......................... 397 269 106
Changes in assets and liabilities:
Accounts receivable................................. (8,769) (2,945) (876)
Prepaid expenses and other current assets........... (566) (264) (101)
Other assets........................................ (776) (183) (60)
Accounts payable.................................... 1,074 499 142
Accrued expenses and other current liabilities...... 2,957 3,925 423
Deferred revenue.................................... 2,173 2,535 573
------------- ------------- -------------
Net cash provided by operating activities....... 1,394 6,876 1,096
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of (proceeds from) short-term investments, net..... 2,761 (25,886) 1,001
Acquisition of property and equipment........................ (10,826) (1,333) (147)
------------- ------------- -------------
Net cash provided by (used in) investing activities (8,065) (27,219) 854
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, including tax benefit related
to stock plans........................................... 2,354 28,956 20
Proceeds from issuance of preferred stock, net............... -- 100 --
Repayment of capital lease obligations....................... (764) (763) (416)
------------- ------------- -------------
Net cash provided by (used in) financing activities 1,590 28,293 (396)
------------- ------------- --------------
Effect of exchange rate changes on cash and cash equivalents...... 30 9 (9)
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.............. (5,051) 7,959 1,545
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................... 10,698 2,739 1,194
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................... $ 5,647 $ 10,698 $ 2,739
============= ============= =============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest....................................... $ 242 $ 304 $ 169
Cash paid for income taxes................................... 4,478 625 7
NON-CASH TRANSACTIONS:
Acquisition of property and equipment through capital leases. -- 1,192 1,098
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
ARBOR SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL RETAINED CUMULATIVE
PREFERRED STOCK COMMON STOCK PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
------ ------ ------ ------ ------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 .............. 3,875 $4 2,152 $2 $ 7,684 $ (5,771) $ 1 $ 1,920
Issuance of common stock pursuant to
exercise of options ................. -- -- 220 -- 20 -- -- 20
Translation adjustment ................. -- -- -- -- -- -- (9) (9)
Net income ............................. -- -- -- -- -- 374 -- 374
------- --- ------- ---- ------- ------- ------ --------
Balance at March 31, 1995 .............. 3,875 4 2,372 2 7,704 (5,397) (8) 2,305
Issuance of common stock pursuant to
exercise of options and other ....... -- -- 734 1 262 -- -- 263
Issuance of Series C convertible
preferred stock ..................... 16 1 -- -- 99 -- -- 100
Issuance of common stock pursuant to
initial public offering, net ........ -- -- 1,880 2 28,715 -- -- 28,717
Conversion of preferred stock to
common stock upon completion of
initial public offering ............. (3,891) (5) 5,837 5 -- -- -- --
Exercise of preferred stock warrant and
conversion to common stock upon
completion of initial public offering -- -- 36 1 33 -- -- 34
Translation adjustment ................. -- -- - -- -- -- 9 9
Net income ............................. -- -- -- -- -- 2,878 -- 2,878
------- --- ------- ---- ------- ------- ------ --------
Balance at March 31, 1996 .............. -- -- 10,859 11 36,813 (2,519) 1 34,306
Issuance of common stock pursuant to
exercise of options and other ....... -- -- 210 -- 220 -- -- 220
Issuance of common stock pursuant to
employee stock purchase plan ........ -- -- 57 -- 999 -- -- 999
Tax benefit related to stock options ... -- -- -- -- 1,191 -- -- 1,191
Translation adjustment ................. -- -- -- -- -- -- 30 30
Net income ............................. -- -- -- -- -- 5,826 -- 5,826
------- --- ------- ---- ------- ------- ------ --------
Balance at March 31, 1997 .............. -- $-- 11,126 $ 11 $ 39,223 $ 3,307 $ 31 $ 42,572
======= === ======= ==== ======= ======= ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Arbor Software Corporation (the "Company") develops and markets
enterprise software for management reporting, analysis and planning
applications. The Company was incorporated in Delaware in April 1991 and
commenced operations on that date.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries in the United Kingdom, France and
Germany. All significant intercompany accounts and transactions have been
eliminated.
REVENUE RECOGNITION
The Company's total revenues are derived from license revenues for its
Essbase software as well as software maintenance and support, training and
consulting revenues from Essbase licensees. Revenues for maintenance and support
services, training and consulting are charged separately from the license of
Essbase. License revenues are recognized upon shipment of the product if no
significant vendor obligations remain and collection of the resulting receivable
is probable. In instances where a significant vendor obligation exists, revenue
recognition is delayed until the obligation has been satisfied. Allowances for
estimated future returns, which to date have been immaterial, are provided upon
shipment. Maintenance and support revenues consist of ongoing support and
product updates and are recognized ratably over the term of the contract, which
is typically twelve months. Revenues from training and consulting are recognized
when the services are performed. The Company has recognized revenue, for all
periods presented, in accordance with Statement of Position 91-1 entitled
"Software Revenue Recognition."
Royalty revenues from indirect channel partners are generally recorded
in the month such royalties are reported to the Company, which typically occurs
in the month following the resale of Essbase by the indirect channel partner.
The Company entered into a license agreement in December 1993 with Comshare,
Inc. ("Comshare"), which provides Comshare the right to sublicense certain of
the Company's products. Under the agreement, Comshare provides the Company with
a summary of royalties earned 45 days after the end of each calendar quarter.
Royalty revenues generated under this agreement are recorded in that subsequent
quarter due to the 45 day delay before the Company receives the summary of
royalties earned and since currently such royalty revenues are not reasonably
estimable. Such royalty revenues for the quarters ended March 31, June 30,
September 30, and December 31, 1996 totaled approximately $2,440,000,
$2,540,000, $1,390,000 and $2,570,000 respectively, and were recorded by the
Company during the quarters ended June 30, September 30 and December 31, 1996
and March 31, 1997, respectively.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company invests certain of its excess cash in debt instruments of
financial institutions. All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents and those
with maturities greater than three months are considered short-term investments.
The Company has classified all short-term investments as available-for-sale.
28
<PAGE> 31
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash, cash
equivalents, short-term investments and accounts receivable. The Company invests
its excess cash in accordance with its investment policy which has been approved
by the Board of Directors and is reviewed periodically to minimize credit risk.
Accounts receivable are derived from revenues earned from customers primarily
located in the U.S. and Europe. The Company maintains reserves for potential
credit losses and historically such losses have been immaterial. One indirect
channel partner accounted for 19%, 26% and 26% of total revenues in fiscal 1997,
1996 and 1995, respectively. Revenues from international customers, primarily in
Europe, were 11%, 9% and 5% of total revenues in fiscal 1997, 1996 and 1995,
respectively.
At March 31, 1997, no single customer accounted for more than 10% of outstanding
accounts receivable. At March 31, 1996, outstanding accounts receivables from
one customer represented 16% of gross accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three years. Amortization of leasehold
improvements is computed using the straight-line method over the shorter of the
estimated useful lives of the assets or the remaining lease term.
SOFTWARE DEVELOPMENT COSTS
Software development costs are included in research and development and
are expensed as incurred. Statement of Financial Accounting Standards No. 86
("FAS 86") requires the capitalization of certain software development costs
once technological feasibility is established, which the Company defines as the
completion of a working model. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater. To date, the
period between achieving technological feasibility and the general availability
of such software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.
INCOME TAXES
Income taxes are computed using the asset and liability method. Under
the asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
basis of assets and liabilities and are measured using the currently enacted tax
rates and laws.
FOREIGN CURRENCY
The functional currency of the Company's subsidiaries in the United
Kingdom, Germany and France is the local currency. The balance sheet accounts
are translated into United States dollars at the exchange rates prevailing at
the balance sheet dates. Revenues, costs and expenses are translated into United
States dollars at average rates for the periods. Gains and losses resulting from
translation are accumulated as a component of stockholders' equity. Net gains
and losses resulting from foreign exchange transactions are included in the
consolidated statements of operations and were not significant during any of the
periods presented.
29
<PAGE> 32
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the if converted
method) and stock options and warrants (using the treasury stock method). Common
equivalent shares are excluded from the computation if their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin, convertible preferred stock (using the if converted
method) and common equivalent shares (using the treasury stock method and the
initial public offering price) issued subsequent to March 31, 1994 through
November 6, 1995 have been included in the computation as if they were
outstanding for all periods through the effectiveness of the Company's initial
public offering.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. The
Company provides additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." See Note 6.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements in
order to conform to the 1997 presentation.
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." This
statement is effective for the Company's fiscal year ending March 31, 1998. The
Statement redefines earnings per share under generally accepted accounting
principles. Under the new standard, primary earnings per share is replaced by
basic earnings per share and fully diluted earnings per share is replaced by
diluted earnings per share. Net income per share as reported and the unaudited
pro forma earnings per share based on the new standard are as follows for the
year ended March 31, 1997:
<TABLE>
<S> <C>
Net income per share as reported............... $0.50
Pro forma basic earnings per share............. $0.53
Pro forma diluted earnings per share........... $0.50
</TABLE>
NOTE 2 -- SHORT-TERM INVESTMENTS
As of March 31, 1997 and 1996, the Company's short-term investments
consisted primarily of medium term notes, corporate notes and market auction
preferred stocks and their cost approximated fair value.
30
<PAGE> 33
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
MARCH 31,
===================================
1997 1996
----------- -------------
<S> <C> <C>
(IN THOUSANDS)
Property and equipment:
Computer equipment.................................... $ 7,392 $ 3,863
Furniture, fixtures and office equipment.............. 3,096 854
Leasehold improvements................................ 4,735 184
------------- -------------
15,223 4,901
Less: accumulated depreciation and amortization....... (3,799) (1,978)
-------------- --------------
$ 11,424 $ 2,923
============= =============
Accrued expenses and other current liabilities:
Income taxes payable.................................. $ 1,754 $ 991
Accrued commissions................................... 1,290 907
Accrued benefits...................................... 1,758 963
Other................................................. 3,038 2,022
------------- -------------
$ 7,840 $ 4,883
============= =============
</TABLE>
NOTE 4 -- BANK LINE OF CREDIT
In September 1995, the Company entered into a line of credit agreement
with a bank. The credit agreement provides for working capital advances of up to
$5,000,000. Borrowings under the line of credit are limited to specified
percentages of eligible accounts receivable and are collateralized by
substantially all of the assets of the Company. Interest on borrowings is set at
the bank's prime rate. Among other provisions, the Company is required to
maintain certain financial covenants. In addition, payment of cash dividends is
prohibited without the bank's consent. The line of credit agreement was renewed
during fiscal 1997 and expires on December 16, 1997. As of March 31, 1997, there
were no borrowings outstanding under the line of credit.
NOTE 5 -- CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK WARRANT
PREFERRED STOCK
At March 31, 1997, the Company has authorized 5,000,000 shares of
undesignated preferred stock. Prior to completion of the Company's initial
public offering, the Company had authorized 4,000,000 shares of preferred stock,
of which 2,065,000 shares had been designated Series A Convertible Preferred
Stock ("Series A"), 960,000 shares had been designated Series B Convertible
Preferred Stock ("Series B") and 904,636 shares had been designated Series C
Convertible Preferred Stock ("Series C") (collectively "Preferred Shares").
Holders of Series A, B and C were entitled to receive noncumulative,
preferential dividends of $0.10, $0.275 and $0.34, respectively, per annum, when
and if declared by the Board of Directors. No such dividends were declared. Each
outstanding share of preferred stock was converted into one and one-half shares
of common stock upon the completion of the Company's initial public offering.
PREFERRED STOCK WARRANT
In August 1991 the Company issued a warrant to purchase 25,000 Series A
Convertible Preferred Shares to a company for providing equipment lease
financing (the "Warrant"). The Warrant enabled the holder to purchase 25,000
Series A Preferred Shares at $1.00 per share, subject to adjustment for
dilution, and each share of preferred stock was convertible into one and one
half shares of common stock. The Warrant was to expire on the earlier of August
2001 or five years following the Company's initial public offering. The Warrant
had nominal value on the date of issuance. The warrant was exercised in
conjunction with the Company's initial public offering. The Company issued
36,029 shares of common stock upon the net exercise and simultaneous conversion
of the warrant from preferred stock to common stock.
31
<PAGE> 34
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- EMPLOYEE STOCK PLANS
STOCK OPTION PLAN
In August 1995, the Company's Board of Directors adopted, and the
stockholders subsequently approved, the 1995 Stock Option/Stock Issuance Plan
(the "1995 Plan"). The 1995 Plan serves as the successor equity incentive
program to the Company's 1992 Stock Option Plan (the "Predecessor Plan").
Outstanding options under the Predecessor Plan were incorporated into the 1995
Plan upon effectiveness of the initial public offering. No further option grants
were made under the Predecessor Plan. The incorporated options will continue to
be governed by their existing terms which are essentially the same as options
granted under the Discretionary Option Grant Program described below.
The 1995 Plan is divided into four separate components: (i) the
Discretionary Option Grant Program; (ii) the Stock Issuance Program; (iii) the
Salary Investment Option Grant Program; and (iv) the Automatic Option Grant
Program. The 1995 Plan will terminate on September 30, 2005, unless terminated
earlier by the Board.
Options granted under the Discretionary Option Grant Program are for
periods not to exceed ten years, and must be issued at prices not less than 100%
and 85%, for incentive and nonqualified stock options, respectively, of the fair
market value of the stock on the date of grant. Incentive stock options granted
to stockholders who own greater than 10% of the outstanding stock are for
periods not to exceed five years and must be issued at prices not less than 110%
of the fair market value of the stock on the date of grant. Options granted
under the Discretionary Option Grant Program are exercisable at the date of
grant and are subject to repurchase by the Company at the option exercise price
paid per share with such repurchase right lapsing with respect to 25% one year
after the date of grant and ratably each month over the remaining thirty-six
month period. The Discretionary Option Grant Program also provides for the grant
of stock appreciation rights. Stock appreciation rights provide the holders with
the election to surrender their outstanding options for an appreciation
distribution from the Company equal to the excess of the fair market value of
the vested shares of common stock subject to each surrendered option over the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. No stock
appreciation rights had been granted under the 1995 Plan as of March 31, 1997.
Under the Stock Issuance Program individuals may be issued shares of
common stock directly through the purchase of shares at a price per share not
less than 85% of the fair market value at the time of issuance or as a fully
paid bonus for services rendered to the Company. No shares had been issued under
the Stock Issuance Program as of March 31, 1997.
Under the Salary Investment Option Grant Program, each executive
officer of the Company may elect, prior to the start of a calendar year, to
reduce his or her base salary for that calendar year by a designated multiple of
1%, subject to a maximum dollar amount. In return the officer will automatically
be granted, on the first trading day in the calendar year for which the salary
reduction is in effect, a non-statutory option to purchase that number of shares
of common stock determined by dividing the salary reduction amount by two-thirds
of the fair market value per share of common stock on the date of grant. The
option will be exercisable at a price per share equal to one-third of the fair
market value of the option shares on the date of grant. As a result, the total
spread on the option shares at the time of grant will be equal to the salary
reduction amount. The option will vest in a series of twelve equal monthly
installments over the calendar year for which the salary reduction is in effect.
No executive officer of the Company had elected to participate in the Salary
Investment Option Grant Program through March 31, 1997.
32
<PAGE> 35
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the Automatic Option Grant Program, each individual who first
becomes a non-employee Board member will receive an option grant for 20,000
shares of common stock at the fair market value of the stock on the date he or
she joins the Board, provided such individual has not otherwise been in the
prior employ of the Company. In addition, at each Annual Stockholder Meeting,
beginning with the 1997 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member after the meeting will receive on option
grant to purchase an additional 5,000 shares of common stock at the fair market
value of the stock on the date of grant, provided such individual has served on
the Board for at least six months. Each automatic option will have a term of ten
years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all
option shares; however, any shares purchased upon exercise of the option will be
subject to repurchase by the Company, at the option exercise price paid per
share, should the optionee cease service on the Board prior to vesting in those
shares. The initial 20,000 share grant will vest in a series of four successive
equal annual installments over the optionee's period of Board service measured
from the grant date. Each additional 5,000 share grant will vest upon the
optionee's completion of one year of Board service measured from the grant date.
During fiscal 1997, 20,000 options were granted under the Automatic Option Grant
Program. As of March 31, 1997, a total of 20,000 shares had been granted under
the Automatic Option Grant Program.
During fiscal 1996, the Company granted certain options for the
purchase of common stock on which the Company will amortize approximately
$212,000 of compensation expense over the four-year vesting period of the
options. As of March 31, 1997, the Company has recognized an aggregate $80,000
of compensation expense related to these options, with $56,000 expensed during
fiscal 1997.
In recognition of the decline in the fair market value of the Company's
Common Stock in fiscal 1997, the Company repriced options to purchase
approximately 533,000 shares of Common Stock with exercise prices ranging from
$33.25 to $42.75 on December 4, 1996 to an exercise price of $26.88, which was
the fair market value of the Company's Common Stock on that date.
EMPLOYEE STOCK PURCHASE PLAN
In August 1995, the Company's Board of Directors adopted the 1995
Employee Stock Purchase Plan (the "Purchase Plan") and reserved 150,000 shares
of common stock for issuance to eligible employees. The Purchase Plan permits
eligible employees to purchase common stock through periodic payroll deductions
of up to 10% of their annual compensation. Each offering period will have a
maximum duration of 24 months and shares of common stock will be purchased for
each participant at semi-annual intervals during each offering period. The price
at which the common stock is purchased under the Purchase Plan is equal to 85%
of the lower of the fair market value of the Common Stock on the participant's
entry date into the offering period or the fair market value on the semi-annual
purchase date. No shares were issued under the Purchase Plan through March 31,
1996. During fiscal 1997, a total of 56,782 shares were issued under the
Purchase Plan. At March 31, 1997, a total of 93,218 shares were reserved for
future issuance under the Purchase Plan.
33
<PAGE> 36
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the activity under the stock option plans is as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
SHARES WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at March 31, 1994................................ 285 885 $ 0.14
Additional shares authorized........................... 600 --
Options granted at market price........................ (398) 398 $ 0.36
Options granted below market price..................... (276) 276 $ 0.50
Options exercised...................................... -- (220) $ 0.09
Options canceled....................................... 43 (43) $ 0.19
---------- ---------
Balance at March 31, 1995................................ 254 1,296 $ 0.30
Additional shares authorized .......................... 400 --
Options granted at market price ....................... (240) 240 $ 10.39
Options granted below market price .................... (232) 232 $ 3.07
Options exercised ..................................... -- (734) $ 0.32
Options canceled ...................................... 120 (120) $ 4.12
---------- ---------
Balance at March 31, 1996................................ 302 914 $ 3.26
Additional shares authorized .......................... 1,000 --
Options granted at market price........................ (1,358) 1,358 $ 31.18
Options exercised ..................................... -- (210) $ 0.94
Options canceled ...................................... 583 (583) $ 36.00
---------- ---------
Balance at March 31, 1997................................ 527 1,479 $ 16.09
========== =========
</TABLE>
A summary of outstanding and exercisable stock options as of March 31,
1997 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
================================================== ==========================
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.07 - $ 1.07 333 7.3 $ 0.43 333 $ 0.43
$2.27 - $ 3.33 208 8.0 3.02 208 3.02
$6.00 - $ 9.00 118 8.0 7.23 118 7.23
$25.00 - $25.63 226 9.7 25.34 -- --
$26.88 - $35.13 594 9.2 27.72 16 27.68
----------- ----------- --------- ------------ ---------
1,479 8.6 16.09 675 3.04
=========== ============
</TABLE>
PRO FORMA DISCLOSURE
The Company has elected to continue to follow the provisions of APB No.
25, "Accounting for Stock Issued to Employees," for financial reporting purposes
and has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
The weighted average estimated grant date fair value, as defined by
SFAS 123, for options granted at market price under the Company's stock option
plans during fiscal 1997 was $9.10 per share. The weighted average estimated
grant date fair value of options granted at market price and below market price
under the Company's Stock option plans during fiscal 1996 was $3.57 and $1.08
per share, respectively. The
34
<PAGE> 37
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
weighted average estimated grant date fair value, as defined by SFAS 123, for
purchase awards under the Company's Purchase Plan during fiscal 1997 and 1996
was $15.36 and $4.50, respectively. The estimated grant date fair value
disclosed by the Company is calculated using the Black-Scholes model. The
Black-Scholes model, as well as other currently accepted option valuation
models, was developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly affect the calculated grant date fair value.
The following weighted average assumptions are included in the
estimated grant date fair value calculations for the Company's stock option and
purchase awards:
<TABLE>
<CAPTION>
Fiscal Fiscal
1997 1996
---- ----
<S> <C> <C>
Stock option plans:
Expected dividend yield............................ 0% 0%
Expected stock price volatility ................... 65% 65%
Risk free interest rate............................ 6.28% 5.88%
Expected life (years).............................. 2.41 2.75
Stock purchase plan:
Expected dividend yield............................ 0% 0%
Expected stock price volatility.................... 65% 65%
Risk free interest rate............................ 5.34% 5.44%
Expected life (years).............................. 0.58 0.97
</TABLE>
PRO FORMA NET INCOME AND NET INCOME PER SHARE
.........Had the Company recorded compensation based on the estimated grant date
fair value, as defined by SFAS 123, for awards granted under its stock option
plans and stock purchase plan, the Company's net income and net income per share
would have been reduced to the pro forma amounts below for the fiscal years
ended March 31, 1997 and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Fiscal
1997 1996
---- ----
<S> <C> <C>
Net income as reported............................. $ 5,826 $ 2,878
Pro forma net income .............................. 2,160 2,547
Net income per share as reported................... $ 0.50 $ 0.27
Pro forma net income per share..................... 0.19 0.24
</TABLE>
The pro forma effect on net income and net income per share for 1997
and 1996 is not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma compensation expense
related to grants made prior to fiscal year 1996.
35
<PAGE> 38
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES:
The tax provisions for fiscal 1997, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
==============================================
1997 1996 1995
----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) for income taxes:
Current:
Federal.................................. $ 4,671 $ 1,234 $ 22
State ................................... 1,438 382 2
Foreign.................................. 331 -- --
----------- ----------- -----------
6,440 1,616 $ 24
----------- ----------- -----------
Deferred:
Federal.................................. (2,315) (900) --
State ................................... (988) -- --
------------ ----------- -----------
(3,303) (900) --
------------ ------------ -----------
$ 3,137 $ 716 $ 24
=========== =========== ===========
</TABLE>
The tax provision reconciles to the amount computed by multiplying
income before taxes by the U.S. statutory rate (35%), as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
====================================
1997 1996 1995
---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at statutory rate....................................... $ 3,137 $ 1,258 $ 135
State taxes, net of federal benefit............................... 515 247 1
Permanent differences............................................. 147 45 15
Utilization of net operating loss carryforwards................... -- (997) (127)
Utilization of research and development carryforwards............. (131) (327) --
Change in deferred tax asset...................................... (691) 380 --
Foreign loss with no federal benefit.............................. -- 110 --
Other .......................................................... 160 -- --
---------- --------- ---------
$ 3,137 $ 716 $ 24
========== ========= =========
</TABLE>
Net deferred tax assets of $4,203,000 million at March 31, 1997 are
based on the Company's carryback capacity and expected future income in the next
twelve months. The Company provides a valuation allowance for deferred tax
assets when it is more likely than not, based on available evidence, that some
portion or all of the deferred tax assets will not be realized. Based on a
reevaluation of the realizability of future tax benefits based on income earned
in 1997, creating available carryback capacity and expected future income in the
next twelve months, the Company released $1,600,000 of the previously
established valuation allowance during fiscal 1997. Significant components of
the Company's deferred tax assets were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
================================
1997 1996
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred revenue.............................. $ 2,902 $ 1,258
Accrued expenses and reserves................. 988 740
Depreciation.................................. 149 75
Other......................................... 164 427
------------ ------------
4,203 2,500
Less: deferred tax asset valuation allowance -- (1,600)
------------ ------------
Net deferred tax asset........................ $ 4,203 $ 900
============ ============
</TABLE>
36
<PAGE> 39
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under noncancelable operating lease
agreements which expire at various dates through 2003. Certain leases provide
for escalating monthly payments and are being charged to operations ratably over
the lease term. In December 1996, the Company entered into a sublease agreement
for a portion of its Sunnyvale, California office facility with a third party,
which sublease expires in June 1998. Future rent payments under the sublease
agreement total $446,000 and $111,000 in fiscal 1998 and 1999, respectively. In
addition, the Company leases certain equipment under long-term lease agreements
that are classified as capital leases. These capital leases terminate at various
dates through 1999. Total property and equipment acquired under these
capitalized leases, which secure such borrowings, are as follows:
<TABLE>
<CAPTION>
MARCH 31,
==============================
1997 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment........................................ $ 2,020 $ 2,020
Furniture, fixtures, and office equipment................. 639 639
Leasehold improvements.................................... 27 27
------------- -------------
2,686 2,686
Less: accumulated depreciation and amortization........... (1,853) (1,013)
------------- -------------
$ 833 $ 1,673
============= =============
</TABLE>
Future minimum lease payments under all noncancelable operating and capital
leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------ ------
YEAR ENDING MARCH 31, (IN THOUSANDS)
<S> <C> <C>
1998 ................................................... $ 1,908 $ 877
1999 ................................................... 1,505 327
2000 ................................................... 1,551 --
2001 ................................................... 1,581 --
2002 ................................................... 1,670 --
Thereafter................................................ 1,250 --
------------- -------------
Total minimum payments.................................... $ 9,465 1,204
=============
Less: amount representing interest........................ (164)
-------------
Present value of capital lease obligations................ 1,040
Less: current portion..................................... 761
-------------
Lease obligations, long-term.............................. $ 279
=============
</TABLE>
Rent expense under operating leases totaled $1,301,000, $659,000 and
$387,000 during fiscal 1997, 1996 and 1995, respectively. Rent expense for
fiscal 1997 is net of $111,000 received under the sublease agreement.
In September 1996, the Company filed an action against Comshare, an
indirect channel partner. The action alleges that Comshare has breached its
obligations under its license agreement with the Company by underpaying
royalties and that Comshare fraudulently induced the Company into entering into
the agreement. The action seeks monetary and injunctive relief with respect to
future distribution of Essbase. In October 1996, Comshare filed its answer and
counterclaim against the Company alleging interference with prospective economic
advantage, unfair competition, defamation and disparagement, and breach of
contract. In its counterclaim, Comshare claims that the Company disseminated
false and misleading information concerning Comshare's rights under the
agreement and that the Company violated certain provisions of the agreement, and
requests monetary and injunctive relief, including punitive damages. The Company
believes that it has meritorious claims against Comshare and that it has
meritorious defenses to each of Comshare's counterclaims, and intends to
vigorously pursue its claims and defend itself against the counterclaims. The
outcome of the litigation is uncertain at this time and no assurance can be
given as to the outcome of the litigation. However,
37
<PAGE> 40
ARBOR SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management does not believe that the outcome of the litigation will have a
material adverse effect on the Company although it does anticipate unpredictable
variations in royalty revenues and substantial legal costs during the course of
the litigation.
In the course of its business, the Company has been named as a
defendant in certain other actions and could incur an uninsured liability in one
or more of them. Management does not believe that the outcome of either of these
litigious matters will have a material adverse effect on the Company although it
does anticipate substantial legal costs during the course of the litigation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
38
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated herein by reference
from the section entitled "Election of Directors" of the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, for the registrant's Annual Meeting of
Stockholders to be held August 13, 1997 (the "Proxy Statement"). The Proxy
Statement is anticipated to be filed within 120 days after the end of the
registrant's fiscal year ended March 31, 1997. For information regarding
executive officers of the Company, see the information appearing under the
caption "Executive Officers of the Registrant" in Part I, Item 4a of this Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference from the section entitled "Executive Compensation" of the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is incorporated herein by reference from the section entitled
"Stock Ownership of Certain Beneficial Owners and Management" of the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
39
<PAGE> 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The consolidated financial statements and supplemental schedule of the
registrant as set forth under Item 8 are filed as part of this Annual
Report on Form 10-K
(a) (2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts is filed on page 41 of
this Report on Form 10-K.
Financial statement schedules other than the schedule listed in Item 8
have been omitted since they are either not required, not applicable,
or the information is otherwise included.
The independent accountants' report with respect to the above-listed
financial statements and schedule appears on page 23 of this report on
Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the fourth
quarter of fiscal year ended 1997.
(c) Exhibit Listing
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1 Registrant's Restated Certificate of Incorporation
3.2 (1) Registrant's Bylaws
4.1 (1) Specimen Certificate of the Registrant's Common Stock
4.2 (1) Amended and Restated Investor Rights Agreement between the
Registrant and the Investors specified therein dated as of
September 16, 1993
10.1 (1) Master Lease Agreement and Warrant Agreement between the
Registrant and Phoenix Leasing. dated as of June 30, 1993
10.2 (1) 1992 Stock Option Plan
10.3 1995 Stock Option/Stock Issuance Plan
10.4 Employee Stock Purchase Plan
10.5 (1) Form of Indemnification Agreement
10.6 (1) License Agreement dated December 23, 1993, between the
Company and Comshare Incorporated
10.7 Real Property Lease between the Registrant and SBC&D &
Company dated as of July 16, 1996
11.1 Statement Regarding Computation of Net Income Per Share
22.1 List of subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to such exhibit as filed in the Registrant's
Registration Statement on Form S-1, filed November 6, 1995 (File No.
33-97098), as amended.
40
<PAGE> 43
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended March 31
-----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period ........................... $ 388 $ 208 $ 177
Additions charged to statement of operations ............. 397 269 106
Deductions from reserves.................................. (2) (89) (75)
------- ------ ------
Balance at end of period.................................. $ 783 $ 388 $ 208
======= ======= ======
</TABLE>
41
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on June 27, 1997.
ARBOR SOFTWARE CORPORATION
By /s/ JAMES A. DORRIAN
-----------------------------
James A. Dorrian,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 27, 1997.
SIGNATURE TITLE
--------- -----
/s/ JAMES A. DORRIAN Chairman of the Board of Directors,
- -------------------------- Chief Executive Officer and Director
James A. Dorrian
/s/ JOHN M. DILLON President, Chief Operating Officer
- -------------------------- and Director
John M. Dillon
/s/ DOUGLAS M. LEONE Director
- --------------------------
Douglas M. Leone
/s/ MARK W. PERRY Director
- --------------------------
Mark W. Perry
/s/ ANN L. WINBLAD Director
- --------------------------
Ann L. Winblad
/s/ STEPHEN V. IMBLER Senior Vice President and Chief Financial Officer
- -------------------------- (Principal Financial and Accounting Officer)
Stephen V. Imbler
42
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
ARBOR SOFTWARE CORPORATION
A Delaware corporation
(Pursuant to Sections 242, 245 and 248 of the
Delaware General Corporation Law)
ARBOR SOFTWARE CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), hereby certifies as follows:
FIRST: That the name of this corporation is Arbor Software
Corporation, and that this corporation was originally incorporated on April 12,
1991 pursuant to the General Corporation Law.
SECOND: The Board of Directors of the Corporation adopted a
resolution at a Meeting of the Board of Directors on August 31, 1995 amending
and restating the Restated Certificate of Incorporation of said Corporation and
such amendment was duly adopted by the stockholders of the Corporation in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law by written consent of stockholders given in accordance with
Section 228 of the General Corporation Law, with written notice to be given to
stockholders who did not consent in writing:
NOW, THEREFORE, BE IT RESOLVED, that the Restated
Certificate of Incorporation of the Corporation be amended
and restated in its entirety as follows:
ARTICLE I
The name of the corporation is Arbor Software Corporation.
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
<PAGE> 2
ARTICLE IV
This corporation is authorized to issue two classes of stock
to be designated common stock ("Common Stock") and preferred stock ("Preferred
Stock"). The number of shares of Common Stock authorized to be issued is
Twenty-Five Million (25,000,000), par value $.001 per share, and the number of
Preferred Stock authorized to be issued is Five Million (5,000,000), par value
$.001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Restated
Certificate of Incorporation, to fix or alter the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them, and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend, and rescind any or all of the Bylaws of this Corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed
from time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless
the Bylaws of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of this corporation may
be kept (subject to any provision contained in the statues) outside the State of
Delaware at such place or places as may be designated from time to time by Board
of Directors or in the Bylaws of this corporation.
2
<PAGE> 3
ARTICLE IX
A director of this corporation shall, to the fullest extent
permitted by the Delaware General Corporation Law as it now exists or as it may
hereafter be amended, not be liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
amendment nor repeal of this Article, nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE X
No action required to be taken or that may be taken at any
annual or special meeting of the stockholders of this corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law of
the State of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions
of this Article shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
* * * *
THIRD: The Restated Certificate of Incorporation as set forth
above has been duly adopted by this corporation's Board of Directors in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware.
3
<PAGE> 4
IN WITNESS WHEREOF, ARBOR SOFTWARE CORPORATION has caused this
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary this 10th day of November, 1995.
ARBOR SOFTWARE CORPORATION
-------------------------------------------
James A. Dorrian, President and
Chief Executive Officer
ATTEST:
- --------------------------
Robert V. Gunderson, Jr.
Secretary
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
ARBOR SOFTWARE CORPORATION
Arbor Software Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY as follows:
FIRST: The Restated Certificate of Incorporation of the Corporation is
hereby amended by deleting the first paragraph of ARTICLE IV of the Restated
Certificate of Incorporation in its present form and substituting therefor a new
first paragraph of ARTICLE IV in the following form:
"This corporation is authorized to issue two classes of stock, to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that this corporation is authorized to issue is Fifty-Five Million
(55,000,000) shares of capital stock. Of such authorized shares, Fifty Million
(50,000,000) shares shall be designated "Common Stock," and have a par value of
$0.001 per share, and Five Million (5,000,000) shares shall be designated
"Preferred Stock," and have a par value of $0.001 per share.
SECOND: The amendment to the Restated Certificate of Incorporation of
the Corporation set forth in this Certificate of Amendment has been duly adopted
in accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a regular meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
2
<PAGE> 6
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Stephen V.
Imbler, its Vice President Finance and Chief Financial Officer, and attested by
Robert V. Gunderson, Jr., its Secretary, this 23rd day of July, 1996.
ARBOR SOFTWARE CORPORATION
By:
----------------------------------
Stephen V. Imbler
Vice President Finance and
Chief Financial Officer
ATTEST:
- ----------------------------------
Robert V. Gunderson, Jr.
Secretary
3
<PAGE> 1
EXHIBIT 10.3
ARBOR SOFTWARE CORPORATION
1995 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE I
GENERAL PROVISIONS
1. 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.
2. 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.
<PAGE> 2
3. 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.
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.
2
<PAGE> 3
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.
4. 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 receive an
option grant under
3
<PAGE> 4
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.
5. 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 2,886,408 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, 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 increase of 1,000,000 shares authorized by the
Board under the Plan and approved by the stockholders at the 1996 Annual
Meeting; plus (iii) an additional increase of 600,000 shares authorized by the
Board under the Plan and approved by the stockholders at the 1997 Annual
Meeting.
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
4
<PAGE> 5
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 determined by the Plan Administrator shall be
final, binding and conclusive.
ARTICLE II
DISCRETIONARY OPTION GRANT PROGRAM
1. 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
5
<PAGE> 6
(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 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:
6
<PAGE> 7
(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.
2. 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.
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.
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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.
3. 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
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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.
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.
4. 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
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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.
5. 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 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
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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 III
SALARY INVESTMENT OPTION GRANT PROGRAM
1. 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.
2. 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.
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.
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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 / (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.
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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.
3. 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.
4. 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.
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ARTICLE IV
STOCK ISSUANCE PROGRAM
1. 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,
(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,
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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.
2. 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.
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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 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.
3. 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 V
AUTOMATIC OPTION GRANT PROGRAM
1. 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.
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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 two (2) 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 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
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(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.
2. 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.
3. 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
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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.
4. 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 VI
MISCELLANEOUS
1. 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.
2. 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:
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<PAGE> 20
(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.
3. 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 2,286,408 shares, and
the Corporation's stockholders approved such share increase at the 1996 Annual
Stockholders Meeting. On ____ __, 1997, the Board approved an increase in the
number of shares issuable under the Plan by 600,000 shares to 2,886,408 shares,
and the Corporation's stockholders approved such share increase at the 1997
Annual Stockholders Meeting.
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
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<PAGE> 21
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.
4. 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 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.
5. 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.
6. 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
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<PAGE> 22
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.
7. 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.
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<PAGE> 23
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.
<PAGE> 24
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.
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 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 price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing 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:
<PAGE> 25
(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 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.
<PAGE> 26
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.
<PAGE> 27
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.
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).
<PAGE> 28
PP. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE> 1
EXHIBIT 10.4
ARBOR SOFTWARE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Arbor Software Corporation by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased 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 Three Hundred
Fifty Thousand (350,000) shares.
B. 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 class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
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<PAGE> 2
B. Each offering period shall be of such duration (not to
exceed twenty-four (24) months) as determined by the Plan Administrator prior to
the start date. The initial offering period shall commence at the Effective Time
and terminate on the last business day in October 1997. The next offering period
shall commence on the first business day in November 1997, and subsequent
offering periods shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one
or more successive Purchase Periods. Purchase Periods shall begin on the first
business day in May and November each year and terminate on the last business
day in the following April and October, respectively, each year. However, the
first Purchase Period under the initial offering period shall commence at the
Effective Time and terminate on the last business day in April 1996.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to enter an
offering period under the Plan on the start date of any Purchase Period within
that offering period, provided he or she remains an Eligible Employee on such
start date. The date such individual enters the offering period shall be
designated his or her Entry Date for purposes of that offering period.
B. To participate in the Plan for a particular offering
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period within that offering period, up to a maximum of ten percent
(10%). The deduction rate so authorized shall continue in effect for the
remainder of the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Period.
(ii) The Participant may, prior to the
commencement of any new Purchase Period within the offering period,
increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
not exceed the ten percent (10%) maximum) shall become effective as of
the start date of the Purchase Period following the filing of such
form.
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<PAGE> 3
B. Payroll deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of that offering period. The
amounts so collected shall be credited to the Participant's book account under
the Plan, but no interest shall be paid on the balance from time to time
outstanding in such account. The amounts collected from the Participant shall
not be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other 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
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall
be automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than any Participant whose
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Period ending on such Purchase Date (together with any carryover
deductions from the preceding Purchase Period) to the purchase of whole shares
of Common Stock (subject to the limitation on the maximum number of shares
purchasable per Participant on any one Purchase Date) at the purchase price in
effect for the Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be
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<PAGE> 4
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into that offering period
or (ii) the Fair Market Value per share of Common Stock on that Purchase Date.
However, for each Participant whose Entry Date is other than the start date of
the offering period, the clause (i) amount shall in no event be less than the
Fair Market Value per share of Common Stock on the start date of that offering
period.
D. Number of Purchasable Shares. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Period ending with that Purchase Date (together with any carryover
deductions from the preceding Purchase Period) by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed Five Hundred (500) shares, subject to periodic adjustments in
the event of certain changes in the Corporation's capitalization.
E. Excess Payroll Deductions. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
next Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as
possible.
(ii) The termination of such purchase right
shall be irrevocable, and the Participant may not subsequently rejoin
the offering period for which the terminated purchase right was
granted. In order to resume participation in any subsequent offering
period, such individual must re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before his or her
scheduled Entry Date into that offering period.
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<PAGE> 5
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Period in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the election, exercisable up until the last business day of the
Purchase Period in which such leave commences, to (a) withdraw all the
funds in the Participant's payroll account at the time of the
commencement of such leave or (b) have such funds held for the purchase
of shares at the end of such Purchase Period. In no event, however,
shall any further payroll deductions be added to the Participant's
account during such leave. Upon the Participant's return to active
service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
provided the Participant returns to service prior to the expiration
date of the offering period in which such leave began.
G. Corporate Transaction. Each outstanding purchase right
shall automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Common Stock purchasable per Participant shall continue to apply to any such
purchase, and the clause (i) amount above shall not, for any Participant whose
Entry Date for the offering period is other than the start date of that offering
period, be less than the Fair Market Value per share of Common Stock on such
start date.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. Proration of Purchase Rights. Should the total number of
shares of Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. Assignability. During the Participant's lifetime, the
purchase right shall be exercisable only by the Participant and shall not be
assignable or transferable by the Participant.
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J. Stockholder Rights. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Common Stock under
each outstanding purchase right shall accrue in a series of
installments on each successive Purchase Date during the offering
period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value of such stock on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Period, then
the payroll deductions which the Participant made during that Purchase Period
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on August 31, 1995 and
approved by the stockholders on September 15, 1995. The Plan shall become
effective at the Effective Time, provided no purchase rights granted under the
Plan shall be exercised, and no shares of Common
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Stock shall be issued hereunder, until the Corporation shall have complied with
all applicable requirements of the 1933 Act (including the registration of the
shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in October 2005, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following its
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of
the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
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Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
Arbor Software Corporation
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Compensation shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate, plus (iii) all 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 shall not include any contributions (other than Code Section 401(k)
or Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any deferred compensation plan or
welfare benefit program now or hereafter established.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
D. Common Stock shall mean the Corporation's common stock.
E. Corporate Affiliate shall mean any parent or subsidiary corporation
of the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
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 assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. Corporation shall mean Arbor Software Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Arbor Software Corporation which shall by appropriate
action adopt the Plan.
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H. Effective Time shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is engaged, on a
regularlyscheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
J. Entry Date shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time.
K. 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 the initial offering period
which begins at the Effective Time, the Fair Market Value shall be
deemed to be equal to the price per share at which the Common Stock is
sold in the initial public offering pursuant to the Underwriting
Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
M. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
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N. Participating Corporation shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. Plan shall mean the Corporation's Employee Stock Purchase Plan, as
set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
Period. The initial Purchase Date shall be April 30, 1996.
R. Purchase Period shall mean each successive period within the
offering period at the end of which there shall be purchased shares of Common
Stock on behalf of each Participant.
S. Stock Exchange shall mean either the American Stock Exchange or the
New York Stock Exchange.
T. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE> 1
EXHIBIT 10.7
LEASE AGREEMENT
1. Parties. This Lease, is made by and between SBC&D Co., Inc., a
California corporation or nominee ('landlord"), and Arbor Software
Corporation, a California corporation ("Tenant:").
2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord, upon the terms and conditions hereinafter set forth,
those certain premises (the "Premises") Situated in the City of
Sunnyvale, County of Santa Clara, State of California, shall be deemed
to be approximately ninety eight thousand eight hundred thirty six
(98,836) square feet of floor space in the building (the "Building"),
and the land as described on Exhibit "A" and known as 1344 Crossrnan
Avenue. Landlord shall not be required to make any alterations,
additions or improvements to the Premises and the Premises shall be
leased to Tenant in an "As is" condition.
Tenant and its representatives, have, prior to executing this Lease,
made such inspections of the Premises and matters related thereto as
Tenant and its representatives desire, including, without limitation,
governmental laws and regulations to which the Premises is subject and
Tenant shall accept the Premises upon the basis of its review and
determination of the applicability and effect of such laws and
regulations. Tenant further acknowledges and agrees that, the Premises
is to be leased and delivered to and accepted by Tenant in an "As Is"
condition as of the Commencement Date with all faults and defects and
without any covenant (whether express, implied or otherwise) made by
Landlord to remedy any then existing fault or defect, whether known or
unknown, suspected or unsuspected subject to the condition set forth
in Paragraph 40 below. Tenant still further acknowledges that Tenant
has received, has reviewed and is knowledgeable of the disclosures and
information contained in the environmental assessments, investigations
and reports listed in Exhibit "B" attached hereto. Landlord makes no
representation or warranty as to the accuracy or completeness of the
disclosures or information contained in said engineering and
environmental assessments and reports. Landlord does not make any
representations or warranties of any kind whatsoever, either express
or implied, with respect to the Premises or any of such related
matters; in particular, but without limitation, Landlord makes no
representation or warranties with respect to the use, condition, size,
dimensions, boundaries, title, occupation, management or value of the
Premises or the building and improvements thereon, presence or absence
of hazardous materials in, on, under or about the Premises or
surrounding properties, compliance with applicable statutes, laws,
codes, ordinances, regulations or requirements relating to leasing,
zoning, subdivision, planning, building, fire, safety, health or
environmental matters, compliance with covenants, conditions and
restrictions (whether or not of record), other local, municipal,
regional, state or federal requirements, or other statutes, laws,
codes, ordinances, regulations or requirements (including, without
limitation, The Americans With Disabilities Act). Tenant acknowledges
that it Is entering into this Agreement on the basis of Tenant's own
investigation of the physical and environmental conditions of the
Premises. Tenant waives and releases its right to recover from
Landlord and its partners, employees and agents any and all damages,
losses, liabilities, costs or expenses whatsoever (including, without
limitation, reasonable attorneys' fees and costs), and claims
therefor, whether direct or indirect, known or unknown, foreseen or
unforeseen, which may arise on account of or in any way growing out of
or connected with the physical condition of the Premises or any
federal, state or local law, statute, ordinance or regulation
applicable thereto (including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Sections 9601 et seq. and The Resources
Conservation and Recovery Act of 1976,42 U.S.C. Sections 6901 et seq.
Tenant expressly waives the benefits of Section 1542 of the
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California Civil Code, which provides as follows:
A general release does not extend to claims which the creditor
does not know or expect to exist in his favor at the time of
executing the release, which if known to him must have
materially affected the settlement with the debtor.
Tenant acknowledges that, notwithstanding any prior or contemporaneous
oral or written representations, statements, documents or
understandings, this Lease constitutes the entire understanding of the
parties with respect to the subject matter hereof and supersedes any
such prior or contemporaneous oral or written representations,
statements, documents or understandings.
As a material consideration for this Lease, Tenant agrees to make
certain improvements to the Premises. These improvements shall include
retrofit of the existing building exterior shell and interior
Improvements ("Tenant Improvements"). Tenant agrees that it will spend
a minimum of Three Million Dollars ($3,000,000.00) on these
improvements (Tenant Improvement Costs'). Landlord shall reimburse
Tenant a total of Seven Hundred Thousand Dollars ($700,000.00) of the
total Improvement dollars within twenty (20) days of completion to be
evidenced by a final building inspection and issuance of a Certificate
of Occupancy by the Building Department of the City of Sunnyvale.
Landlord shall remove all furniture, cubicles and office equipment
prior to commencement of demolition.
2.1 Reimbursement If No Lease Commencement. Inasmuch as Tenant
will he commencing Tenant Improvements before Commencement Date and
before Landlord has purchased the Premises, if Landlord is unable to
close escrow and take tide to the Premises, Landlord shall reimburse
Tenant for all of Tenant's expenses incurred regarding the Tenant
Improvements up to the maximum reimbursable amount of $200,000.00.
Tenant shall furnish to Landlord evidence of costs incurred with its
request for reimbursement.
3. Term. The term of this Lease ("Lease Term") shall be for six (6)
years, commencing on the earlier of (1) ninety (90) days from the date
Tenant procures a building permit from the City of Sunnyvale; (ii) the
date Tenant moves substantial furniture or, trade fixtures, or any
personnel into the Building; or (iii) December 15, 1996, (the
"Commencement Date") and ending six (6) years thereafter unless sooner
terminated or extended pursuant to any provision hereof.
Notwithstanding said scheduled Commencement Date, if for any reason
Landlord cannot deliver possession of the Premises to Tenant, Landlord
shall not be subject to any liability therefor, beyond that in
Paragraph 2.1 above.
3.1 Early Access. Tenant and/or its contractors are hereby
authorized to enter the Premises prior to the Commencement Date for
purposes of demolition and construction of Tenant Improvements, and
such early occupancy shall be upon all of the terms of this Lease
(including obligations regarding indemnity and insurance) except those
regarding the obligation to pay rent which shall commence on the
Commencement Date.
4. Rent.
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A. Time of Payment. Tenant shall pay to Landlord as rent for the
Premises the sum specified in Paragraph 4.B below (the "Monthly
Installment") each month in advance on the first day of each
calendar month, without deduction or offset, prior notice or
demand, commencing on the Commencement Date and continuing
through the Lease Term, together with such additional rents as
are payable by Tenant to Landlord under the terms of this
Lease. The Monthly Installment for any period during the Lease
Term which period is less than one (1) full month shall be a
prorata portion of the Monthly Installment based upon a thirty
(30) day month.
B. Monthly Installment. The Monthly Installment of rent payable
each month during the Term shall be as follows:
Months 1-24 $ 84,011
Months 25-48 $ 93,894
Months 49-72 $103,778
C. Absolute Rent. It is the intention of Landlord and Tenant that
(i) the rent herein specified shall be absolute to Landlord in
each month during the Lease Term, without abatement,
deduction, offset, cost or expenses, and (ii) all costs,
expenses and obligations of every kind relating to the
Premises shall be paid by Tenant.
D. Late Charge. Tenant acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may
be imposed on Landlord by the terms of any mortgage or deed of
trust covering the Premises. Accordingly, if any installment
of rent or any other sum due from Tenant shall not be received
by Landlord within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord, as additional rent, a late
charge equal to six percent (6%) of such overdue amount. The
parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of
Tenants default with respect to such overdue amount, nor
prevent Landlord from exercising any of its other rights and
remedies granted hereunder.
E. Additional Rent. All taxes, insurance premiums, late charges,
costs and expenses which Tenant is required to pay thereunder,
together with all interest and penalties that may accrue
thereon in the event of Tenant's failure to pay such amounts,
and all reasonable damages, costs and attorneys' fees and
expenses which Landlord may incur by reason of any default of
Tenant or failure on Tenant's part comply with the terms of
this Lease, shall be deemed to be additional rent ("Additional
Rent") and shall be paid in addition to the Monthly
Installment of rent, and, in the event of nonpayment of the
Monthly Installment of rent.
F. Place of Payment. Rent shall be payable in lawful money of the
United States of America to Landlord at 511 Division Street,
Campbell CA, or to such other person (s) or at such other
place (s) as Landlord may designate in writing.
G. Advance Payment. Concurrently with the execution of this Lease,
Tenant shall pay to
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Landlord the sum of Eighty-Four Thousand and Eleven Dollars
($84,011) to be applied to the Monthly Installment of rent
first accruing under this Lease
5. Security Deposit. Tenant shall deposit the sum of eighty-four
Thousand Eleven Dollars ($84,011.00) (the "Security Deposit") upon
execution of this Lease, to secure the faithful performance by Tenant
of each term, covenant and condition of this Lease. If Tenant shall at
any time fail to make any payment or fail to keep or perform any term,
covenant or condition on its part to be made or performed or kept
under this Lease, Landlord may, but shall not be obligated to and
without waiving or releasing Tenant from any obligation under this
Lease, use, apply or retain the whole or any part of the Security
Deposit (A) to the extent of any sum due to Landlord; (B) to make any
required payment on Tenant's behalf or (C) to compensate Landlord for
any loss, damages, attorneys' fees or expense sustained by Landlord
due to Tenant's default. In such event, Tenant shall, within five (5)
days of written demand by Landlord, remit to Landlord sufficient funds
to restore the Security Deposit to its original sum. No interest shall
accrue on the Security Deposit. Landlord shall not be required to keep
the Security Deposit separate from its general funds. Should Tenant
comply with all the terms, covenants, and conditions of this Lease and
at the end of the term of this Lease leave the Premises in the
condition required by this Lease, then said Security Deposit, less any
sums owing to Landlord, shall be returned to Tenant within thirty (30)
days after the termination of this Lease and vacancy of the Premises
by Tenant. At any time the Monthly Installment is increased pursuant
to this Lease, the Security Deposit shall be increased by the same
amount.
6. Use of Premises. Tenant shall use the Premises only in conformance
with applicable governmental laws, regulations, rules and ordinances
for the purpose of general office and manufacturing, packaging and
storage of non hazardous material products or any other related
purpose and for no other purpose without the prior written consent of
Landlord. Tenant shall indemnify, protect, defend, and hold Landlord
harmless against any loss, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any
applicable law. Tenant shall not commit or suffer to be committed, any
waste upon the Premises, or any nuisance, or other acts or things
which may disturb the quiet enjoyment of any other tenant in the
buildings adjacent to the Premises, or allow any sale by auction upon
the Premises, or allow the Premises to be used for any unlawful
purpose, or place any loads upon the floor, walls or ceiling which
endanger the structure, or place any harmful liquids in the drainage
system of the Building. No waste materials or refuse shall be dumped
upon or permitted to remain upon any part of the Premises outside of
the Building proper, except in trash containers placed inside exterior
enclosures designated for that purpose by Landlord. No materials,
supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted
to remain on any portion of the Premises outside of the Building
proper. Tenant shall strictly comply with the provisions of Paragraph
39 below.
7. Taxes and Assessments.
A. Tenant's property. Tenant shall pay before delinquency any and
all taxes and assessments, license fees and public charges
levied, assessed or imposed upon or against Tenant's fixtures,
equipment, furnishings, furniture appliances and personal
property installed or located on or within the Premises.
Tenant shall cause said fixtures, equipment, furnishings,
furniture appliances and personal property to be assessed and
billed separately from the real property of Landlord. If any
of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord the
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taxes attributable to Tenant within ten (10) days after
receipt of a written statement from Landlord setting forth the
taxes applicable to Tenant's property.
B. Property Taxes. Tenant shall pay, as additional rent, all
Property Taxes levied or assessed with respect to the land
comprising the Parcel and with respect to all buildings and
Improvements located on the Parcel which become due or accrue
during the term of this Lease. Tenant shall pay such Property
Taxes to Landlord within twenty (20) days after receipt of
billing. Provided that Landlord bills Tenant at least thirty
(30) days prior to the delinquency date of such Property
Taxes, Tenant shall pay such Property Taxes to Landlord at
least ten (10) days prior to the delinquency date, and if
Tenant fails to do so, Tenant shall reimburse Landlord, on
demand, for all interest, late fees and penalties that the
taxing authority charges Landlord. In the event Landlord's
mortgage requires an impound for Property Taxes, then on the
first day of each month during the Lease Term, Tenant shall
pay Landlord one twelfth (1/12) of its annual share of such
Property Taxes. Tenant's liability thereunder shall be
prorated to reflect the Commencement and termination dates of
this Lease
For the purpose of this Lease, "Property Taxes" means and
includes all taxes, assessments (including, but not limited
to, assessments for public improvements or benefits), taxes
based on vehicles, utilizing parking areas, taxes based or
measured by the rent paid, payable or received under this
Lease, taxes on the value, use, or occupancy of the Premises,
the Buildings and/or the Parcel, Environmental Surcharges, and
all other governmental impositions and charges of every kind
and nature whatsoever, whether or not customary or within the
contemplation of the parties hereto and regardless of whether
the same shall be extraordinary or ordinary, general or
special, unforeseen or foreseen, or similar or dissimilar to
any of the foregoing which, at any time during the Lease Term,
shall be applicable to the Premises, the Building and/or the
Parcel or assessed, levied or imposed upon the Premises, the
Building and/or the Parcel, or become due and payable and a
lien or charge upon the Premises, the Building and/or the
Parcel, or any part thereof, under or by virtue of any present
or future laws, statutes, ordinances, regulations or other
requirements of any governmental authority whatsoever. The
term "Environmental Surcharges" shall mean and include any and
all expenses, taxes, charges or penalties imposed by the
Federal Department of Energy, the Federal Environmental
protection Agency, the Federal Clean Air Act, or any
regulations promulgated thereunder or any other local, state
or federal governmental agency or entity now or hereafter
vested with the power to impose taxes, assessments, or other
types of surcharges as a means of controlling or abating
environmental pollution or the use of energy. The term
"Property Taxes" shall not include any federal, state or local
net income, estate, or inheritance tax imposed on Landlord.
C. Other Taxes: Tenant shall, as additional rent, pay or
reimburse Landlord for any tax based upon, allocable to, or measured
by the area of the Premises or the Buildings or the Parcel; or by the
rent paid, payable or received under this Lease; any tax upon or with
respect to the possession, leasing, operation, any tax upon or with
respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of the Premises or
any portion thereof; any privilege tax, excise tax, business and
occupation tax, gross receipts tax, sales and/or use tax, water tax,
sewer tax, employee tax, occupational license tax imposed upon
Landlord or Tenant with respect to the Premises; any tax upon this
transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises.
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<PAGE> 6
8. Insurance.
A. Indemnity. Tenant agrees to indemnify, protect and defend
Landlord against and hold Landlord harmless from any and all
claims, causes of action, judgments, obligations or
liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable
attorneys' fees), on account to, or arising out to, the
operation, maintenance, use or occupancy of the Premises and
all areas appurtenant thereto. This Lease is made on the
express understanding that Landlord shall not be liable for,
or suffer loss by reason to, injury to person or property,
from whatever cause (except for active negligence or willful
misconduct of Landlord), which in any way may be connected
with the operation, use or occupancy of the Premises
specifically including, without limitation, any liability for
injury to the person or property of Tenant, its agents,
officers, employees, licensees and invitees.
B. Liability Insurance. Tenant shall, at Tenant's expense, obtain
and keep in force during the term of this Lease a policy of
comprehensive public liability insurance insuring Landlord and Tenant
against claims and liabilities arising out of the operation, use, or
occupancy of the Premises and all areas appurtenant thereto, including
parking areas. Such insurance shall be in an amount of not less than
Two Million Dollars ($2,000,000.00) for bodily injury or death as a
result of any one occurrence and Five Hundred Thousand Dollars
($500,000.00) for damage to property as a result of any one
occurrence. The insurance shall be with companies approved by
Landlord, which approval Landlord agrees not to withhold unreasonably.
Tenant shall deliver to Landlord, prior to possession, and at least
thirty (30) days prior to the expiration thereof, a certificate of
insurance evidencing the existence of the policy required hereunder
and such certificate shall certify that the policy (1) names Landlord
as an additional insured, (2) shall not be canceled or altered without
thirty (30) days prior written notice to Landlord, (3) insures
performance of the indemnity set forth in Paragraph 8.A above, (4) the
coverage is primary and any coverage by Landlord is in excess thereto
and (5) contains a cross-liability endorsement. Landlord may maintain
a policy or policies of comprehensive general liability insurance
insuring Landlord (and such others as are designated by Landlord),
against liability for personal injury, bodily injury, death and damage
to property occurring or resulting from an occurrence in, on or about
the Premises or the Common Area, with such limits of coverage as
Landlord may from time to time determine are reasonably necessary for
its protection. The cost of any such liability insurance maintained by
Landlord shall be a Common Area Charge and Tenant shall pay, as
additional rent, its share of such cost to Landlord as provided in
Paragraph 12 below
C. Property Insurance. Landlord shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or
damage to the Premises and the Building, in the amount of the full
replacement value thereof, providing protection against those perils
included within the classification of "all risk" insurance, plus a
policy of rental income insurance in the amount of one hundred percent
(100%) of twelve (12) months rent (including, without limitation, sums
payable as Additional Rent), plus, at Landlord's option, flood
insurance and earthquake insurance, and any other coverage which may
be required from time to time by Landlord's mortgagee. Tenant shall
have no interest in nor any right to the proceeds of any insurance
procured by Landlord on the Premises. Tenant shall, within twenty (20)
days after receipt of billing, pay to Landlord as additional rent, the
full cost of such insurance procured and maintained by Landlord.
Tenant acknowledges that such insurance procured by Landlord shall
contain a deductible which reduces Tenant's cost for such insurance
and, in the event of loss or damage, Tenant shall be required to pay
to Landlord the amount of such deductible. Notwithstanding the above,
Tenant shall only be responsible for the payment of Earthquake
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Insurance if it is reasonable or if Landlord's lender requires it.
D. Tenant's Option to Maintain Property Insurance. Tenant shall
have the right to obtain and keep in force all of the
insurance described in Subparagraph 8.C above in lieu of
Landlord obtaining such insurance. If Tenant desires to
exercise such right to obtain such insurance, Tenant may do so
only on the renewal date of Landlord's then current insurance
policy and Tenant must exercise such right by giving Landlord
written notice of Tenant's election to obtain such insurance
not later than thirty (30) days prior to the renewal date of
Landlord's then current insurance policy. If Tenant so elects
to obtain the insurance described in Subparagraph 8.C above,
such insurance shall be provided by companies approved by
Landlord which approval shall not be unreasonably withheld.
Tenant shall deliver to Landlord, at least fifteen (15) days
prior to the expiration of Landlord's then current insurance
policy or Tenant's then current insurance policy, as the case
may be, a duplicate original of or a certificate evidencing
the policy required hereunder. Such policy and/or certificate
shall certify that the policy: (i) names Landlord and
Landlord's Lender as additional insureds; (ii) shall not be
canceled or altered without thirty (30) days prior written
notice to Landlord and to Landlord's Lender; (iii) is primary
and any coverage by Landlord is in excess thereto; and (iv)
contains a standard lender's loss payable endorsement in favor
of Landlord's Lender. If any such policy obtained by Tenant
contains a deductible, Tenant shall be responsible for the
amount of such deductible, or a portion thereof, as specified
in Subparagraph 8.C above. Any deductible must be approved by
Landlord and Landlord's Lender, which approval shall not be
unreasonably withheld. If Tenant makes the election to
maintain all of the insurance described in Subparagraph 8.C
above, Landlord shall be relived of its obligation to obtain
and maintain such insurance.
E Tenant's Insurance: Release of Landlord. Tenant acknowledges
that the insurance to be maintained by Landlord on the
Premises pursuant to Subparagraph C above will not insure any
of Tenants property. Accordingly, Tenant, at Tenant's own
expense, shall maintain in full force and effect on all of its
fixtures, equipment, leasehold improvements and personal
property in the Premises, a policy of "All Risk' coverage
insurance to the extent of at least ninety percent (90%) of
their insurable value. Tenant hereby releases Landlord, and
its partners, officers, agents employees and servants from any
and all claims, demands, losses, expenses or injuries to the
Premises or to the furnishings, fixtures, equipment, inventory
or other personal property of Tenant in, about, or upon the
Premises, which are caused by perils, events or happenings
where the same are covered by the insurance required by this
Lease or which are the subject of insurance carried by Tenant
and in force at the time of such loss.
9. Utilities. Tenant shall' pay for all water, gas, light, heat, power,
electricity, telephone, trash pickup, sewer charges and all other
services supplied to or consumed on the Premises, and all taxes and
surcharges thereon.
10. Repairs and Maintenance.
A. Tenant's Repairs. Tenant shall, during the term of
this Lease, at Tenant's sole cost and expense, keep
and maintain in good order, condition and repair the
entire Premises and every part thereof structural and
non-structural, including, without limitation, the
roof including structural roof), roofing, roof
membrane
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<PAGE> 8
and roof screens, gutters and down spouts,
foundation, footings, floor slab, floor coverings,
windows, window frames, plate glass, glazing,
skylights, truck doors, doors and all door hardware,
walls (exterior and interior, structural and
non-structural), partitions, sidewalks, landscaping,
irrigation systems, parking areas, driveways, paving,
fences, signs and all other areas or facilities
located outside the Building and all plumbing,
electrical, lighting, , heating, air conditioning and
ventilation facilities, equipment and Systems within
the Premises The term "repair" shall include
replacements, restorations and/or renewals when
necessary, as well as painting. Tenant's obligation
shall extend to all alterations, additions and
improvements to the Premises, and all fixtures and
appurtenances therein and thereto. Tenant shall, at
all times during the Lease Term, have in effect a
service contract for the maintenance of the heating,
ventilating and air conditioning ("HVAC") equipment
with an HVAC repair maintenance contractor approved
by Landlord which provides for periodic inspection
and servicing at least once every ninety (90) days
during the Lease Term and shall provide Landlord with
a copy of such contract. Tenant shall indemnify and
save Landlord harmless against and from all costs,
expenses liabilities, losses, injuries, damages,
suits, fines, penalties, claims and demands,
including attorneys' fees, resulting from Tenant's
failure to comply with the foregoing; and Tenant
hereby expressly releases and discharges Landlord of
and from any liability therefor.
B. No Landlord Obligations. Landlord shall have no
maintenance or repair obligations whatsoever with
respect to the Premises Tenant hereby waives the
provision of any law now or hereafter in effect
requiring that Landlord make repairs, and further
waives the provisions of any Law now or hereafter in
effect allowing Tenant to make repairs at the expense
of Landlord or to terminate this Lease because of
Landlord's failure to keep the Premises in good
order, condition and repair. Tenant specifically
waives the provisions of Subsection (1) of Section
1932 and Sections 1941 and 1942 of the Civil Code of
California Landlord shall not he liable for damage to
the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or
any other person in or about the Premises, whether
such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects
of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or
from any other cause, whether the said damage or
injury results from conditions arising upon the
Premises or upon other portions of the building of
which the Premises are a part, or from other sources
or places and regardless of whether the cause of such
damage or injury or the means of repairing the same
is inaccessible to Tenant. Notwithstanding
Landlord's negligence or breach of this Lease,
Landlord shall, under no circumstances, be liable for
injury to Tenant's business or for any loss of income
or profit therefrom or for any consequential damages
whatsoever.
C. Tenant's Failure. Should Tenant fail to make the
repairs and maintenance required of Tenant hereunder
within ten (10) days after notice from Landlord, in
addition to all its other rights and remedies
hereunder or by law and without waiving any
alternative remedies, Landlord may make the same, and
in that event, Tenant shall reimburse Landlord as
Additional Rent for the cost of such maintenance or
repairs within five (5) days of written demand by
Landlord.
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11. Alterations. Except for non-structural alterations costing
less than Twenty-Five Thousand Dollars ($25,000.00), Tenant
shall not make, or suffer to be made, any alterations,
improvements or additions in, on, about or to the Premises or
any part thereof, without the prior written consent of
Landlord. Any alterations, improvements, or additions shall be
made by licensed contractors holding valid building permits
issued by the appropriate governmental authority. Copies of
all plans and permits for any alterations, improvements or
additions shall be delivered to Landlord prior to the
commencement of work. As a condition to giving such consent,
Landlord may request that Tenant agree to remove any such
alterations, improvements or additions at the termination of
this Lease, and to restore the Premises to their prior
condition. Unless Landlord requires that Tenant remove any
such alterations, improvement or addition, any alteration,
addition or improvement to the Premises, except movable
furniture and trade fixtures not affixed to the Premises,
shall become the property of Landlord upon termination of the
Lease and shall remain upon and be surrendered with the
Premises at the termination of this Lease. Without limiting
the generality of the foregoing, all heating, lighting,
electrical (including all wiring, conduit, outlets, drops,
buss ducts, main and subpanels), air conditioning,
partitioning, window coverings, and carpet installations made
by Tenant regardless of how affixed to the Premises, together
with all other additions, alterations and improvements that
have become an integral part of the Building, shall be and
become the property of the Landlord upon termination of the
Lease, and shall not be deemed trade fixtures, and shall
remain upon and be surrendered with the Premises at the
termination of this Lease.
If, during the Lease Term hereof, any alteration, addition or
change of any sort to all or any portion of the Premises is
required by law, regulation, ordinance or order of any public
agency, due to Tenant's use, occupancy, or alterations, Tenant
shall promptly make the same at its sole cost and expense.
12. Acceptance of the Premises. By entry and taking possession of
the Premises pursuant to this Lease, Tenant accepts the
Premises in their condition existing as of the date of such
entry. Tenant acknowledges that neither the Landlord nor
Landlord's agents has made any representation or warranty as
to the suitability of the Premises to the conduct of Tenant's
business. Any agreements, warranties or representations not
expressly contained herein shall in no way bind either
Landlord or Tenant, and Landlord and Tenant expressly waive
all claims for damages by reason of any statement,
representation, warranty, promise or agreement, if any, not
contained in this Lease. This Lease constitutes the entire
understanding between the parties hereto and no addition to,
or modification of, any term or provision of this Lease shall
be effective until set forth in a writing signed by both
Landlord and Tenant.
13. Default.
A. Events of Default. A breach of this Lease shall exist
if any of the following events (hereinafter referred
to as "Event of Default) shall occur:
1. Default in the payment when due of any
Monthly Installment or other payment required
to be made by Tenant hereunder, where such
default shall not have been cured within five
(5) days after written notice of such default
is given to Tenant;
2. Tenant's failure to perform any other term,
covenant or condition contained in this Lease
where such failure shall have continued for
thirty (30) days after written notice of such
failure is given to Tenant; provided that
Tenant shall not
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be deemed to be in default if such default is
incapable of cure within said period and
Tenant has commenced to complete the cure of
such default within said thirty (30) day
period and is proceeding diligently;
3. Tenant's vacating or abandonment of the
Premises without the payment of rent;
4. Tenant's assignment of its assets for the
benefit of its creditors:
5. The sequestration of, attachment of or
execution on, any substantial part of the
property of Tenant or on any property
essential to the conduct of Tenant's business
shall have occurred and Tenant shall have
failed to obtain a return or release of such
property within thirty (30) days thereafter,
or prior to sale pursuant to such
sequestration, attachment or levy, whichever
is earlier;
6 Tenant or any guarantor of Tenant's
obligations hereunder shall commence any
case, proceeding or other action seeking
reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it
or its debts under any law relating to
bankruptcy, insolvency, reorganization or
relief of debtors, or seek appointment of a
receiver, trustee, custodian, or other
similar official for it or for all or any
substantial part of its property and such
proceeding is not terminated within sixty
(60) days;
7. Tenant or any such guarantor shall take any
corporate action to authorize any of the
actions set forth in Clause 6 above; or
8. Any case, proceeding or other action against
Tenant or any guarantor of Tenant's
obligations hereunder shall be commenced
seeking to have an order for relief entered
against it as debtor, or seeking
reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it
or its debts under any law relating to
bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other
similar official for it or for all or any
substantial part of its property, and such
case, proceeding or other action (i) results
in the entry of an order for relief against
it which is not fully stayed within seven (7)
business days after the entry thereof or (ii)
remains undismissed for a period of sixty
(60) days.
B. Remedies. Upon any Event of Default, Landlord shall
have the following remedies, in addition to all other
rights and remedies provided by law, to which
Landlord may resort cumulatively, or in the
alternative:
1. Recovery of Rent. Landlord shall be entitled
to keep this Lease in full force and effect
(whether or not Tenant shall have abandoned
the Premises) and to enforce all of its
rights and remedies under this Lease,
including the right to recover rent and other
sums as they become due, plus interest at the
Permitted Rate (as defined in Paragraph 31
below) from the due date of each installment
of rent or other sum until paid.
2. Termination. Landlord may terminate this
Lease by giving Tenant written notice of
termination. On the giving of the notice all
of Tenant's rights in the Premises and the
Building and Parcel shall terminate. Upon the
giving of the notice of
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termination, Tenant shall surrender and
vacate the Premises in the condition required
by Paragraph 32, and Landlord may re-enter
and take possession of the Premises and all
the remaining improvements or property and
eject Tenant or any of Tenant's subtenants,
assignees or other person or persons claiming
any right under or through Tenant or eject
some and not others or eject none. This Lease
may also be terminated by a judgment
specifically providing for termination. Any
termination under this paragraph shall not
release Tenant from the payment of any sum
then due Landlord or from any claim for
damages or rent previously accrued or then
accruing against Tenant. In no event shall
any one or more of the following actions by
Landlord constitute a termination of this
Lease:
a. maintenance and preservation of the
Premises;
b efforts to relet the Premises;
c appointment of a receiver in order
to protect Landlord's interest
hereunder;
d consent to any subletting of the
Premises or assignment of this Lease
by Tenant, whether pursuant to
provisions hereof concerning
subletting and assignment or
otherwise; or
e. any other action by Landlord or
Landlord's agents intended to
mitigate the adverse effects from
any breach of this Lease by Tenant.
3. Damages. In the event this Lease is
terminated pursuant to Subparagraph 13.B.2
above, or otherwise, Landlord shall be
entitled to damages in the following sums:
a. the worth at the time of award of the unpaid
rent which has been earned at the time of
termination; plus
b. the worth at the time of award of the amount
by which the unpaid rent which would have
been earned after termination until the time
of award exceeds the amount of such rental
loss that Tenant proves could have been
reasonably avoided; plus
c. the worth at the time of award of the amount
by which the unpaid rent for the balance of
the term after the time of award exceeds the
amount of such rental loss that Tenant proves
could be reasonably avoided; and
d. any other amount necessary to compensate
Landlord for all detriment proximately caused
by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the
ordinary course of things would be likely to
result therefrom including, without
limitation, the following: (i) expenses for
cleaning, repairing or restoring the
Premises; (ii) expenses for altering,
remodeling or otherwise improving the
Premises for the purpose of reletting,
including installation of leasehold
improvements (whether such installation be
funded by a
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reduction of rent, direct payment or
allowance to the succeeding lessee, or
otherwise); (iii) real estate broker's fees,
advertising costs and other expenses of
reletting the Premises; (iv) costs of
carrying the Premises such as taxes and
insurance premiums thereon, utilities and
security precautions; (v) expenses in retaking
possession of the Premises; and (vi)
attorneys' fees and court costs.;
e. The "worth at the time of award" of the
amounts referred to in Subparagraphs (a) and
(b) of this paragraph, is computed by allowing
interest at the Permitted Rate. The worth at
the time of award" of the amounts referred to
in Subparagraph (c) of this Paragraph is
computed by discounting such amount at the
discount rate of the Federal Reserve Board of
San Francisco at the time of award plus one
percent (1%). The term "rent" as used in this
Paragraph shall include all sums required to
be paid by Tenant to Landlord pursuant to the
terms of this Lease.
14. Destruction. In the event that any portion of the Premises are
destroyed or damaged by an uninsured peril, Landlord or Tenant
may, upon written notice to the other, given within thirty
(30) days after the occurrence of such damage or destruction,
elect to terminate this Lease; provided, however, that either
party may, within thirty (30) days after receipt of such
notice, elect to make any required repairs and/or restoration
at such party's sole cost and expenses, in which event this
Lease shall remain in full force and effect, and the party
having made such election to restore or repair shall
thereafter diligently proceed with such repairs and/or
restoration.
In the event the Premises are damaged or destroyed from any
insured peril to the extent of ninety percent (90%) or more of
the then replacement cost of the Premises, Landlord may, upon
written notice to Tenant, given within thirty (30) days after
the occurrence of such damage or destruction, elect to
terminate this Lease. If Landlord does not give such notice in
writing within such period, Landlord shall be deemed to have
elected to rebuild or restore the Premises, in which event
Landlord shall, at its expense promptly rebuild or restore the
Premises to their condition prior to the damage or destruction
and Tenant shall pay to Landlord upon commencement of
reconstruction the amount of any deductible from the insurance
policy.
In the event the Premises are damaged or destroyed from any
insured peril to the extent of less than ninety percent (90%)
of the then replacement cost of the Premises, Landlord shall,
at Landlord's expense, promptly rebuild or restore the
Premises to their condition prior to the damage or destruction
and Tenant shall pay to Landlord upon commencement of
reconstruction the amount of any deductible from the insurance
policy.
In the event that, pursuant to the foregoing provisions,
Landlord is to rebuild or restore the Premises, Landlord
shall, within thirty (30) days after the occurrence of such
damage or destruction, provide Tenant with written notice of
the time required for such repair or restoration. If such
period is longer than one hundred eighty (180) days from the
issuance of a building permit, Tenant may, within thirty (30)
days after receipt of Landlord's notice, elect to terminate
the Lease by giving written notice to Landlord of such
election, whereupon the Lease shall immediately terminate. The
period of time for Landlord to complete the repair or
restoration shall be extended for delays caused by the fault
or neglect of Tenant or because of acts of God, acts of
publication, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, acts of contractors or
subcontractors, or delay of contractors or subcontractors due
to such causes, or other contingencies beyond the
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control of Landlord. Landlord's obligation to repair or
restore the Premises shall not include restoration of Tenant's
trade fixtures, equipment, merchandise, or any improvements,
alterations or additions made by Tenant to the Premises.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect;
provided, however, that during any period of repairs or
restoration, rent and all other amounts to be paid by Tenant
on account of the Premises and this Lease shall be abated in
proportion to the area of the Premises rendered not reasonably
suitable for the conduct of Tenant's business thereon. Tenant
hereby expressly waives the provisions of Section 1932,
Subdivision 2 and Section 1933, Subdivision 4 of the
California Civil Code.
15. Condemnation.
A. Definition of Terms. For the purposes of this Lease,
the term (1) "Taking" means a taking of the Premises
or damage to the Premises related to the exercise of
the power of eminent domain and includes a voluntary
conveyance, in lieu of court proceedings, to any
agency, authority, public utility, person or
corporate entity empowered to condemn property; (2)
"Total Taking" means the taking of the entire
Premises or so much of the Premises as to prevent or
substantially impair the use thereof by Tenant for
the uses herein specified; provided, however, in no
event shall a Taking of less than ten percent (10%)
of the Premises be deemed a Total Taking; (3)
"Partial Taking" means the taking of only a portion
of the Premises which does not constitute a Total
Taking; (4) "Date of Taking" means the date upon
which the title to the Premises, or a portion
thereby, passes to and vests in the condemnor or the
effective date of any order for possession if issued
prior to the date title vests in the condemnor; and
(5) "Award" means the amount of any award made,
consideration paid, or damages ordered as a remit of
a Taking.
B. Rights. The parties agree that in the event of a
Taking all rights between them or in and to an Award
shall be as set forth herein and Tenant shall have no
right to any Award except as set forth herein.
C. Total Taking. In the event of a Total Taking during
the term hereof (1) the rights of Tenant under the
Lease and the leasehold estate of Tenant in and to
the Premises shall cease and terminate as of the Date
of Taking; (2) Landlord shall refund to Tenant any
prepaid rent; (3) Tenant shall pay Landlord any rent
or charges due Landlord under the Lease, each
prorated as of the Date of Taking; (4) Tenant shall
receive from Landlord those portions of the Award
attributable to trade fixtures of Tenant and for
moving expenses of Tenant; and(S) the remainder of
the Award shall be paid to and be the property of
Landlord.
D. Partial Taking. In the event of a Partial Taking
during the term hereof (1) the rights of Tenant under
the Lease and leasehold estate of Tenant in and to
the portion of the Premises taken shall cease and
terminate as of the Date of Taking; (2) from and
after the Date of Taking the Monthly installment of
rent shall be an amount equal to the product obtained
by multiplying the Monthly Installment of rent
immediately prior to the Taking by a fraction, the
numerator of which is the number of square feet
contained in the Premises after the Taking and the
denominator of which is the number of square feet
contained in the Premises prior to the Taking; (3)
Tenant shall receive from the Award the portions of
the Award attributable to trade fixtures of Tenant;
and (4) the remainder of the Award shall be paid to
and be the property of Landlord.
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16. Mechanics' Lien. Tenant shall (A) pay for all labor and
services performed for, materials used by or furnished to,
Tenant or any contractor employed by Tenant with respect to
the Premises; (B) indemnify, defend, protect and hold Landlord
and the Premises harmless and free from any liens, claims,
liabilities, demands, encumbrances, or judgments created or
suffered by reason of any labor or services performed for,
materials used by or furnished to, Tenant or any contractor
employed by Tenant with respect to the Premises; (C) give
notice to Landlord in writing five (5) days prior to employing
any laborer or contractor to perform services related to, or
receiving materials for use upon the Premises; and ([)) permit
Landlord to post a notice of no responsibility in accordance
with the statutory requirements of California Civil Code
Section 3094 or any amendment thereof. In the event Tenant is
required to post an improvement bond with a public agency in
connection with the above, Tenant agrees to include Landlord
as an additional obligee.
17. Inspection of the Premises. Tenant shall permit Landlord and
its agents to enter the Premises upon written notice thereof
at least twenty-four (24) hours in advance (except in case of
emergency) at any reasonable time for the purpose of
inspecting the same, posting a notice of non-responsibility
for alterations, additions or repairs; and at any time within
one hundred eighty (180) days prior to expiration of this
Lease, to place upon the Premises, ordinary "For Lease" or
"For Sale" signs.
18. Compliance with Laws. Tenant shall, at its own cost, comply
with all of the requirements of all municipal, county, state
and federal authorities now in force, or which may hereafter
be in force, pertaining to Tenant's use and occupancy of the
Premises, and shall faithfully observe all municipal, county,
state and federal law, statutes or ordinances now in force or
which may hereafter be in force. The judgment of any court of
competent jurisdiction or the admission of Tenant in any
action or proceeding against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such
ordinance or statute in the use and occupancy of the Premises
shall be conclusive of the fact that such violation by Tenant
has occurred.
19. Subordination. The following provisions shall govern the
relationship of this Lease to any, underlying lease, mortgage
or deed of trust which now or hereafter affects the Premises,
the Building and/or the Parcel, or Landlord's interest or
estate therein (the "Project") and any renewal, modification,
consolidation, replacement, or extension thereof (a "Security
instrument").
A. Priority. This Lease is subject and subordinate to
Security Instruments existing as of the Commencement
Date. However, if any Lender so requires, this Lease
shall become prior and superior to any such Security
instrument.
B. Subsequent Security Instruments. At Landlord's
election, this Lease shall become subject and
subordinate to any Security Instrument created after
the Commencement Date. Notwithstanding such
subordination, Tenant's right to quiet possession of
the Premises shall not be disturbed so long as Tenant
is not in default and performs all of its obligations
under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.
C. Documents. Tenant shall execute any document or
instrument reasonably required by Landlord or any
Lender to make this Lease either prior or subordinate
to a Security Instrument, which may include such
other matters as the Lender customarily requires in
connection with such agreements, including provisions
that the Lender not be liable for
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(1) the return of the Security Deposit unless the
Lender receives it from Landlord, and (2) any
defaults on the part of Landlord occurring prior to
the time that the Lender takes possession of the
Project in connection with the enforcement of its
Security Instrument. Tenant's failure to execute any
such document or instrument within ten (10) days
after written demand therefor shall constitute a
default by Tenant or, at Landlord's option, Landlord
may execute such documents on behalf of Tenant as
Tenant's attorney-in-fact. Tenant does hereby make,
constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact to execute such documents
in accordance with this Paragraph.
D. Tenant's Attornment. Tenant shall attorn (1) to any
purchaser of the Premises at any foreclosure sale or
private sale conducted pursuant to any Security
Instrument encumbering the Project; (2) to grantee or
transferee designated in any deed given in lieu of
foreclosure; or (3) to the lessor under any
underlying ground lease should such ground lease be
terminated.
E. Lender. The term "Lender" shall mean (1) any
beneficiary, mortgagee, secured party, or other
holder of any deed of trust, mortgage, or other
written security device or agreement affecting the
Project; and (2) any lessor under any underlying
lease under which Landlord holds its interest in the
Project.
20. Holding Over. This Lease shall terminate without further
notice at the expiration of the Lease Term. Any holding over
by Tenant after expiration shall not constitute a renewal or
extension or give Tenant any rights in or to the Premises
except as expressly provided in this Lease. Any holding over
after the expiration with the consent of Landlord shall be
construed to be a tenancy from month to month, at one hundred
fifty percent (150%) of the monthly rent for the last month of
the Lease Term, and shall otherwise be on the terms and
conditions herein specified insofar as applicable.
21. Notices. Any notice required or desired to be given under this
Lease shall be in writing with copies directed as indicated
below and shall be personally served or given by mail. Any
notice given by mail shall be deemed to have been given when
forty eight (48) hours have elapsed from the time such notice
was deposited in the United States mails, certified and postage
prepaid, addressed to the party to be served with a copy as
indicated herein at the last address given by that party to the
other party under the provisions of this Paragraph. At this
date of execution of this Lease, the address of Landlord is:
511 Division Street
Campbell, CA 95008
and the address of Tenant is:
1325 Chesapeake Terrace
Sunnyvale, CA 94089
After the Commencement Date, the address of Tenant will be at
the Premises.
22. Attorneys' Fees. In the event either party shall bring any
action or legal proceeding for damages for any alleged breach
of any provision of this Lease, to recover rent or possession
of the Premises, to terminate this Lease, or to enforce,
protect or establish any term or covenant of this Lease or
right or remedy of either party, the prevailing party shall be
entitled to recover as a part
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of such action or proceeding, reasonable attorneys' fees and
court costs, including attorneys' fees and costs for appeal,
as may be fixed by the court or jury. The term "prevailing
party" shall mean the party who received substantially the
relief requested, whether by settlement, dismissal, summary
judgment, judgment, or otherwise.
23. Nonassignment.
A. Landlord's Consent Required. Except for "Permitted
Transfers" as defined below, Tenant's interest in this Lease
is not assignable, by operation of law or otherwise, nor shall
Tenant have the right to sublet the Premises, transfer any
interest of Tenant therein or permit any use of the Premises
by another party, without the prior written consent of
Landlord to such assignment, subletting, transfer or use,
which consent Landlord agrees not to withhold unreasonably
subject to the provisions of Subparagraph B below. A consent
to one assignment, subletting, occupancy or use by another
party shall not be deemed to be a consent to any subsequent
assignment, subletting, occupancy or use by another party. Any
assignment or subletting without such consent shall be void
and shall, at the option of Landlord, terminate this Lease.
Landlord's waiver or consent to any assignment or subletting
hereunder shall not relieve Tenant from any obligation under
this Lease unless the consent shall so provide.
A Permitted Transfer is any merger, consolidation,
reorganization or acquistion, so long as the surviving entity
tenant's net worth is equal to or greater than Tenant's at the
time of the merger, consolidation, reorganization or
acquistion.
B. Transferee Information Required. If Tenant desires to assign
its interest in this Lease or sublet the Premises, or transfer
any interest of Tenant therein, or permit the use of the
Premises by another party hereinafter collectively referred to
as a "Transfer"), Tenant shall give Landlord at least ten (10)
days prior written notice of the proposed Transfer and of the
terms of such proposed Transfer, including, but not limited
to, the name and legal composition of the proposed transferee,
a financial statement of the proposed transferee, the nature
of the proposed transferee's business to be carried on in the
Premises, the payment to be made or other consideration to be
given to Tenant on account of the Transfer, and such other
pertinent information as may be requested by Landlord, all in
sufficient detail to enable Landlord to evaluate the proposed
Transfer and the prospective transferee. It is the intent of
the parties hereto that this Lease shall confer upon Tenant
only the right to use and occupy the Premises, and to exercise
such other rights as are conferred upon Tenant by this Lease.
The parties agree that this Lease is not intended to have a
bonus value nor to serve as a vehicle whereby Tenant may
profit by a future Transfer of this Lease or the right to use
or occupy the Premises as a result of any favorable terms
contained herein, or future changes in the market for leased
space. It is the intent of the parties that any such bonus
value that may attach to this Lease shall be and remain the
exclusive property of Landlord, to the extent as set forth in
Paragraph 23.B(2) below. Accordingly, in the event Tenant
seeks to Transfer its interest in this Lease or the Premises,
Landlord shall have the following options, which may be
exercised at its sole choice without limiting Landlord in the
exercise of any other right or remedy which Landlord may have
by reason of such proposed Transfer:
(1) Should Tenant assign or sublease all of the Premises
during the Option Term, as defined in Paragraph 38
below, Landlord may elect to terminate this Lease
effective as of the proposed effective date of the
proposed Transfer and release Tenant from any further
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<PAGE> 17
liability hereunder accruing after such termination
date by giving Tenant written notice of such
termination within twenty (20) days after receipt by
Landlord of Tenant's notice of intent to transfer as
provided above. If Landlord makes such election to
terminate this Lease, Tenant shall surrender the
Premises, in accordance with Paragraph 34, on or
before the effective termination date; or
(2) Landlord may consent to the proposed Transfer
on the condition that Tenant agrees to pay to
Landlord, as additional rent, seventy-five
percent (75%) of any and all rents or other
consideration for the Premises (including key
money) received by Tenant from the transferee
by reason of such Transfer in excess of the
rent payable by Tenant to Landlord under this
Lease "Transfer Rent" (less any reasonable
and documented brokerage commissions or
advertising expenses incurred by Tenant in
connection with the Transfer and, during the
initial six (6) year lease Term only, less
an amount to cover Tenant's Tenant
Improvement Costs set forth in Paragraph 2
above, and which shall be calculated as
follows:. Seven Hundred Thousand Dollars
($700,000.00) shall be deducted from the
total cost of the Tenant Improvements,
including soft costs, and the remainder shall
be divided by 98,836 (square feet). The
resulting quotient shall be divided by
seventy-two (72) (months). The end result of
this calculation is the amount per square
foot to be deducted from the Transfer Rent
from the effective date of a Transfer through
the last month of said initial Lease Term.
Upon completion of the Tenant Improvements,
this Lease shall be amended to establish the
exact amount which may be deducted) Tenant
expressly agrees that the foregoing is a
reasonable condition for obtaining Landlord's
consent to any Transfer; or
(3) Landlord may reasonably withhold its consent
to the proposed Transfer.
24. Successors The covenants and agreements contained in this
Lease shall be binding on the parties here to and on their
respective heirs, successors and assigns (to the extent the
Lease is assignable).
25. Mortgagee Protection. In the event of any default on the part
of Landlord, Tenant will give notice by registered or
certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage encumbering the Premises, whose
address shall have been furnished to Tenant, and shall offer
such beneficiary or mortgagee a reasonable opportunity to cure
the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such
should prove necessary to effect a cure.
26. Landlord Loan or Sale. Tenant agrees promptly following
request by Landlord to (A) execute and deliver to Landlord any
documents, including estoppel certificates presented to Tenant
by Landlord, (i) certifying that this Lease is unmodified and
in full force and effect and the date to which the rent and
other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any
uncured defaults on the part of Landlord hereunder, and (iii)
evidencing the status of the Lease as may be required either
by a lender making a loan to Landlord to be secured by a deed
of trust or mortgage covering the Premises or a purchaser of
the Premises from Landlord and (B) to deliver to Landlord the
financial statement of Tenant with an opinion of a certified
public accountant, including a balance sheet and profit and
loss statement, for the last completed fiscal year all
prepared in accordance with generally accepted accounting
principles consistently applied. If Tenant fails to deliver an
estoppel certificate within five (5) business days following
such request from Landlord, Tenant shall be deemed to have
appointed
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Landlord as Tenant's attorney-in-fact, in Tenant's name, place
and stead, to execute such estoppel certificate.
At the time of executing this Lease, it is understood that
Landlord is finalizing a loan secured by the Premises and upon
the request of lender, Tenant agrees to execute a Tenant
Estoppel and Subordination, Attournment and Non-Disturbance
Agreement in the forms as attached hereto as Exhibit "C" and
made a part hereof
27. Surrender of Lease Not Merger. The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation
thereof, shall not work a merger and shall' at the option of
Landlord, terminate all or any existing subleases or
subtenants, or operate as an assignment to Landlord of any or
all such subleases or subtenants.
28. Waiver. The waiver by Landlord or Tenant of any breach of any
term' covenant or condition herein contained shall not be
deemed to be a waiver of any preceding or succeeding breach of
the same or any other covenant or condition herein contained.
29. General.
A. Captions. The captions and paragraph headings used in
this Lease are for the purposes of convenience only.
They shall not be construed to limit or extend the
meaning of any part of this Lease, or be used to
interpret specific sections. The word (s) enclosed
in quotation marks shall be construed as defined
terms for purposes of the Lease. As used in this
Lease, the masculine, feminine and neuter and the
singular or plural number shall each be deemed to
include the other whenever the context so requires.
B. Definition of Landlord. The term "Landlord" as used
in this Lease, so far as the covenants or obligations
on the part of Landlord are concerned, shall be
limited to mean and include only the owner at the
time in question of the fee title of the Premises,
and in the event of any transfer or transfers of the
title of such fee, the Landlord herein named (and in
case of any subsequent transfers or conveyances, the
then grantor) shall after the date of such transfer
or conveyance be automatically freed and relieved of
all liability with respect to performance. of any
covenants or obligations on the part of Landlord
contained in this Lease, thereafter to be performed;
provided that any fluids in the hands of Landlord or
the then grantor at the time of such transfer, in
which Tenant has an interest, shall be turned over to
the grantee. It is intended that the covenants and
obligations contained in this Lease on the part of
Landlord shall, subject as aforesaid, be binding
upon each Landlord, its heirs, personal
representatives, successors and assigns only during
its respective period of ownership.
C. Time of Essence. Time is of the essence for the
performance of each term, covenant and condition of
this Lease.
D. Serverability. In case any one or more of the
provisions contained herein, except for the payment
of rent, shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not
affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal
or unenforceable provision had not been contained
herein. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
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<PAGE> 19
E Joint and Several Liability. If Tenant is more than
one person or entity, each such person or entity
shall be jointly and severally liable for the
obligations of Tenant hereunder.
F. Law. The term "law" shall mean any judicial decision,
statute, constitution, ordinance, resolution,
regulation, rule, administrative order, or other
requirement of any government agency or authority
having jurisdiction over the parties to this Lease or
the Premises or both, in effect at the Commencement
Date of this Lease or any time during the Lease Term,
including, without limitation, any regulation, order,
or policy of any quasi-official entity or body (e.g.,
board of fire examiners, public utility or special
district).
30. Sign. Tenant shall not place or permit to be placed any sign
or decoration on the land or the exterior of the Building
without the prior written consent of Landlord, which consent
shall not be unreasonably withheld, provided such sign or
decoration has been approved by the appropriate agency of the
City of Sunnyvale. Tenant, upon written notice by Landlord,
shall immediately remove any sign or decoration that Tenant
has placed or permitted to be placed on the land or the
exterior of the Building without such prior written consent of
Landlord, and if Tenant fails to so remove such sign or
decoration within five (5) days after Landlord's written
notice, Landlord may enter upon the Premises and remove said
sign or decoration and Tenant agrees to pay Landlord, as
additional rent upon demand, the cost of such removal. At the
termination of this Lease, Tenant shall remove any sign which
it has placed on the Parcel or Building and shall repair any
damage caused by the installation or removal of such sign.
31. Interest on Past Due Obligations. Any Monthly Installment of
rent or any other sum due from Tenant under this Lease (except
for any late charge) which is received by Landlord after the
date the same is due shall bear interest from said due date
until paid, at an annual rate equal to the prime rate then
being charged by Bank of America, N.T.S.A., plus one percent
(1%). Payment of such interest shall not excuse or cure any
default by Tenant. In addition, Tenant shall pay all costs and
attorneys' fees incurred by Landlord in collection of such
amounts.
32. Surrender of the Premises. On the last day of the term hereof,
or on the sooner termination of this Lease, Tenant shall
surrender the Premises to Landlord in their condition existing
as of the Commencement Date of this Lease, subject to Paragraph
11 above, ordinary wear and tear excepted, with all originally
painted interior walls washed, and other interior walls
cleaned, and repaired or replaced, all carpets shampooed and
cleaned, the air conditioning and heating equipment serviced
and repaired by a reputable and licensed service firm, all
floors cleaned and waxed, all to the reasonable satisfaction of
Landlord. Tenant shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so
removed shall be deemed abandoned by Tenant. Tenant, at its
sole cost shall repair any damage to the Premises caused by the
removal of Tenant's personal property, machinery and equipment,
which repair shall include, without limitation, the patching
and filling of holes and repair of structural damage.
Notwithstanding the above, Tenant shall not be obligated to
replace the Building roof upon surrender of the Premises,
provided Tenant has maintained the roof pursuant to Paragraph
10.A above, and the roof is watertight upon said surrender. If
the Premises are not so surrendered at the termination of this
Lease, and Landlord has given Tenant thirty (30) days' written
notice that it is in negotiations or has negotiated a lease
with a third party, Tenant shall indemnify, defend, protect and
hold Landlord harmless from and against loss or liability
resulting from delay by Tenant in so surrendering the Premises
including without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease
to succeeding tenants. No third party shall be a beneficiary
with respect to the obligations of Tenant under the preceding
sentence.
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33. Authority. The undersigned parties hereby warrant that they
have proper authority and are empowered to execute this Lease
on behalf of Landlord and Tenant, respectively.
34. Public Record. This Lease is made subject to all matters of
public record affecting title to the property of which the
Premises are a part Tenant shall abide by and comply with all
such matters of public record now or hereafter affecting the
Premises and any amendment thereof
35. Brokers. Tenant represents and warrants to Landlord that it
has not dealt with any broker respecting this transaction
other than Cornish & Carey Oncor International and Park Place
and hereby agrees to indemnify and hold Landlord harmless from
and against any brokerage commission or fee, obligation, claim
or damage (including attorneys' fees) paid or incurred
respecting any broker claiming through Tenant or with
which/whom Tenant has dealt. Landlord's exclusive broker for
this transaction is Colliers Parrish International, Inc. The
broker commission to be paid by Landlord shall be paid
one-fourth (1/4th) to Cornish & Carey Oncor International,
one-forth (1/4th) to Park Place, and one-half (1/2) to
Colliers Parrish International, Inc. per separate agreement.
36. Limitation on Landlord's Liability Tenant, for itself and its
successors and assigns (to the extent this Lease is
assignable), hereby agrees that in the event of any actual, or
alleged, breach or default by Landlord under this Lease that:
A. Tenant's sole and exclusive remedy against Landlord
shall be as against Landlord's interest in the
Building;
B. No partner or officer of any partner of Landlord
shall be sued or named as a party in a suit or action
(except as may be necessary to secure jurisdiction of
the partnership);
C. No service of process shall be made against any
partner of Landlord (except as may be necessary to
secure jurisdiction of the partnership);
D. No partner of Landlord shall be required to answer or
otherwise plead to any service of process;
E. No judgment will be taken against any partner of
Landlord beyond its interest in the Premises;
F. Any judgment taken against any partner of Landlord,
except as to its interest in the Premises, may be
vacated and set aside at any time nunc pro tunc;
G. No writ of execution will ever be levied against the
assets of any partner of Landlord beyond its interest
in the Premises;
H. The covenants and agreements of Tenant set forth in
this Section 36 shall be enforceable by Landlord and
any partner of Landlord.
37. Hazardous Material.
A. Definitions. As used herein, the term "Hazardous
Material" shall mean any substance or material which
has been determined by any state, federal or local
government authority
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to be capable of posing a risk of injury to health,
safety or property including all of those materials
and substances designated as hazardous or toxic by
the Environmental Protection Agency, the California
Water Quality Control Board, the Department of Labor,
the California Department of Industrial Relations,
the Department of Transportation, the Department of
Agriculture, the Consumer Product Safety Commission,
the Department of Health and Human Services, the Food
and Drug Agency or any other governmental agency now
or hereafter authorized to regulate materials and
substances in the environment. Without limiting the
generality of the foregoing, the term "Hazardous
Material" shall include all of those materials and
substances defined as ."Toxic Materials" in Sections.
66680 through 66685 of Title 22 of the California
Code of regulations, Division 4, Chapter 30, as the
same shall be amended from time to time.
B. Use Restriction. Subject to the terms and conditions
set forth herein, Landlord acknowledges that so long
as Tenant is under this Lease, Tenant shall be
permitted to use and store in the Premises those
materials described in Paragraph G below, in the
quantities set forth in said Paragraph. Except as
specifically allowed in this Lease, Tenant shall not
cause or permit and Hazardous Material to be used,
stored, generated, discharged, transported to or
from, or disposed of in or about the Premises, or any
other land or improvements in the vicinity of the
Premises. The appearance of any Hazardous Material
that is not permitted by this Lease in or about the
Premises shall be deemed an Event of Default under
Paragraph 13 above. Without limiting the generality
of the foregoing, Tenant, at its sole cost' shall
comply with all laws relating to the storage, use,
generation, transport, discharge and disposal of
Hazardous Materials. If the presence of Hazardous
Materials on the Premises caused or permitted by
Tenant results in contamination of the Premises or
any soil, air, ground or surface waters under,
through, over, on, in or about the Premises, Tenant,
at its expense, shall promptly take all actions
necessary to return the Premises and/or the
surrounding real and personal property to the
condition existing prior to the appearance of such
Hazardous Material.
Tenant shall defend, protect, hold harmless and
indemnify Landlord and its Agents and Lenders with
respect to all actions, claims, losses (including,
diminution in value of the Premises), fines,
penalties, fees, (including, but not limited to,
reasonable attorneys' and consultants' fees and
costs) costs, damages, liabilities, remediation
costs, investigation costs, response costs and other
expenses arising out of, resulting from, or caused by
any Hazardous Material used, generated discharged,
transported to or from, stored, or disposed of by
Tenant or its Agents in, on, under, over, through or
about the Premises and/or the surrounding real
property. Tenant shall not suffer any lien to be
recorded against the Premises as a consequence for
the disposal of any Hazardous Material on the
Premises by Tenant or its Agents, including any so
called state, federal or local "super fund" lien
related to the "clean up" of any Hazardous Material
in, over, on, under through, or about the Premises.
C. Compliance. Tenant shall immediately notify Landlord
of any inquiry, test, investigation, enforcement
proceeding by or against Tenant or the Premises
concerning any Hazardous Material. Any remediation
plan prepared by or on behalf of Tenant must be
submitted to landlord prior to conducting any work
pursuant to such plan and prior to submittal to any
applicable government authority and shall be subject
to Landlord's consent. Tenant acknowledges that
Landlord, as the owner of the Property, at its
election, shall have the sole right to negotiate, at
Tenant's expense, to negotiate, defend, approve and
appeal any action taken or order issued with
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regard to any Hazardous Material(s) by any applicable
governmental authority. Landlord shall have the right
to appoint a consultant, at Tenant's expense, to
conduct an investigation to determine whether
Hazardous Material(s) are being used, generated,
discharged, transported to or from, stored or
disposed of in, on, over, through, or about the
Premises, in an appropriate and lawful manner.
Tenant, at its expense, shall comply with all
recommendations of the consultant. Such
investigation, negotiation, defense or appeal shall be
performed at the sole expense of Landlord, unless
such investigation shows that the contamination of
the Premises has been caused directly by Tenant or
Tenant's agent, employees or invitees
D. Assignment and Subletting. It shall not be
unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if the proposed
assignee's or subtenant's anticipated use of the
Premises involves the storage, generation, discharge,
transport, use or disposal of any Hazardous Material.
E. Surrender. Upon the expiration or earlier termination
of the Lease, Tenant, at its sole cost, shall remove
all hazardous Materials from the Premises and the
surrounding real and personal property caused by
Tenant, its agents, employees, or invitees. If
Tenant fails to so surrender the Premises, Tenant
shall indemnify, protect, defend and hold Landlord
harmless from and against all damages resulting from
Tenant's failure to surrender the Premises as
required by this Paragraph, including, without
limitation, any actions, claims, losses, liabilities,
fees (including, but not limited to, reasonable
attorneys' fees and consultants' fees and costs),
fines, costs, penalties, or damages in connection
with the condition of the Premises including, without
limitation, damages occasioned by the inability to
relet the Premises or a reduction in the fair market
and/or rental value of the Premises by reason of the
existence of any Hazardous Materials in, on, over,
under, through or around the Premises.
F. Holding Over. If any action of any kind is required
to be taken by any governmental authority to clean
up, remove, remediate or monitor Hazardous Material
(the presence of which is the result of the acts or
omissions of Tenant or its Agents) and such action is
not completed prior to the expiration or earlier
termination of the Lease, Tenant shall be deemed to
have impermissibly held over until such time as such
required action is completed, and Landlord shall be
entitled to all damages directly or indirectly
incurred in connection with such holding over,
including without limitation, damages occasioned by
the inability to relet the Premises or a reduction of
the fair market and/or rental value of the Premises.
G. Materials. Landlord has provided to Tenant prior to
the date of this Lease copies of all reports in
Landlord's possession concerning the environmental
condition of the Center and the soil and groundwater
in on, and about the Premises, which reports are
described in Exhibit "B" attached hereto and are
herinafter collectively referred to as the "Project
Environmental Reports". Tenant may use and store in
Premises the following:
Write "none" if applicable: "none"
------------------
Materials: Quantity:
__________________ ________________________
__________________ ________________________
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H. Provisions Survive Termination. The provisions of
this Paragraph 39 shall survive the expiration or
termination of this Lease.
I. The provisions of this Paragraph 37 are intended to
govern the rights and liabilities of the Landlord and
Tenant hereunder respecting Hazardous Materials to
the exclusion of any other provisions in this Lease
that might otherwise be deemed applicable. The
provisions of this Paragraph 37 shall be controlling
with respect to any provisions in this Lease that are
inconsistent with this Paragaph 37.
38. Option to Extend. Provided that Tenant is not in
default under this Lease at the time of exercise of this
option or at the time of termination of the then existing term
of this Lease, as the case may be, Tenant shall have one (1)
option to extend the term of this Lease for a period of four
(4) years (the "Option Term"). Said option shall be exercised
only by written notice delivered to Landlord not later than
six (6) months prior to the expiration date of the then
existing term of this Lease. In all respects, the terms,
covenants and conditions of this Lease shall remain unchanged
during the Option Term, except that the Monthly Installment of
rent payable during the Option Term shall be as follows:
Months 1-24 $113,662.00
Months 25-48 $123,545.00
There shall be no further options at the expiration of the
above four (4) year Option Term.
39. Early Termination. Tenant shall have the right to terminate
this Lease at the end of the fifth (5th) year of the Lease
Term by doing all of the following on or before the end of the
fifty-fourth (54th) month of the Lease Term:
(a) Giving Landlord written notice of Tenant's
election to terminate this Lease on the last
day of the fifth (5th) year of the Lease Term
(the "Early Termination Date"); and
(b) Paying to Landlord, as a lease termination
payment, a sum equal to the total Monthly
Installments of rent and Additional Rent that
would have been payable under the Lease
during the first six (6) months of the sixth
(6th) year of the Lease Term had the Lease
not been terminated.
If Tenant so elects to terminate the Lease, Tenant shall pay
all Monthly Installments of rent and Additional Rent accruing
under the Lease through the Early Termination Date and shall
surrender the Premises to Landlord on the Early Termination
Date.
40. Condition Precedent. Tenant understands Landlord is under
contract to purchase the Premises, but does not currently own
the Premises. Accordingly, this Lease and the obligations of
Landlord and Tenant hereunder are conditioned upon Landlord
acquiring fee title to the Premises.
Furthermore, Tenant shall have until 3:00 p.m., August 2,
1996, to do a structural inspection of the Premises and any
reasonable testing to determine the structural integrity and
latent defects, if any, of the Premises and if Tenant
discovers defects that will cost more than One Hundred
Thousand and No/100ths Dollars ($100,000.00) to correct,
Tenant may cancel this Lease
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anytime before 3:00 p.m., August 2, 1996, by giving Landlord
written notice of such cancellation, unless Landlord elects to
correct the defects at its expense.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set
forth below.
TENANT: LANDLORD:
SBC&D CO., INC. ARBOR SOFTWARE CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ By: /S/ STEPHEN IMBLER
DATED: 7/14/96 DATED: 7/16/96
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EXHIBIT "A"
LEGAL DESCRIPTION
All that certain property situate in the City of Sunnyvale, County of Santa
Clara State of California described as follows:
Parcel 8, as shown on that Parcel Map filed for record in the office of the
Recorder of the County of Santa Clara, State of California on July 18, 1978, in
Book 423 of Maps, page(s) 13.
ARB No: 1104-23.02.03
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EXHIBIT "B"
PROJECT ENVIRONMENTAL REPORTS
1. PHASE I Environmental Site Assessment and Limited Asbestos Survey
dated October 1993, performed by Fugro-McClelland (West), Inc.
2. Letter dated June 26, 1996, regarding Phase I Environmental Site
Assessment, performed by E2C, Inc.
3. Phase I Environmental Site Assessment dated July 2, 1996, by E2C, Inc.
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FIRST AMENDMENT
This First Amendment to Lease ("First Amendment") is made by and between ARBOR
SOFTWARE CORPORATION, a California Corporation ("Tenant"), and SBC&D CO., INC.,
a California corporation or nominee ("Landlord"), as of the date set forth
below with reference to the following facts:
A. By Lease Agreement dated July 16, 1996 (the "Lease"), Landlord has
leased to Tenant certain property commonly known as 1344 Crossman Avenue,
Sunnyvale, California.
B. Landlord and Tenant desire to amend the Lease to acknowledge their
mutual understanding as provided below.
NOW THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
I. The correct name of Tenant is Arbor Software Corporation, a Delaware
Corporation.
2. SBC&D CO., Inc. has assigned its interest in the Lease to TD Drive
Associates, a California general partnership.
MI other terms and conditions of the Lease shall remain the same and in full
force and effect.
AS entered into this 25th day of October 1996.
LANDLORD: TENANT:
SBC&D CO., INC., ARBOR SOFTWARE CORPORATION,
a California Corporation or nominee a Delaware Coroporation
By: /s/ By: /s/ Stephen Imbler
Title: RVP Title: Chief Financial Officer
---
Dated 10/25/96 Dated: 10/24/96
--------
TD DRIVE ASSOCIATES,
a California general partnership
BY: Scott Trobbe
Title: General Partner
Dated: 10/15/96
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<PAGE> 1
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
=======================================
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income...................................................... $ 5,826 $ 2,878 $ 374
========== ========== ==========
Weighted average shares outstanding:
Common stock.................................................... 10,997 5,933 2,190
Common stock issuable upon exercise of stock options............ 732 505 762
Convertible Preferred Stock (2)................................. -- 3,506 5,837
Common stock issuable upon exercise of stock options granted....
subsequent to March 31, 1994 through November 6, 1995 (2).... -- 536 893
Warrants........................................................ -- 22 36
---------- ---------- ----------
Weighted average common shares and equivalents.................. 11,729 10,502 9,718
---------- ---------- ----------
Net income per share............................................ $ 0.50 $ 0.27 $ 0.04
========= ========== ==========
</TABLE>
(1) This exhibit should be read in conjunction with Note 1 of Notes to
Consolidated Financial Statements.
(2) Stock options granted (using the treasury stock method and the initial
public offering price of $17 per share) and Convertible Preferred Stock
(using the if-converted method) have been included in the calculation
of common and common equivalent shares as if they were outstanding for
all periods presented through November 6, 1995, the effective date of
the Company's initial public offering.
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
1. Arbor Software International Corporation, incorporated in Delaware.
2. Arbor Software, LTD, UK
3. Arbor Software, SARL, France
4. Arbor Software, GmbH, Germany
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-99072) of Arbor Software Corporation of our report
dated April 18, 1997 appearing on page 23 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Jose, California
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARBOR
SOFTWARE CORPORATION CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,647
<SECURITIES> 23,204
<RECEIVABLES> 13,660
<ALLOWANCES> (783)
<INVENTORY> 0
<CURRENT-ASSETS> 46,982
<PP&E> 15,423
<DEPRECIATION> 3,999
<TOTAL-ASSETS> 59,589
<CURRENT-LIABILITIES> 16,738
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 42,561
<TOTAL-LIABILITY-AND-EQUITY> 59,589
<SALES> 47,383
<TOTAL-REVENUES> 47,383
<CGS> 0
<TOTAL-COSTS> 4,584
<OTHER-EXPENSES> 35,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (242)
<INCOME-PRETAX> 8,963
<INCOME-TAX> (3,137)
<INCOME-CONTINUING> 7,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,826
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0
</TABLE>
