<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. _______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARBOR SOFTWARE CORPORATION
(Name of Registrant as Specified In Its Charter)
----------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement no.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
[LOGO]
July 14, 1997
TO THE STOCKHOLDERS OF ARBOR SOFTWARE CORPORATION
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Arbor Software Corporation (the "Company"), which will
be held at the Garden Court Hotel, 520 Cowper Street, Palo Alto, California
94301, on Wednesday, August 13, 1997, at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given
in the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does NOT deprive you of your right to
attend the Annual Meeting. If you decide to attend the Annual Meeting and wish
to change your proxy vote, you may do so automatically by voting in person at
the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
/s/ James A. Dorrian
James A. Dorrian
Chairman of the Board of Directors and
Chief Executive Officer
<PAGE> 3
ARBOR SOFTWARE CORPORATION
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94089
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 13, 1997
-----------
The Annual Meeting of Stockholders (the "Annual Meeting") of Arbor
Software Corporation (the "Company") will be held at the Garden Court Hotel, 520
Cowper Street, Palo Alto, California 94301, on Wednesday, August 13, 1997, at
10:00 a.m. for the following purposes:
1. To elect four members of the Board of Directors to serve
until the next Annual Meeting or until their successors have been duly
elected and qualified;
2. To approve amendments to the Company's 1995 Stock
Option/Stock Issuance Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 750,000 shares and to change
the vesting provisions applicable to non-employee members of the Board
of Directors;
3. To approve an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares of Common Stock reserved
for issuance thereunder by 150,000 shares;
4. To ratify the appointment of Price Waterhouse LLP as the
Company's independent public accountants for the fiscal year ending
March 31, 1998; and
5. To transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the
attached Proxy Statement.
Only stockholders of record at the close of business on June 20, 1997
are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 1344 Crossman
Avenue, Sunnyvale, California, during ordinary business hours for the ten-day
period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Robert V. Gunderson, Jr.
Robert V. Gunderson, Jr.
Secretary
Sunnyvale, California
July 14, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
<PAGE> 4
ARBOR SOFTWARE CORPORATION
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94089
-----------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 13, 1997
-----------
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Arbor Software Corporation, a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Garden Court Hotel, 520 Cowper Street, Palo Alto,
California 94301, on Wednesday, August 13, 1997, at 10:00 a.m., and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to stockholders on or about July 14, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to
vote at the Annual Meeting. On June 20, 1997, the record date for determination
of stockholders entitled to vote at the Annual Meeting, there were 11,181,437
shares of Common Stock outstanding. Each stockholder of record on June 20, 1997
is entitled to one vote for each share of Common Stock held by such stockholder
on June 20, 1997. Shares of Common Stock may not be voted cumulatively. All
votes will be tabulated by the inspector of election appointed for the meeting,
who will separately tabulate affirmative and negative votes, abstentions, and
broker non-votes.
QUORUM REQUIRED
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
VOTES REQUIRED
Proposal 1. Directors are elected by a plurality of the affirmative votes
cast by those shares present in person or represented by proxy and entitled to
vote at the Annual Meeting. The four nominees for director receiving the highest
number of affirmative votes will be elected. Abstentions and broker non-votes
are not counted toward a nominee's total. Stockholders may not cumulate votes in
the election of directors.
Proposal 2. Approval of the adoption of the amendments to the Company's
1995 Stock Option/Stock Issuance Plan requires the affirmative vote of a
majority of those shares present in person or represented by proxy and entitled
to vote at the Annual Meeting. Abstentions will be treated as votes against the
proposal. Broker non-votes will be treated as not entitled to vote on this
matter and thus will have no effect on the outcome of the vote.
Proposal 3. Approval of the adoption of the amendment to the Company's
Employee Stock Purchase Plan requires the affirmative vote of a majority of
those shares present in person or represented by proxy entitled to vote
<PAGE> 5
at the Annual Meeting. Abstentions will be treated as votes against the
proposal. Broker non-votes will be treated as not entitled to vote on the matter
and thus will have no effect on the outcome of the vote.
Proposal 4. Ratification of the appointment of Price Waterhouse LLP as the
Company's independent public accountants for the fiscal year ending March 31,
1998 requires the affirmative vote of a majority of those shares present in
person, or represented by proxy, and cast either affirmatively or negatively at
the Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
PROXIES
Whether or not you are able to attend the Company's Annual Meeting, you
are urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR Proposals No. 1, No. 2, No. 3 and No. 4 and, in the discretion
of the proxy holders, as to other matters that may properly come before the
Annual Meeting. You may also revoke or change your proxy at any time before the
Annual Meeting. To do this, send a written notice of revocation or another
signed proxy with a later date to the Secretary of the Company at the Company's
principal executive offices before the beginning of the Annual Meeting. You may
also automatically revoke your proxy by attending the Annual Meeting and voting
in person. All shares represented by a valid proxy received prior to the Annual
Meeting will be voted.
SOLICITATION OF PROXIES
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees, or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. The Company also has retained Morrow & Co. to assist in the
solicitation of proxies by mail and telephone. Morrow & Co. will receive a fee
for such services of approximately $5,000 plus out-of-pocket expenses, which
will be paid by the Company. Except as described above, the Company does not
presently intend to solicit proxies other than by mail.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for election to the Board of
Directors (the "Nominees"), their ages as of May 31, 1997, their positions and
offices held with the Company and certain biographical information are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form FOR the Nominees listed below unless otherwise instructed. In
the event any Nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any Nominee who
is unable or will decline to serve as a director. The four Nominees receiving
the highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company to serve until the next
Annual Meeting or until their successors have been duly elected and qualified.
Following the Annual Meeting there will be two vacancies on the Board of
Directors. These vacancies arise as a result of Douglas M. Leone, a director of
the Company as of the date of this Proxy Statement, not standing for reelection
at the Annual Meeting and the resignation of John T. Chambers, a director of the
Company since February 1995, in October 1996.
<TABLE>
<CAPTION>
NOMINEES AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
- -------- --- -------------------------------------------
<S> <C> <C>
John M. Dillon 47 President, Chief Operating Officer and Director
James A. Dorrian 44 Chairman of the Board of Directors and Chief
Executive Officer
Mark W. Perry (1) 54 Director
Ann L. Winblad (1) 46 Director
</TABLE>
- --------------------
(1) Member of Compensation Committee
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 and
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 a M.B.A. from Golden Gate University, San Francisco.
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. Perry has been a director of the Company since February 1993. Mr.
Perry joined New Enterprise Associates in October 1995 and became a General
Partner in June 1996. Mr. Perry focuses in the area of information technology.
Mr. Perry's board memberships include Exabyte Corporation and a number of
private companies. From May 1994 to December 1995, Mr. Perry served as President
and Chief Executive Officer and then as Chairman of Viewstar Corporation, a
leading provider of business process automation, client/server software. From
1985 to 1994, he was employed by Silicon Graphics, Inc. as Vice Chairman of the
Board, Executive Vice President, after joining as Vice President of Finance and
Administration and Chief Financial
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Officer. Mr. Perry is a Certified Public Accountant. Mr. Perry received a M.B.A.
(with distinction) from the Harvard University Graduate School of Business and a
B.A. in Economics (cum laude) from Amherst College.
Ms. Winblad has been a director of the Company since June 1991. Ms.
Winblad has been a General Partner of Hummer Winblad Venture Partners, a venture
capital investment firm, since 1989. Ms. Winblad holds B.A. degrees in
Mathematics and Business from the College of St. Catherine and an M.A. in
Education from the College of St. Thomas.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1997, the Board of Directors
held nine meetings and acted by written consent on nine occasions. For the
fiscal year, each of the current directors attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors and (ii)
the total number of meetings held by all Committees of the Board of Directors on
which each such director served. The Board of Directors has two standing
committees: the Audit Committee and the Compensation Committee.
During the fiscal year ended March 31, 1997, the Audit Committee of the
Board of Directors met four times. The Audit Committee reviews, acts on and
reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's auditors, the scope
of the annual audits, fees to be paid to the Company's auditors, the performance
of the Company's auditors and the accounting practices of the Company. The
members of the Audit Committee are Mr. Leone and Ms. Winblad. At the conclusion
of the Annual Meeting, the Board of Directors will form a new Audit Committee.
During the fiscal year ended March 31, 1997, the Compensation Committee
of the Board of Directors held nine meetings and acted by written consent on one
occasion. The Compensation Committee reviews the performance and sets the
compensation of the Chief Executive Officer of the Company, and approves the
compensation of the executive officers of the Company and reviews the
compensation programs for other key employees, including salary and cash bonus
levels, as set by the Chief Executive Officer. The Compensation Committee also
administers the Company's 1995 Stock Option/Stock Issuance Plan with respect to
the Company's executive officers. The members of the Compensation Committee are
Mr. Perry and Ms. Winblad.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of the Company generally
do not receive compensation for services provided as a director. The Company
also does not pay compensation for committee participation or special
assignments of the Board of Directors.
Non-employee Board members are eligible for option grants pursuant to
the provisions of the Automatic Option Grant Program under the Company's 1995
Stock Option/Stock Issuance Plan. Under the Automatic Option Grant Program, each
individual who becomes a non-employee Board member will be granted an option to
purchase 20,000 shares on the date such individual joins the Board, provided
such individual has not been in the prior employ of the Company. In addition, at
each Annual Stockholders Meeting each individual who continues to serve and has
served as a non-employee Board member for at least six months prior to such
Annual Meeting receives an additional option grant to purchase 5,000 shares of
Common Stock, whether or not such individual has been in the prior employ of the
Company. On July 23, 1996, Messrs. Chambers, Leone and Perry and Ms. Winblad
were granted options to purchase 5,000 shares each at an exercise price of
$37.25 per share which was the fair market value of the Company's Common Stock
on that date. For further information concerning the terms of these automatic
grants, please see the summary of the Automatic Option Grant Program below under
the heading, "Proposal No. 2: Amendment of the 1995 Stock Option/Stock Issuance
Plan."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED
HEREIN.
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PROPOSAL NO. 2
AMENDMENT OF
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to approve
amendments to the Arbor Software Corporation 1995 Stock Option/Stock Issuance
Plan (the "Option Plan") to increase the number of shares of Common Stock
available for issuance under the Option Plan by 750,000 shares to a total of
3,007,577 shares of Common Stock and to change the vesting provisions applicable
to non-employee Board members. The Board of Directors (the "Board") adopted the
amendments in October of 1996 and June of 1997, subject to stockholder approval
at the 1997 Annual Meeting. The following is a description of the Option Plan.
The Company established the Option Plan as a successor to the 1992 Stock Option
Plan ("Predecessor Plan") to provide a means whereby employees, officers,
directors, consultants, and independent advisers of the Company or parent or
subsidiary corporations may be given an opportunity to purchase shares of Common
Stock. The Option Plan was adopted by the Board on August 31, 1995 and approved
by the stockholders on September 15, 1995. The Board adopted an amendment to the
Option Plan on June 6, 1996 increasing the number of shares of Common Stock
available for issuance under the Option Plan by 1,000,000 shares to a total of
2,257,577. Such amendment was approved by the stockholders at the 1996 Annual
Meeting on July 23, 1996. The Board believes that option grants under the Option
Plan play an important role in the Company's efforts to attract, employ, and
retain employees, directors, and consultants of outstanding ability.
The principal terms and provisions of the Option Plan are summarized
below. The summary, however, is not intended to be a complete description of all
the terms of the Option Plan. A copy of the Option Plan will be furnished by the
Company to any stockholder upon written request to the Corporate Secretary at
the executive offices of the Company in Sunnyvale, California.
Structure. The Option Plan contains four separate equity incentive
programs: (i) a Discretionary Option Grant Program under which employees,
consultants and certain Board members may be granted stock options to purchase
shares of Common Stock, (ii) an Automatic Option Grant Program under which
option grants will be made at specified intervals to the non-employee Board
members, (iii) a Salary Investment Option Grant Program under which employees
may elect to have their base salary reduced each year in return for options to
purchase shares of Common Stock at a discount from current fair market value
equal to the amount of their salary reduction, and (iv) a Stock Issuance Program
under which eligible individuals may be issued shares of Common Stock directly,
through the immediate purchase of the shares, or as a bonus tied to the
performance of services.
Administration. The Compensation Committee of the Board, which is comprised
of two or more Board members ("Committee"), administers the Option Plan.
Committee members serve for such period of time as the Board may determine. The
Option Plan may also be administered by the Board or a secondary committee
comprised of one or more Board members with respect to optionees who are not
executive officers subject to the short-swing profit rules of the Federal
securities laws.
The Committee (or Board or secondary committee to the extent acting as
plan administrator) has full authority (subject to the express provisions of the
Option Plan) to determine the eligible individuals who are to receive grants
under the Option Plan, the number of shares to be covered by each granted
option, the date or dates on which the option is to become exercisable, the
maximum term for which the option is to remain outstanding, whether the granted
option will be an incentive stock option ("Incentive Option") that satisfies the
requirements of Section 422 of the Internal Revenue Code (the "Code") or a
non-statutory option not intended to meet such requirements, and the remaining
provisions of the option grant. The Committee also has full authority to
determine the eligible individuals who are to receive stock issuances, the
number of shares to be issued to each participant, the time or times when such
issuances are to be made, and the remaining provisions of the stock issuance.
The Committee has sole and exclusive authority to select the individuals
eligible to participate in the Salary Investment Option Grant Program.
Eligibility. Employees (including officers), consultants and independent
contractors who render services to the Company or its subsidiary corporations
(whether now existing or subsequently established) are eligible to receive
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option grants under the Discretionary Option Grant Program and stock issuances
under the Stock Issuance Program. A non-employee member of the Board of
Directors of the Company or any parent or subsidiary corporation is also
eligible for option grants under the Discretionary Option Grant Program and
stock issuances under the Stock Issuance Program, provided he or she is not a
member of the Committee. Only the Company's employees are eligible to
participate in the Salary Investment Option Grant Program, and only non-employee
directors of the Company are eligible to participate in the Automatic Option
Grant Program.
As of June 30, 1997, approximately 266 persons (including four officers
and three non-employee directors) were eligible to participate in the Option
Plan.
Securities Subject to Option Plan. The number of shares of Common Stock
which may be issued over the term of the Option Plan shall not exceed 3,007,577
including the increase of 750,000 shares, which is part of this Proposal No. 2.
Such share reserve will be subject to further adjustment in the event of
subsequent changes to the capital structure of the Company. The shares may be
made available either from the Company's authorized but unissued Common Stock or
from Common Stock reacquired by the Company, including shares purchased on the
open market.
No one person participating in the Option Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock per calendar year.
Should an option expire or terminate for any reason prior to exercise
in full, including options incorporated from the Predecessor Plan, the shares
subject to the portion of the option not so exercised will be available for
subsequent option grants under the Option Plan.
DISCRETIONARY OPTION GRANT PROGRAM
Price and Exercisability. The option exercise price per share in the case
of an Incentive Option may not be less than 100% of the fair market value of the
Common Stock on the grant date and, in the case of a non-statutory option, 85%
of the fair market value of the Common Stock on the grant date. All options
intended to be exempt from the limitation on compensation deductions set forth
in Section 162(m) of the Internal Revenue Code will be granted with an exercise
price equal to or greater than 100% of fair market value. Options granted under
the Discretionary Option Grant Program become exercisable at such time or times,
and during such period, as the Committee may determine and set forth in the
instrument evidencing the option grant. In any event, options granted under the
Option Plan may not have a term in excess of 10 years.
The exercise price may be paid in cash or in shares of Common Stock.
Options may also be exercised through a same-day sale program, pursuant to which
a designated brokerage firm is to effect the immediate sale of the shares
purchased under the option and pay over to the Company, out of the sale proceeds
on the settlement date, sufficient funds to cover the exercise price for the
purchased shares plus all applicable withholding taxes. The Committee may also
assist any optionee (including an officer or director) in the exercise of his or
her outstanding options by authorizing a Company loan to the optionee. The terms
and conditions of any such loan will be established by the Committee in its sole
discretion.
No optionee is to have any stockholder rights with respect to the
option shares until the optionee has exercised the option and paid the exercise
price. Options are not assignable or transferable other than by will or the laws
of descent and distribution, and during the optionee's lifetime, the option may
be exercised only by the optionee.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated
post-service exercise period. Under no circumstances, moreover, may any option
be exercised after the specified expiration date of the option term. Each such
option will normally, during such limited period, be exercisable only to the
extent of the number of shares of Common Stock in which the optionee is vested
at the time of cessation of service. The optionee will be deemed to continue in
service for so long as such individual performs services for the Company (or any
parent or subsidiary corporation), whether as an employee, independent
contractor, consultant or Board member.
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<PAGE> 10
The Committee has complete discretion to extend the period following
the optionee's cessation of service during which his or her outstanding options
may be exercised and/or to accelerate the exercisability of such options in
whole or in part. Such discretion may be exercised at any time while the options
remain outstanding, whether before or after the optionee's actual cessation of
service.
The shares of Common Stock acquired upon the exercise of one or more
options may be subject to repurchase by the Company at the original exercise
price paid per share upon the optionee's cessation of service prior to vesting
in such shares. The Committee has complete discretion in establishing the
vesting schedule to be in effect for any such unvested shares and may cancel the
Company's outstanding repurchase rights with respect to those shares at any
time, thereby accelerating the vesting of the shares subject to the canceled
rights.
Incentive Options. Incentive Options may only be granted to individuals who
are employees of the Company or its parent or subsidiary corporation. During any
calendar year, the aggregate fair market value (determined as of the grant
date(s)) of the Common Stock for which one or more options granted to any
employee under the Option Plan (or any other option plan of the Company or its
parent or subsidiary corporations) may for the first time become exercisable as
incentive stock options under Section 422 of the Code shall not exceed $100,000.
If an employee to whom an Incentive Option is granted is the owner of
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any of its parent or subsidiary corporations, then
the option price per share will be at least 110% of the fair market value per
share on the grant date, and the option term will not exceed five years,
measured from the grant date.
Limited Stock Appreciation Rights. One or more officers of the Company
subject to the short-swing profit restrictions of the Federal securities laws
may, at the discretion of the Committee, be granted limited stock appreciation
rights in connection with their option grants under the Option Plan. Any option
with such a limited stock appreciation right in effect for at least six months
may be unconditionally surrendered by the officer, to the extent exercisable for
one or more vested option shares, upon the successful completion of a hostile
tender offer for more than 50% of the Company's outstanding voting stock. In
return, the officer will be entitled to a cash distribution from the Company in
an amount per canceled option share equal to the excess of (i) the highest price
per share of Common Stock paid in the tender offer or, if greater, the fair
market value per share of the Common Stock over (ii) the option exercise price.
Tandem Stock Appreciation Rights. The Committee is authorized to issue
tandem stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide the
holders with the right, subject to the Committee's approval, to surrender their
options for a distribution from the Company equal in amount to the excess of (a)
the fair market value of the vested shares of Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for such
shares. Such distribution may, at the discretion of the Committee, be made in
cash or in shares of Common Stock.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, non-employee Board members
will receive option grants at specified intervals over their period of Board
service. These special grants may be summarized as follows:
o Each individual who first becomes a non-employee Board member
after the date of the initial public offering, whether through
election by the stockholders or appointment by the Board, will
automatically be granted, at the time of such initial election or
appointment, a nonstatutory stock option to purchase 20,000 shares
of Common Stock, provided such individual has not previously been
in the employ of the Company.
o On the date of each Annual Stockholders Meeting beginning with the
1996 Annual Meeting, each individual who is to continue as a
non-employee Board member will receive an additional grant of a
nonstatutory stock option under the Option Plan to purchase 5,000
shares of Common Stock, provided such individual has been a member
of the Board for at least six months.
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Each option grant under the Automatic Option Grant Program will be
subject to the following terms and conditions:
1. The option price per share will be equal to 100% of the
fair market value per share of Common Stock on the automatic grant
date, and each option is to have a maximum term of ten years measured
from the grant date.
2. Each automatic option grant will be immediately exercisable
for all of the option shares, but the shares purchasable under the
option will be subject to repurchase at the original exercise price in
the event the optionee's Board service should cease prior to full
vesting. With respect to each initial grant, the repurchase right will
lapse and the optionee vest in two successive equal annual
installments, measured from the grant date, provided such optionee
continues service as a Board member. (Prior to the amendment that is a
part of this Proposal No. 2, vesting occurred in four installments.)
Each annual grant will vest upon the optionee's completion of one year
of service as a Board member, measured from the option grant date.
3. The option will remain exercisable for a 12-month period
following the optionee's termination of service as a Board member for
any reason. Should the optionee die while serving as a Board member or
during the 12-month period following his or her cessation of Board
service, then such option may be exercised during the 12-month period
following such optionee's cessation of service by the personal
representatives of the optionee's estate or the person to whom the
grant is transferred by the optionee's will or the laws of inheritance.
In no event, however, may the option be exercised after the expiration
date of the option term. During the applicable exercise period, the
option may not be exercised for more than the number of vested shares
(if any) for which it is exercisable at the time of the optionee's
cessation of Board service.
4. The option shares will become fully vested in the event of
a Corporate Transaction (as defined below) or a Change in Control (as
defined below). The option shares will become fully vested in the event
of the optionee's cessation of Board service by reason of death or
permanent disability.
5. Upon the occurrence of a hostile tender offer, the optionee
shall have a 30-day period in which to surrender to the Company each
automatic option which has been in effect for at least six months
(whether or not the optionee is vested in such option) and the optionee
will in return be entitled to a cash distribution from the Company in
an amount per canceled option share equal to the excess of (i) the
highest reported price per share of Common Stock paid in the tender
offer or, if greater, the fair market value per share of the Common
Stock over (ii) the option exercise price payable per share.
6. Option grants under the Automatic Option Grant Program will
be made in strict compliance with the express provisions of that
program. The remaining terms and conditions of the options will in
general conform to the terms described above for option grants under
the Discretionary Option Grant Program and will be incorporated into
the option agreement evidencing the automatic grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than 85% of fair market value, payable in cash or through a
promissory note payable to the Company. Shares may also be issued solely in
consideration of past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Committee will, however, have the
discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the Option Plan.
All outstanding repurchase rights under the Stock Issuance Program will
terminate automatically (and all shares subject to such terminated rights will
fully vest) in the event of a Corporate Transaction (as defined below) unless
such repurchase rights are assigned. If the repurchase rights are assigned
pursuant to a Corporate Transaction, such rights will automatically terminate,
and the shares subject to such rights fully vest, if the
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participant's service should subsequently terminate by reason of an involuntary
or constructive termination within 18 months following the effective date of
such Corporate Transaction.
SALARY INVESTMENT OPTION GRANT PROGRAM
The Committee will have complete discretion in selecting the
individuals who are to participate in the Salary Investment Option Grant
Program. As a condition to such participation, each selected individual must,
prior to the start of the calendar year of participation, file with the
Committee an irrevocable authorization directing the Company to reduce, by a
designated multiple of 1%, his or her base salary for the upcoming calendar
year. Such salary reduction will be in an amount not less than 5% of base
salary. To the extent the Committee approves one or more salary reduction
authorizations, the affected individuals will be granted options under the
program.
Each option will be subject to substantially the same terms and
conditions applicable to option grants made under the Discretionary Option Grant
Program, except for the following differences:
o The exercise price per share will be equal to one-third of the
fair market value per share of Common Stock on the grant date.
o The number of option shares will be determined by dividing the
total dollar amount of the approved reduction in the participant's
base salary by two-thirds of the fair market value per share of
Common Stock on the grant date. As a result, the total spread on
the option (the fair market value of the option shares on the
grant date less the aggregate exercise price payable for those
shares) will equal the dollar amount of the reduction to the
optionee's base salary to be in effect for the calendar year for
which the grant is made.
o Provided the optionee continues in service, the option will become
exercisable in a series of 12 equal successive monthly
installments in the calendar year for which the salary reduction
is in effect.
o Each option will have a term of ten years measured from the grant
date.
GENERAL PROVISIONS
Acceleration of Options/Termination of Repurchase Rights. Upon the
occurrence of either of the following transactions (a "Corporate Transaction"):
(i) the sale, transfer, or other disposition of all, or
substantially all, of the Company's assets in complete liquidation or
dissolution of the Company, or
(ii) a merger or consolidation in which securities possessing
more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction,
each outstanding option under the Option Plan will, immediately prior to the
effective date of the Corporate Transaction, become fully exercisable for all of
the shares at the time subject to such option. However, an outstanding option
shall not accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent) or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the
Committee at the time of the option grant. Immediately following the
consummation of the Corporate Transaction, all outstanding options will
terminate and cease to be exercisable, except to the extent assumed by the
successor corporation.
Also upon a Corporate Transaction, the Company's outstanding repurchase
rights will terminate automatically unless assigned to the successor
corporation.
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Any options which are assumed or replaced in the Corporate Transaction
and do not otherwise accelerate at that time shall automatically accelerate (and
any of the Company's outstanding repurchase rights which do not otherwise
terminate at the time of the Corporate Transaction shall automatically terminate
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full) in the event the optionee's service should
subsequently terminate by reason of an involuntary or constructive termination
within 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 year period measured from the effective date of the employment
termination.
Upon the occurrence of the following transactions ("Change in
Control"):
(i) any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Company) acquires beneficial
ownership of more than 50% of the Company's outstanding voting stock
without the Board's recommendation, or
(ii) there is a change in the composition of the Board over a
period of 36 consecutive months or less such that a majority of the
Board members ceases by reason of a proxy contest to be comprised of
individuals who (a) have been Board members continuously since the
beginning of such period or (b) have been elected or nominated for
selection as Board members by a majority of the Board in (a) who were
still in office at the time such election or nomination was approved by
the Board,
the Committee has the discretion to accelerate outstanding options and terminate
the Company's outstanding repurchase rights. The Committee also has the
discretion to accelerate outstanding options and terminate the Company's
outstanding repurchase rights upon the subsequent termination of the optionee's
service within a specified period following the Change in Control.
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt, or other efforts
to gain control of the Company.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the Option Plan, the fair market value of a share of
Common Stock on any relevant date will be the closing sale price per share of
Common Stock on that date, as such price is reported on The Nasdaq National
Market. The closing sale price of the Common Stock on June 20, 1997, was $31.75
per share.
Changes in Capitalization. In the event any change is made to the Common
Stock issuable under the Option Plan by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Option Plan, (ii) the maximum
number and/or class of securities for which any one person may be granted
options, separately exercisable stock appreciation rights and direct stock
issuances per calendar year, (iii) the number and/or class of securities for
which automatic option grants are to be subsequently made per director under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and the exercise price per share in effect under each outstanding option
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option that is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply to the number and class of
securities that would otherwise have been issued, in consummation of such
Corporate Transaction, to the option holder had the option been exercised
immediately prior to the Corporate Transaction. Appropriate adjustments will
also be made to the option price payable per share and to the class and number
of securities available for future issuance under the Option Plan on both an
aggregate and a per-participant basis.
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Option Plan Amendments. The Board may amend or modify the Option Plan in
any and all respects whatsoever. However, the Board may not, without the
approval of the Company's stockholders, (i) materially increase the maximum
number of shares issuable under the Option Plan (except in connection with
certain changes in capitalization), (ii) materially modify the eligibility
requirements for option grants, or (iii) otherwise materially increase the
benefits accruing to participants under the Option Plan.
Unless sooner terminated by the Board, the Option Plan will in all
events terminate on September 30, 2005. Any options outstanding at the time of
such termination will remain in force in accordance with the provisions of the
instruments evidencing such grants.
As of March 31, 1997, options covering 1,478,491 shares were
outstanding under the Option Plan, 527,418 shares remained available for future
option grants, and 251,668 shares have been issued under the Option Plan. The
expiration dates for all such options range from June 2000 to February 2007.
NEW PLAN BENEFITS
Because the Option Plan is discretionary, benefits to be received by
individual optionees are not determinable. However, each of Mr. Perry and Ms.
Winblad will receive an option grant to purchase 5,000 shares under the
Automatic Option Grant Program on the date of the Annual Meeting with an
exercise price per share equal to the closing price per share of the Common
Stock as reported on The Nasdaq National Market on the date of the Annual
Meeting.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE OPTION PLAN
Options granted under the Option Plan may be either incentive stock
options that satisfy the requirements of Section 422 of the Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased shares
are sold or otherwise made the subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will
recognize long-term capital gain in an amount equal to the excess of (i) the
amount realized upon the sale or other disposition of the purchased shares over
(ii) the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction for the
taxable year in which such disposition occurs equal to the excess of (i) the
fair market value of such shares on the date the option was exercised over (ii)
the exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares. The Company anticipates that any compensation deemed paid by the Company
upon one or more disqualifying dispositions of incentive stock option shares by
the Company's executive officers will remain
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deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option.
The optionee will in general recognize ordinary income in the year in
which the option is exercised equal to the excess of the fair market value of
the purchased shares on the exercise date over the exercise price paid for the
shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
Special provisions of the Code apply to the acquisition of Common Stock
under a non-statutory option if the purchased shares are subject to repurchase
by the Company. These special provisions may be summarized as follows:
(i) If the shares acquired upon exercise of the non-statutory
option are subject to repurchase by the Company at the original
exercise price in the event of the optionee's termination of service
prior to vesting in such shares, the optionee will not recognize any
taxable income at the time of exercise but will have to report as
ordinary income, as and when the Company's repurchase right lapses, an
amount equal to the excess of (a) the fair market value of the shares
on the date such repurchase right lapses with respect to such shares
over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of
the Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined
as if the shares were not subject to the Company's repurchase right)
over (b) the exercise price paid for such shares. If the Section 83(b)
election is made, the optionee will not recognize any additional income
as and when the repurchase right lapses.
The Company will be entitled to a business expense deduction
equal to the amount of ordinary income recognized by the optionee with
respect to the exercised non-statutory option. The deduction will in
general be allowed for the taxable year of the Company in which such
ordinary income is recognized by the optionee. The Company anticipates
that the compensation deemed paid by the Company upon the exercise of
non-statutory options with exercise prices equal to the fair market
value of the option shares on the grant date will remain deductible by
the Company and will not have to be taken into account for purposes of
the $1 million limitation per covered individual on the deductibility
of the compensation paid to certain executive officers of the Company.
Stock Appreciation Rights. An optionee who is granted a stock
appreciation right will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution. The Company will be entitled to
a business expense deduction equal to the appreciation distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
Stock Issuances. The tax principles applicable to direct stock
issuances under the Option Plan will be substantially the same as those
summarized above for the exercise of nonstatutory option grants.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1995
STOCK OPTION/STOCK ISSUANCE PLAN.
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PROPOSAL NO. 3
AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to approve an amendment to the Arbor
Software Corporation Employee Stock Purchase Plan (the "Purchase Plan") to
increase the number of shares of Common Stock issuable thereunder by 150,000
shares to a total of 300,000 shares of Common Stock. The Purchase Plan was
adopted by the Board on August 31, 1995, and approved by the stockholders on
September 15, 1995. The Purchase Plan, and the right of participants to make
purchases thereunder, is intended to meet the requirements of an "employee stock
purchase plan" as defined in Section 423 of the Code.
The following summary of certain Purchase Plan provisions is qualified,
in its entirety, by reference to the Purchase Plan. Copies of the Purchase Plan
document may be obtained by a stockholder upon written request to the Secretary
of the Company at the executive offices in Sunnyvale, California.
Purpose. The purpose of the Purchase Plan is to provide employees of the
Company and designated parent or subsidiary corporations (collectively,
"Participating Companies") an opportunity to participate in the ownership of the
Company by purchasing Common Stock of the Company through payroll deductions.
The Company currently is the only Participating Company in the Purchase Plan.
The Purchase Plan is intended to benefit the Company as well as its
stockholders and employees. The Purchase Plan gives employees an opportunity to
purchase shares of Common Stock at a favorable price. The Company believes that
the stockholders will correspondingly benefit from the increased interest on the
part of participating employees in the profitability of the Company. Finally,
the Company will benefit from the periodic investments of equity capital
provided by participants in the Purchase Plan.
Administration. The Purchase Plan is administered by the Committee. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants. All cash proceeds received by the Company from
payroll deductions under the Purchase Plan will be credited to a non-interest
bearing bank account.
Shares and Terms. The stock issuable under the Purchase Plan is the
Company's authorized but unissued or reacquired Common Stock. The maximum number
of shares of Common Stock that may be issued in the aggregate under the Purchase
Plan is 300,000, adjusted as described in the "Adjustments" section of this
description. Common Stock subject to a terminated purchase right will be
available for purchase pursuant to purchase rights subsequently granted.
Adjustments. If any change in the Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Common Stock as a class
without the Company's receipt of consideration), appropriate adjustments will be
made by the Company to the class and maximum number of shares subject to the
Purchase Plan, to the class and maximum number of shares purchasable by each
participant on any one purchase date, and the class and number of shares and
purchase price per share subject to outstanding purchase rights in order to
prevent the dilution or enlargement of benefits thereunder.
Eligibility. Generally, any individual who is customarily employed by a
Participating Company more than 20 hours per week and for more than five months
per calendar year is eligible to participate in the Purchase Plan. Approximately
263 employees (including four officers) were eligible to participate in the
Purchase Plan as of June 30, 1997.
Offering Periods. The Purchase Plan is implemented by offering periods
which generally have a duration of twenty-four months; each offering period is
comprised of a series of successive purchase periods, which have a duration of
six months. The first offering period began on the date of execution of the
underwriting agreement in connection with the Company's initial public offering
and will end on October 31, 1997; the next offering period will commence on
November 1, 1997 and will end on the last business day in October 1999, unless
terminated earlier. The purchase periods during the initial offering period end
on April 30, 1996, October 31, 1996, April 30,
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1997, and October 31, 1997. The Committee in its discretion may vary the
beginning date and ending date of the offering periods, provided no offering
period may exceed 24 months in length.
The participant will have a separate purchase right for each offering
period in which he or she participates. The purchase right will be granted on
the participant's entry date into an offering period and will be automatically
exercised in successive installments on the last day of each purchase period
within the offering period.
Purchase Price. The purchase price per share under the Purchase Plan is
85% of the lower of (i) the fair market value of a share of Common Stock on the
first day of the applicable offering period or, if later, the participant's
entry date into the offering period, or (ii) the fair market value of a share of
Common Stock on the purchase date. If a participant's entry date is on a day
other than the first day of an offering period, the clause (i) amount will in no
event be less than the fair market value of the shares on the first day of such
offering period. Generally, the fair market value of the Common Stock on a given
date is the closing price of the Common Stock, as reported on The Nasdaq
National Market.
Limitations. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
1. No purchase right will be granted to any person who
immediately thereafter would own, directly or indirectly, stock or hold
outstanding options or rights to purchase stock possessing 5% or more
of the total combined voting power or value of all classes of stock of
the Company or any of its parent or subsidiary corporations.
2. In no event will a participant be permitted to purchase
more than 500 shares on any one purchase date.
3. The right to purchase Common Stock under the Purchase Plan
(or any other employee stock purchase plan that the Company or any of
its subsidiaries may establish) in an offering intended to qualify
under Section 423 of the Code may not accrue at a rate that exceeds
$25,000 in fair market value of such Common Stock (determined at the
time such purchase right is granted) for any calendar year in which
such purchase right is outstanding.
The purchase right will be exercisable only by the participant during
the participant's lifetime and will not be assignable or transferable by the
participant.
Payment of Purchase Price; Payroll Deductions. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during the
purchase period. The deductions may not exceed 10% of a participant's cash
compensation paid during a purchase period. Cash compensation includes regular
base pay (including any pre-tax contributions made by a participant to any Code
Section 401(k) plan or Section 125 cafeteria benefit program) plus any of the
following amounts to the extent paid in cash: overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments.
However, cash compensation does not include any contributions made on a
participant's behalf by the Corporation or any corporate affiliate to any
deferred compensation plan or welfare benefit program (other than a Section
401(k) or 125 plan) now or hereafter maintained by the Corporation.
The participant will receive a purchase right for each offering period
in which he or she participates to purchase up to the number of shares of Common
Stock determined by dividing such participant's payroll deductions accumulated
prior to the purchase date by the applicable purchase price (subject to the
"Limitations" section). No fractional shares may be purchased. Any payroll
deductions accumulated in a participant's account that are not sufficient to
purchase a full share will be retained in the participant's account for the
subsequent purchase period.
Termination and Change to Payroll Deductions. A purchase right will
terminate at the end of the offering period or earlier if (i) the participant
terminates employment, and then any payroll deductions which the participant may
have made with respect to a terminated purchase right will be refunded, or (ii)
the participant elects to withdraw from the Purchase Plan. Any payroll
deductions which the participant may have made with respect to a
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terminated purchase right under clause (ii) will be refunded unless the
participant elects to have the funds applied to the purchase of shares on the
next purchase date. Unless a participant has irrevocably elected otherwise, he
or she may decrease his or her deductions once during a purchase period.
Amendment and Termination. The Purchase Plan shall continue in effect
until the earlier of (i) the last business day in October 2005, (ii) the date on
which all shares available for issuance under the Purchase Plan have been issued
or (iii) a Corporate Transaction, unless the Purchase Plan is earlier terminated
by the Board in its discretion.
The Board may at any time alter, amend, suspend or discontinue the
Purchase Plan, provided that, without the approval of the stockholders, no such
action may (i) alter the purchase price formula so as to reduce the purchase
price payable for shares under the Purchase Plan, (ii) materially increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant, or (iii) materially increase the benefits
accruing to participants under the Purchase Plan or materially modify the
eligibility requirements.
In addition, the Company has specifically reserved the right,
exercisable in the sole discretion of the Board, to terminate the Purchase Plan
immediately following any six-month purchase period. If such right is exercised
by the Board, then the Purchase Plan will terminate in its entirety and no
further purchase rights will be granted or exercised, and no further payroll
deductions will thereafter be collected under the Purchase Plan.
Corporate Transaction. In the event of (i) a merger or consolidation in
which securities possessing more than 50% of the total combined voting power of
the Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction or (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company (a "Corporate Transaction"), each purchase right
under the Purchase Plan will automatically be exercised immediately before
consummation of the Corporate Transaction as if such date were the last purchase
date of the offering period. The purchase price per share will be equal to 85%
of the lower of the (i) fair market value per share of Common Stock on the start
date of the offering period (or on the participant's entry date, if later) or
(ii) the fair market value per share of Common Stock immediately prior to the
effective date of such Corporate Transaction. If a participant's entry date is
not the first day of the offering period, the clause (i) amount will in no event
be lesser than the fair market value of such shares on the first day of the
offering period. Any payroll deductions not applied to such purchase will be
promptly refunded to the participant.
The grant of purchase rights under the Purchase Plan will in no way
affect the right of the Company to adjust, reclassify, reorganize, or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
Proration of Purchase Rights. If the total number of shares of Common
Stock for which purchase rights are to be granted on any date exceeds the number
of shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
Federal Income Tax Consequences. The following is a general description
of certain federal income tax consequences of the Purchase Plan. This
description does not purport to be complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. No income is recognized by a participant at
the time a right to purchase shares is granted. Likewise, no taxable income is
recognized at the time of the purchase, even though the purchase price reflects
a discount from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of
shares acquired under the Purchase Plan. The tax treatment may be more favorable
if the disposition occurs after the holding-period requirements of Section 423
have been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of Section 423, shares acquired under the Purchase Plan cannot be
disposed of within two years after the first day of the offering period during
which the shares were purchased (or within two years after the participant's
entry date, if that date is later than the beginning of the offering period) nor
within one year after the shares were purchased. The U.S. income tax
consequences of a qualifying disposition are as follows:
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o The participant recognizes ordinary income equal to the lower of
(a) the excess of the fair market value of the shares on the date
of the disposition over the purchase price or (b) 15% of the fair
market value of the shares on the first day of the applicable
offering period (or on the participant's entry date, if that date
is later than the first day of the offering period and if the
market value is higher on that date). The Company will not be
entitled to any deduction under these circumstances.
o The excess, if any, of the fair market value of the shares on the
date of the disposition over the sum of the purchase price plus
the amount of ordinary income recognized (as described above) will
be taxed as a long-term capital gain. If a taxable disposition
produces a loss (i.e., the fair market value of the shares on the
date of the disposition is less than the purchase price) and the
disposition involves certain unrelated parties, then the loss will
be a long-term capital loss.
A participant who disposes of shares acquired under the Purchase Plan
without meeting the holding-period requirements makes a disqualifying
disposition of such shares. The U.S. income tax consequences of a disqualifying
disposition are as follows:
o The entire difference between the purchase price and the market
value of the shares on the date of purchase will be taxed to the
participant as ordinary income in the year of disposition. The
Company will be entitled to a deduction for the same amount,
subject to certain conditions.
o The excess, if any, of the market value of the shares on the date
of disposition over their market value on the date of purchase
will be taxed as a capital gain (long-term or short-term,
depending on how long the shares have been held). If the value of
the shares on the date of disposition is less than their value on
the date of purchase, then the difference will result in a capital
loss (long-term or short-term, depending upon the holding period),
provided the disposition involves certain unrelated parties. Any
such loss will not affect the ordinary income recognized upon the
disposition.
New Purchase Plan Benefits. Since purchase rights are subject to
discretion, including an employee's decision not to participate in the Purchase
Plan, awards under the Purchase Plan for the current fiscal year are not
determinable. No purchase rights have been granted with respect to the
additional 150,000 shares for which approval is requested.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE
EMPLOYEE STOCK PURCHASE PLAN.
16
<PAGE> 20
PROPOSAL NO. 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of
Price Waterhouse LLP as the Company's independent public accountants for the
fiscal year ending March 31, 1998. In the event the stockholders fail to ratify
the appointment, the Board of Directors will reconsider its selection. Even if
the appointment is ratified, the Board of Directors, in its discretion, may
direct the appointment of a different independent accounting firm at any time
during the year if the Board of Directors feels that such a change would be in
the Company's and its stockholders' best interests. Representatives of Price
Waterhouse LLP are expected to be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICE WATERHOUSE LLP TO SERVE AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MARCH 31, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their fiscal year 1997
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for fiscal year 1997, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its executive officers, Board members
and greater than 10% stockholders.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE COMPANY'S FORM 10-K REPORT FOR FISCAL 1997, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULES AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO ARBOR
SOFTWARE CORPORATION, 1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089, ATTN:
INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1998
Annual Meeting that are eligible for inclusion in the Company's proxy statement
and related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than March 13, 1998 in order to be included. Such stockholder proposals should
be addressed to Arbor Software Corporation, 1344 Crossman Avenue, Sunnyvale,
California 94089, Attn: Investor Relations.
17
<PAGE> 21
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 31, 1997 certain information
with respect to shares beneficially owned by (i) each person who is known by the
Company to be the beneficial owner of more than 5% of the Company's outstanding
shares of Common Stock, (ii) each of the Company's directors, and the executive
officers named in the Summary Compensation Table and (iii) all current directors
and executive officers as a group. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain
shares may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire shares (for example, upon exercise of an option
or warrant) within 60 days of the date as of which the information is provided;
in computing the percentage ownership of any person, the amount of shares is
deemed to include the amount of shares beneficially owned by such person (and
only such person) by reason of such acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in the following table
does not necessarily reflect the person's actual voting power at any particular
date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT OF
BENEFICIAL OWNER (1)(2) CLASS
- ---------------- ---------- ----------
<S> <C> <C>
Amerindo Investment Advisors Inc.(3) ............................................ 2,219,861 19.86
One Embarcadero Center Suite 2300
San Francisco, CA 94111
Putnam Investments, Inc. (4) .................................................... 917,281 8.21
One Post Office Square
Boston, MA 02109
James A. Dorrian (5) ............................................................ 646,667 5.77
George H. Colliat (6)(7) ........................................................ 88,565 *
Kirk A. Cruikshank (8) .......................................................... 36,595 *
John M. Dillon (9) .............................................................. 122,525 1.09
Stephen V. Imbler (10) .......................................................... 116,800 1.04
Douglas M. Leone (11) ........................................................... 38,383 *
Mark W. Perry (12) .............................................................. 39,953 *
Ann L. Winblad (13) ............................................................. 277,065 2.47
All directors and executive officers as a group (8 persons including
those listed above) (14) ..................................................... 1,366,553 12.00
</TABLE>
- -----------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. To the Company's knowledge, the entities named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within 60 days
after May 31, 1997.
(3) Includes (i) 1,825,861 shares held by Amerindo Investment Advisors
Inc., a California corporation, (ii) 4,000 shares held by Amerindo
Advisors (UK) Limited Retirement Benefits Scheme, and (iii) 390,000
shares held by Amerindo Investment Advisors, Inc., a Panama
corporation.
18
<PAGE> 22
(4) Includes (i) 872,305 shares held by Putnam Investment Management, Inc.
and (ii) 44,976 shares held by Putnam Advisory Company, Inc., two
wholly owned subsidiaries and registered advisors of Putnam
Investments, Inc., which is a wholly owned subsidiary or Marsh &
McLennan Companies, Inc.
(5) Includes options exercisable into 22,500 shares of Common Stock under
the Option Plan.
(6) Includes options exercisable into 42,000 shares of Common Stock under
the Option Plan.
(7) Mr. Colliat ceased to be the Vice President of Engineering effective
February 1997, but will remain an employee of the Company on a
part-time basis through September 5, 1997.
(8) Includes options exercisable into 15,625 shares of Common Stock under
the Option Plan.
(9) Includes options exercisable into 15,625 shares of Common Stock under
the Option Plan.
(10) Includes options exercisable into 94,000 shares of Common Stock under
the Option Plan.
(11) Includes options exercisable into 5,000 shares of Common Stock under
the Option Plan.
(12) Includes options exercisable into 15,156 shares of Common Stock under
the Option Plan.
(13) Includes options exercisable into 27,500 shares of Common Stock under
the Option Plan. Includes 26,505 shares held by Hummer Winblad Venture
Partners, L.P. ("Hummer Winblad"), a limited partnership. Ms. Winblad
disclaims beneficial ownership of all shares held by entities
affiliated with Hummer Winblad except to the extent of her pecuniary
interest therein arising from her partnership interest in entities
affiliated with Hummer Winblad.
(14) Includes options exercisable into 237,406 shares of Common Stock under
the Option Plan.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into agreements with each of the Company's
executive officers pursuant to which the Company has agreed to accelerate the
vesting of up to 25% of the securities subject to vesting then held by each such
officer following the occurrence of certain changes in control, including by
merger, sale of assets or change in the composition of the Board of Directors.
In addition, should the affected officer resign following a reduction in
responsibility or compensation or an involuntary relocation or should the
affected officer's employment be involuntarily terminated without cause within
the 24-month period following such a change in control, then all of such
officer's option shares shall become fully vested.
The Compensation Committee as administrator of the Option Plan will
have the authority to provide for the accelerated vesting of the shares of
Common Stock subject to outstanding options held by the Chief Executive Officer
and any other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors (the
"Committee") has the authority to establish the level of base salary payable to
the Chief Executive Officer ("CEO") and to administer the Company's 1995 Stock
Option/Stock Issuance Plan and Employee Stock Purchase Plan. In addition, the
Committee has the responsibility for approving the individual bonus program to
be in effect for the CEO. The CEO has the authority to establish the level of
base salary payable to all other employees of the Company, including all
executive officers, subject to the approval of the Committee. In addition, the
CEO has the responsibility for approving the bonus programs to be in effect for
all other executive officers and other key employees each fiscal year, subject
to the approval of the Committee.
19
<PAGE> 23
For fiscal year 1997, the process utilized by the CEO in determining
executive officer compensation levels took into account both qualitative and
quantitative factors. Among the factors considered by the CEO were informal
surveys conducted by Company personnel among local companies. However, the CEO
made the final compensation decisions concerning such officers.
General Compensation Policy. The CEO's fundamental policy is to offer
the Company's executive officers competitive compensation opportunities based
upon overall Company performance, their individual contribution to the financial
success of the Company and their personal performance. It is the CEO's objective
to have a substantial portion of each officer's compensation contingent upon the
Company's performance, as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package consists of: (i) base
salary, (ii) cash bonus awards and (iii) long-term stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the
basis of personal performance and the salary level in effect for comparable
positions at companies that compete with the Company for executive talent on the
basis of informal surveys conducted by the Company.
Annual Cash Bonuses. Each executive officer has an established bonus
target each fiscal year. The annual pool of bonuses for executive officers is
determined on the basis of the Company's achievement of the financial
performance targets established at the start of the fiscal year, a range for the
executive's contribution and a measure of customer satisfaction. Actual bonuses
paid reflect an individual's accomplishment of both corporate and functional
objectives, with greater weight being given to achievement of corporate rather
than functional objectives.
Long-Term Incentive Compensation. During fiscal year 1997, the
Committee made option grants to John M. Dillon, George H. Colliat and Kirk A.
Cruikshank under the 1995 Stock Option/Stock Issuance Plan. Generally, a
significant grant is made in the year that an officer commences employment and
no grant is made in the second year. Generally, the size of each grant is set at
a level that the Committee deems appropriate, to create a meaningful opportunity
for stock ownership based upon the individual's position with the Company, the
individual's potential for future responsibility and promotion, the individual's
performance in the recent period and the number of unvested options held by the
individual at the time of the new grant. The relative weight given to each of
these factors will vary from individual to individual at the Committee's
discretion.
Each grant allows the officer to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a
four-year period, contingent upon the executive officer's continued employment
with the Company, and the vesting schedule is adjusted to reflect existing
grants to ensure a meaningful incentive in each year following the year of
grant. Accordingly, the option will provide a return to the executive officer
only if he or she remains in the Company's employ, and then only if the market
price of the Company's Common Stock appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Dorrian, the Company's
CEO, was established by the Committee in July 1996. The Committee's decision was
made primarily on the basis of Mr. Dorrian's performance of his duties.
The remaining components of the CEO's fiscal year 1997 incentive
compensation were entirely dependent upon the Company's financial performance
and provided no dollar guarantees. The bonus paid to the CEO for fiscal year
1997 was based on the same incentive plan as for all other officers who receive
bonuses. Specifically, a target incentive was established at the beginning of
the fiscal year using an agreed-upon formula based on Company revenue and profit
before interest. Each fiscal year, the annual incentive plan is reevaluated with
a new achievement threshold and new targets for revenue and profit before
interest.
Tax Limitation. As a result of Federal tax legislation enacted in 1993,
a publicly held company such as the Company will not be allowed a Federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any year. The stockholders
approved the Company's 1995 Stock Option/Stock Issuance Plan, which includes a
provision that limits the maximum number of shares of Common Stock for which any
one participant may be granted stock options per calendar year. Accordingly, any
20
<PAGE> 24
compensation deemed paid to an executive officer when he or she exercises an
option under the 1995 Stock Option/Stock Issuance Plan with an exercise price
equal to the fair market value of the option shares on the grant date will
generally qualify as performance-based compensation that will not be subject to
the $1 million limitation. Since it is not expected that the cash compensation
to be paid to the Company's executive officers for fiscal year 1998 will exceed
the $1 million limit per officer, the Committee will defer any decision on
whether to limit the dollar amount of the cash compensation payable to the
Company's executive officers to the $1 million cap.
Compensation Committee
Mark W. Perry
Ann L. Winblad
COMPENSATION COMMITTEE REPORT ON REPRICED OPTIONS
In November 1996, the Committee determined that it was in the best
interest of the Company to consider an Option Exchange Program for the benefit
of holders of existing options with an exercise price ranging from $33.25 to
$42.75. Such Option Exchange Program was approved by the Compensation Committee
on December 4, 1996 (the "Grant Date") and the existing options of participating
holders were repriced at $26.875, which was the fair market value of the
Company's Common Stock on that date.
The objectives of the Company's 1995 Stock Option/Stock Issuance Plan
(the "Option Plan") are to promote the interests of the Company by providing
employees, non-employee directors and consultants or independent contractors an
incentive to acquire a proprietary interest in the Company and to continue to
render services to the Company. It was the view of the Committee that stock
options with exercise prices substantially above the current market price of the
Company's Common Stock were viewed negatively by optionees and provided little,
if any, equity incentive to them. The Committee concluded that such option
grants seriously undermined the specific objectives of the Option Plan and
should be canceled and replaced. In making this decision, the Committee also
considered the fairness of such a determination in relation to other
stockholders. In the opinion of the Committee, the stockholders' long-term best
interests were clearly served by the retention and motivation of the optionees.
For these reasons, on the Grant Date the Committee approved the Option
Exchange Program whereby all holders of existing options who elected to
participate in the Option Exchange Program could receive a one-for-one
replacement of their then-existing unexercised stock options (the "Old Option")
with a new exercise price set at $26.875 per share, the fair market value of the
Company's Common Stock on the Grant Date (the "New Option"). The New Options
were subject to a six-month waiting period before any repriced options could be
exercised, except in the event of an involuntary termination of the optionee's
service without cause. After the six-month waiting period, the New Option
reverted to the vesting schedule of the Old Option.
Compensation Committee
Mark W. Perry
Ann L. Winblad
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was
formed in June 1992, and the members of the Compensation Committee are Mr. Perry
and Ms. Winblad. Neither of these individuals was at any time during fiscal year
1997, or at any other time, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
21
<PAGE> 25
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder
return on the Company's Common Stock between November 7, 1995 (the date the
Company's Common Stock commenced public trading) and March 31, 1997 with the
cumulative total return of (i) The Nasdaq Stock Market Total Return Index (U.S.
Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii) the Hambrecht & Quist
Software Sector Index (the "H&Q Software Sector Index"), over the same period.
This graph assumes the investment of $100.00 on November 7, 1995 in the
Company's Common Stock, The Nasdaq Stock Market-U.S. Index and the H&Q Software
Sector Index, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical data
and the Company cautions that the stock price performance shown in the graph
below is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from Hambrecht & Quist LLC, a source believed to be reliable, but the
Company is not responsible for any errors or omissions in such information.
<TABLE>
<CAPTION>
Arbor Software
H&Q Software Sector Index
Nasdaq Stock Market-U.S. Index
Nasdaq Stock H&Q Software
DATES Arbor Software Market-U.S. Sector
- ----- -------------- ------------ ------------
<S> <C> <C> <C>
11/6/95 100 100 100
11/95 109.55 99.75 100.78
12/95 120.38 99.22 97.65
01/96 104.46 99.70 99.71
02/96 109.55 103.50 101.75
03/96 110.19 103.85 106.57
04/96 196.18 112.46 118.41
05/96 154.78 117.63 119.32
06/96 152.23 112.33 116.20
07/96 96.82 102.32 106.18
08/96 107.01 108.05 107.84
09/96 108.92 116.32 119.52
10/96 92.36 115.03 115.42
11/96 73.89 122.15 123.66
12/96 61.78 122.02 118.70
01/97 75.80 130.67 122.82
02/97 83.76 123.46 114.32
03/97 63.69 115.42 108.33
</TABLE>
22
<PAGE> 26
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ARBOR SOFTWARE CORPORATION,
THE NASDAQ STOCK MARKET-U.S. INDEX AND THE H&Q SOFTWARE SECTOR INDEX
The Company effected its initial public offering on November 6, 1995 at
a per share price of $17.00. The graph above, however, commences with the
closing price of $39.25 per share on November 7, 1995, the date the Company's
Common Stock commenced public trading.
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate this Proxy Statement or future filings made by the Company under
those statutes, the Compensation Committee Report and Stock Performance Graph
are not deemed filed with the Securities and Exchange Commission and shall not
be deemed incorporated by reference into any of those prior filings or into any
future filings made by the Company under those statutes.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the four other most highly
compensated executive officers who were serving as such at the end of fiscal
year 1997 (collectively, the "Named Officers"), each of whose aggregate
compensation for fiscal year 1997 exceeded $100,000, for services rendered in
all capacities to the Company and its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($)1) BONUS UNDERLYING OPTIONS
- --------------------------- ----------- ----------- ------ --------------------
<S> <C> <C> <C> <C>
James A. Dorrian ................................ 1997 190,000 25,000 0
Chairman of the Board, Chief Executive Officer
and Director 1996 152,500 42,886 0
1995 129,307 10,887 22,500
John M. Dillon .................................. 1997 185,000 130,414 200,000(5)
President, Chief Operating Officer and Director 1996 241,746 72,875 0
1995 198,534 20,458 22,500
George H. Colliat (3) ........................... 1997 172,161 0 50,000
Vice President of Engineering 1996 148,000 42,886 0
1995 86,000 6,351 109,500
Kirk A. Cruikshank .............................. 1997 165,625 62,500 100,000(5)
Senior Vice President of Marketing 1996 134,375 42,886 0
1995 128,539 10,887 22,500
Stephen V. Imbler(4) ............................ 1997 166,250 62,500 0
Senior Vice President and Chief Financial Officer 1996 94,231 68,591 109,500
1995 -- -- --
</TABLE>
(1) Includes amounts deferred under the 401(k) plan.
(2) Bonus amounts include commissions earned in the respective fiscal
years.
23
<PAGE> 27
(3) Mr. Colliat ceased to be the Vice President of Engineering effective
February 1997 but will remain an employee of the Company on a part-time
basis through September 5, 1997.
(4) Mr. Imbler joined the Company in July 1995.
(5) The identified options granted to Mr. Dillon and Mr. Cruikshank were
cancelled and subsequently regranted on December 4, 1996.
The following table contains information concerning the stock option
grants made to each of the Named Officers during fiscal year 1997. No stock
appreciation rights were granted to these individuals during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
----------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTON TERM(2)
OPTIONS EMPLOYEES PER SHARE EXPIRATION ------------------------
NAME GRANTED(#) IN FISCAL ($/SH) DATE 5%($) 10%($)
---------- ---------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
James A. Dorrian .... 0 _ _ _ _ _
John M. Dillon ...... 50,000(4) 3.63 38.75 8/20/2006 1,218,483 3,088,276
50,000 3.63 26.875 12/3/2006 813,272 2,043,347
100,000 7.26 25.00 1/1/2007 1,572,237 3,984,356
George H. Colliat (3) 50,000 3.63 25.625 12/11/2006 805,772 2,041,982
Kirk A. Cruikshank .. 50,000(4) 3.63 38.75 8/20/2006 1,218,483 3,088,276
50,000 3.63 26.875 12/3/2006 813,272 2,043,347
Stephen V. Imbler ... 0 _ _ _ _ _
</TABLE>
- -------------------
(1) Each option becomes exercisable as to 25% of the option shares on the
first anniversary of the option grant date and as to the balance of the
shares ratably upon optionee's completion of the next 36 months of
service thereafter. The exercise price for the option may be paid in
cash, in shares of Common Stock valued at fair market value on the
exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with
such exercise. The plan administrator has the discretionary authority
to reprice the option through the cancellation of that option and the
grant of a replacement option with an exercise price based on the fair
market value of the option shares on the regrant date. The option has a
maximum term of ten years measured from the option grant date, subject
to earlier termination in the event of the optionee's cessation of
service with the Company. Under the option, the option will vest upon
an acquisition of the Company by merger or asset sale, unless the
option is assumed by the acquiring entity.
(2) There can be no assurance provided to the executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the ten year option term will be at the assumed 5%
and 10% levels or at any other defined level. Unless the market price
of the Common Stock appreciates over the option term, no value will be
realized from the option grant made to the executive officer.
(3) Mr. Colliat ceased to be the Vice President of Engineering effective
February 1997, but will remain an employee of the Company on a
part-time basis through September 5, 1997.
(4) The identified options granted to Mr. Dillon and Mr. Cruikshank were
cancelled and subsequently regranted on December 4, 1996.
24
<PAGE> 28
The following table sets forth information concerning option exercises
in fiscal year 1997 and option holdings as of the end of fiscal year 1997 with
respect to each of the Named Officers. No stock appreciation rights were
exercised during that fiscal year or outstanding at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)2)
ACQUIRED ON -------------------------- ---------------------------
NAME EXERCISE (#) VALUE REALIZED($)(1)) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ --------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Dorrian......... 0 _ 22,500 0 551,250 0
John M. Dillon........... 0 _ 150,000 0 0 0
George H. Colliat (3).... 25,000 619,250 42,000 50,000 1,034,265 0
Kirk A. Cruikshank....... 0 _ 0 50,000 0 0
Stephen V. Imbler........ 6,000 170,020 94,000 0 2,036,980 0
</TABLE>
- -----------
(1) Upon exercise of the options, an option holder did not necessarily
receive the amount reported above under the column "Value Realized."
The amounts reported above under the column "Value Realized" merely
reflect the amount by which the fair market value of the Common Stock
of the Company on the date the option was exercised exceeded the
exercise price of the option. The option holder does not realize any
cash until the shares of Common Stock issued upon exercise of the
options are sold.
(2) Based on the closing price of the Common Stock of the Company as
reported on The Nasdaq National Market System at March 31, 1997, the
last day of trading of the Company's Common Stock during fiscal year
1997, of $25.00 per share, less the exercise price payable for such
shares.
(3) Mr. Colliat ceased to be the Vice President of Engineering effective
February 1997, but will remain an employee of the Company on a
part-time basis through September 5, 1997.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF OPTION
NUMBER OF STOCK AT TIME EXERCISE PRICE TERM REMAINING
OPTIONS OF AT TIME OF AT DATE OF
REPRICED OR REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---- ------- ----------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
James A. Dorrian..................... __ 0 0 0 0 0
<S> <C> <C> <C> <C> <C> <C>
John M. Dillon....................... 12/4/96 50,000 26.875 38.75 26.875 111 months
George H. Colliat.................... __ 0 0 0 0 0
Kirk A. Cruikshank................... 12/4/96 50,000 26.875 38.75 26.875 111 months
Stephen V. Imbler.................... __ 0 0 0 0 0
</TABLE>
25
<PAGE> 29
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder
action at the Annual Meeting. However, if other matters do properly come before
the Annual Meeting or any adjournments or postponements thereof, the Board
intends that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Robert V. Gunderson, Jr.
Robert V. Gunderson, Jr.
Secretary
Sunnyvale, California
July 14, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE- PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
26
<PAGE> 30
P ARBOR SOFTWARE CORPORATION
R
O ANNUAL MEETING OF STOCKHOLDERS, AUGUST 13, 1997
X
Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ARBOR SOFTWARE CORPORATION
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held on August 13, 1997
and the Proxy Statement and appoints Stephen V. Imbler and Teresa Malo, and each
of them, the Proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock of Arbor Software Corporation (the "Company") which
the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the Annual Meeting of Stockholders to be
held at the Garden Court Hotel, 520 Cowper Street, Palo Alto, California on
Wednesday, August 13, 1997, at 10:00 a.m. local time and at any adjournment or
postponement thereof (the "Annual Meeting"), with the same force and effect as
the undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth on the reverse
side.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE> 31
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES __
AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED BELOW
AND A VOTE FOR THE OTHER PROPOSALS. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED AS SPECIFIED BELOW. THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES LISTED BELOW AND FOR THE OTHER PROPOSALS IF NO SPECIFICATION IS MADE.
1. To elect the following directors to serve 2. To approve amendments to the FOR AGAINST ABSTAIN
for a term ending upon the 1998 Annual Company's 1995 Stock Option/ [ ] [ ] [ ]
Meeting of Stockholders or until their Stock Issuance Plan to
successors are elected and qualified: increase the number of
shares of Common Stock
NOMINEES: James A. Dorrian, John M. Dillon, reserved for issuance
Mark W. Perry and Ann L. Winblad. thereunder by 750,000 shares
and to change the vesting
provisions applicable to
non-employee members of the
Board.
FOR WITHHOLD 3. To approve an amendment to FOR AGAINST ABSTAIN
ALL [ ] [ ] AUTHORITY the Company's Employee Stock [ ] [ ] [ ]
NOMINEES TO VOTE FOR Purchase Plan to increase
ALL NOMINEES the number of shares of
Common Stock reserved for
issuance thereunder by
150,000 shares.
[ ] _______________________________________ 4. To ratify the appointment of FOR AGAINST ABSTAIN
For all nominees, except for any nominee(s) Price Waterhouse LLP as the [ ] [ ] [ ]
whose name is written in the space provided Company's independent
above. auditors for the fiscal year
ending March 31, 1998.
5. To transact such other business as may properly come before
the Annual Meeting and at any adjournment or postponement
thereof.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please sign your name.
Signature:______________________________ Date: __________
Signature:______________________________ Date: __________
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