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Filed Pursuant to Rule 424(b)(3)
File No. 333-56765
ARBOR SOFTWARE CORPORATION
$100,000,000 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2005
1,774,403 SHARES OF COMMON STOCK
This Prospectus relates to $100,000,000 aggregate principal amount of
4 1/2% Convertible Subordinated Notes due 2005 (the "Notes") of Arbor Software
Corporation, a Delaware Corporation ("Arbor" or the "Company"), and 1,774,403
shares of common stock, par value $.001 per share (the "Common Stock"), of the
Company which are initially issuable upon conversion of the Notes plus such
additional number of shares of Common Stock as may become issuable upon
conversion of the Notes as a result of adjustments to the conversion price (all
such shares of Common Stock collectively referred to herein as the "Shares").
The Notes and the Shares that are being registered hereby are to be offered for
the account of the holders thereof (the "Selling Securityholders"). The Notes
were initially acquired from the Company by Morgan, Stanley & Co. Incorporated,
and BancAmerica Robertson Stephens (the "Initial Purchasers") in March, 1998 in
connection with a private placement. See "Description of Notes."
The Notes are convertible into Common Stock of the Company at any time
prior to maturity, unless previously redeemed, at a conversion price of $56.357
per share, subject to adjustments in certain events. On July 16, 1998, the
closing price of the Common Stock on the Nasdaq National Market was $38 1/8 per
share. The Common Stock is traded under the symbol "ARSW."
The Notes do not provide for a sinking fund. The Notes are redeemable at
the option of the Company on at least 30 days notice, in whole or in part, at
the redemption prices set forth in this Prospectus, together with accrued
interest, except that no redemption may be made prior to March 20, 2001. Upon a
Fundamental Change (as defined), each holder of Notes shall have the right, at
the holder's option, to require the Company to redeem such holder's Notes at
declining redemption prices, subject to adjustments in certain events as
described herein, together with accrued interest. See "Description of
Notes -- Optional Redemption by the Company" and "-- Redemption at Option of the
Holder."
The Notes are unsecured general obligations of the Company and are
subordinated in right of payment, originally issued in a private placement, to
all existing and future Senior Indebtedness (as defined) of the Company and are
effectively subordinated to all indebtedness and liabilities of subsidiaries of
the Company. The Indenture (as defined) does not restrict the incurrence of any
other indebtedness or liabilities, including Senior Indebtedness, by the Company
or its subsidiaries. See "Description of Notes -- Subordination of Notes."
The Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. Notes sold
pursuant to this Prospectus will not remain eligible for trading on the PORTAL
Market. For a description of certain income tax consequences to holders of the
Notes, see "Certain Federal Income Tax Considerations." No assurance can be
given that any market for the Notes will develop or be maintained.
The Notes and the Shares are being registered to permit public secondary
trading of the Notes and, upon conversion, the underlying Common Stock, by the
holders thereof from time to time after the date of this Prospectus. The Company
has agreed, among other things, to bear all expenses (other than underwriting
discounts and commissions and fees and expenses of counsel and other advisors to
the holders of the Notes or the underlying Common Stock) in connection with the
registration and sale of the Notes and the underlying Common Stock covered by
this Prospectus.
The Company will not receive any of the proceeds from sales of Notes or the
Shares by the Selling Securityholders. The Notes and the Shares may be offered
in negotiated transactions or otherwise, at market prices prevailing at the time
of sale or at negotiated prices. See "Plan of Distribution." The Selling
Securityholders may be deemed to be "underwriters" as defined in the Securities
Act of 1933, as amended (the "Securities Act"). If any broker-dealers are used
by the Selling Securityholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any Notes or Shares as principals, any profits received
by such broker-dealers on the resale of the Notes or Shares may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders may be deemed to be underwriting
commissions.
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SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 20, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
The Company................................................. 4
Risk Factors................................................ 6
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Ratio of Earnings To Fixed Charges.......................... 16
Description of Notes........................................ 17
Description of Capital Stock................................ 28
Certain Federal Income Tax Considerations................... 30
Selling Securityholders..................................... 35
Plan of Distribution........................................ 37
Legal Matters............................................... 38
Experts..................................................... 38
Annex A -- Form of Selling Securityholder Notice and
Questionnaire............................................. A-1
</TABLE>
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Arbor, Arbor Software, Essbase and Driving Business Performance are
registered trademarks of the Company, and Essbase-Ready, WIRED for OLAP and the
Arbor Software logo are trademarks of the Company. All other trademarks or trade
names referred to herein are the property of their respective owners.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's following Regional
Offices: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. Reports, proxy
and information statements and other information filed electronically by the
Company with the Commission are available at the Commission's world wide web
site at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments, exhibits and schedules, referred to
as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with the Commission, with respect to the Notes and Shares
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. Statements contained in this
Prospectus regarding the contents of any contract or other document to which
reference is made are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in its entirety
by such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon the payment of the fees prescribed by the
Commission.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
are hereby incorporated by reference in this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, filed with the Commission on June 10, 1998.
2. The Company's Current Report on Form 8-K, dated March 5, 1998,
filed with the Commission on March 17, 1998.
3. The Company's Current Report on Form 8-K, dated May 25, 1998, filed
with the Commission on May 29, 1998, and as amended on June 25, 1998.
4. The Company's Current Report on Form 8-K, dated June 12, 1998,
filed with the Commission on June 17, 1998.
5. The description of the Company's capital stock contained in the
Company's Registration Statement filed on Form 8-A, dated October 9, 1995,
and as amended on Form 8-A/A, dated November 3, 1995.
6. The Company's proxy statement included in Form S-4 filed with the
Commission on June 18, 1998, as amended.
All documents filed with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the documents that have been or
may be incorporated by reference herein (other than exhibits to such documents
which are not specifically incorporated by reference into such documents). Such
requests should be directed to Investor Relations, Arbor Software Corporation,
1344 Crossman Avenue, Sunnyvale, California 94089, (408) 744-9500.
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NO DEALER, SALESPERSON, SELLING SECURITYHOLDER OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDER OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this Prospectus.
THE COMPANY
Arbor develops and markets enterprise on-line analytical processing
("OLAP") software for management reporting, analysis and planning applications.
The Company's Arbor Essbase software is a powerful OLAP solution that integrates
data from throughout an enterprise, including data from relational databases,
data warehouses and other data repositories, and allows users to perform
multidimensional analysis on this data utilizing spreadsheets, query tools,
report writers and web browsers. Arbor Essbase users can easily access and
organize large volumes of historical and projected data, rapidly perform
interactive what-if scenario analyses and share this information with users
throughout the enterprise. Arbor Essbase consists principally of Arbor Essbase
OLAP Server, and complementary products that extend and enhance the
functionality of the Arbor Essbase solution, including user tools, developer
tools, server management and data integration modules, and application modules.
Arbor Essbase is easy to use and deploy rapidly, possesses robust calculation
capabilities, provides rapid response to user requests and incorporates
user-generated scenario data. Arbor Essbase also has the flexibility to
reorganize and present data from a variety of perspectives without disturbing
the integrity of the underlying historical data or causing the degradation of
network performance.
THE OFFERING
SECURITIES OFFERED............ $100,000,000 principal amount of 4 1/2%
Convertible Subordinated Notes due 2005 (the
"Notes"), issued under an indenture dated as of
March 15, 1998 between the Company and State
Street Bank and Trust Company of California,
N.A. as trustee (the "Trustee"), and Common
Stock issuable upon conversion thereof. See
"Description of Notes."
INTEREST PAYMENT DATES........ March 15 and September 15, commencing September
15, 1998.
CONVERSION.................... The Notes are convertible at the option of the
holder at any time after 90 days following the
latest date of original issuance thereof
through maturity, unless previously redeemed,
into Common Stock at a conversion price of
$56.357 per share, subject to adjustment in
certain events. See "Description of
Notes -- Conversion of Notes."
SUBORDINATION................. The Notes are subordinated to all existing and
future Senior Indebtedness (as defined). As of
March 31, 1998, the Company had an
insignificant amount of indebtedness
outstanding that would have constituted Senior
Indebtedness. The Indenture does not limit the
amount of indebtedness, including Senior
Indebtedness, that the Company may incur. See
"Description of Notes -- Subordination of
Notes."
REDEMPTION.................... The Notes are not redeemable by the Company
prior to March 20, 2001. Subject to the
foregoing, the Notes are redeemable on at least
30 days' notice at the option of the Company in
whole or in part, at any time, at the
redemption prices set forth in "Description of
Notes," in each case together with accrued
interest.
FUNDAMENTAL CHANGE............ Upon the occurrence of any Fundamental Change
(as defined) prior to the maturity of the
Notes, each holder shall have the right, at
such holder's option, to require the Company to
redeem all or
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any part (provided that the principal amount is
$1,000 or an integral multiple thereof) of such
holder's Notes at the redemption prices set
forth in "Description of Notes," subject to
adjustment in certain events, together with
accrued interest. See "Description of
Notes -- Redemption at Option of the Holder."
USE OF PROCEEDS............... The Company will not receive any of the
proceeds from sale of any of the Notes or the
Shares by the Selling Securityholders.
REGISTRATION RIGHTS........... Upon any failure of the Company to comply with
certain of its obligations under the
Registration Rights Agreement, certain
predetermined liquidated damages will be
payable by the Company to those holders of the
Notes and those holders of Common Stock issued
upon conversion of the Notes who have requested
to sell pursuant to the registration statement.
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RISK FACTORS
This Prospectus contains or incorporates by reference forward-looking
statements that involve risks and uncertainties. The statements contained or
incorporated by reference in this Prospectus that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and all forward-looking statements
in documents incorporated by reference are based on information available to the
Company as of the date of such documents. The Company assumes no obligation to
update any such forward-looking statements. The Company's actual results may
differ materially from those discussed in the forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus and incorporated by reference herein.
In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information set forth in
this Prospectus and incorporated by reference herein, including without
limitation, the factors discussed in "Risk Factors" set forth in the preliminary
proxy statement and the definitive proxy statement to be included in Form S-4
which the Company expects to file in connection with the Merger (as defined in
the Form 8-K dated May 25, 1998, as filed with the Commission on May 29, 1998),
which shall be deemed incorporated by reference in this Prospectus upon its
filing with the Commission.
Fluctuations in Quarterly Results; Future Operating Results Uncertain. The
Company's quarterly operating results could vary significantly in the future
depending on a number of factors, including: (i) demand for the Company's Arbor
Essbase software and related products; (ii) the number, timing and significance
of product enhancements and new product announcements by the Company and its
current or future competitors; (iii) changes in pricing policies by the Company
or its competitors; (iv) the level of price and product competition; (v)
unanticipated events or announcement relating to the Merger; (vi) the Company's
relationships with and the consistency of sales generated by its indirect
channel partners; (vii) the integration of newly acquired products, technologies
and businesses, if any, by the Company; (viii) the impact of acquisitions by
competitors and indirect channel partners; (ix) changes in the mix of indirect
channels through which its products are offered; (x) customer order deferrals in
anticipation of enhancements to its products or enhancements or new products of
competitors or in anticipation of the Merger; (xi) the ability of the Company to
develop, introduce and market new and enhanced versions of Arbor Essbase and
complementary products on a timely basis; (xii) changes in the Company's sales
incentive strategy; (xiii) the timing of revenue recognition under the Company's
agreements and changes in accounting standards with respect to revenue
recognition; (xiv) the size, timing and structure of significant licenses; (xv)
changes in Company strategy; (xvi) the level of the Company's international
revenues; (xvii) the renewal of maintenance and support agreements; (xviii)
product life cycles; (xix) software defects and other product quality problems;
(xx) personnel changes; (xxi) changes in the level of operating expenses; (xxii)
successful development and marketing of platform-specific versions of Arbor
Essbase by certain third parties that independently market such versions;
(xxiii) foreign currency exchange rates; and (xxiv) general domestic and
international economic and political conditions. The operating results of many
software companies reflect seasonal trends, and the Company's business,
operating results and financial condition may experience comparatively slower
growth in its first fiscal quarter and summer months, which overlap into its
second fiscal quarter. The Company sells substantially more product towards the
end of each quarter, particularly in the last two weeks of the quarter, due in
part to established buying patterns within the software industry. As a result,
the magnitude of any quarterly fluctuations have not been, and may not become in
the future, evident until the last few days of a quarter. Arbor Essbase orders
are typically shipped shortly after receipt, and as a result the Company has
limited ability to predict quarterly revenues at the beginning of any quarter.
As a result, license revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter.
Due to all of the foregoing, revenues for any future quarter are not
predictable with any significant degree of accuracy. Quarterly revenues are also
difficult to forecast because the Company's sales cycle, from initial evaluation
to license and maintenance and support purchases, varies substantially from
customer to customer. Accordingly, the Company believes that period-to-period
comparisons of its operating results are not
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necessarily meaningful and should not be relied upon as indications of future
performance. Although the Company has experienced significant growth in total
revenues in recent years, the Company does not believe that historical growth
rates are sustainable. Accordingly, the rate at which the Company has grown in
the past should not be considered indicative of future revenue growth, if any,
or future operating results. There can be no assurance that the Company will
remain profitable on a quarterly or annual basis.
The Company's expense levels are based in significant part on the Company's
expectations of future revenues and therefore are higher than past expense
levels, and are relatively fixed in the short run. If revenue levels are below
expectations, net income is likely to be disproportionately affected. There can
be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. In addition, it is
possible that in some future quarter the Company's operating results will be
below the expectations of public market analysts or investors. In such event, or
in the event that adverse conditions prevail or are perceived to prevail
generally or with respect to the Company's business, the price of the Company's
Common Stock would likely be materially adversely affected.
Competition. The market in which the Company competes is intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. The Company's current and potential competitors offer a
variety of planning and analysis software solutions and generally fall within
three categories: (i) vendors of multidimensional database and analysis software
such as Oracle Corporation (Express); Gentia Software plc (formerly known as
Planning Sciences International plc and Planning Sciences, Inc.) (Gentia);
Applix, Inc. (TM1); Seagate Software, a subsidiary of Seagate Technology, Inc.
(Holos); and Microsoft Corporation (Microsoft OLAP Server, currently in beta);
(ii) vendors of dedicated software applications for budgeting and financial
consolidation such as Hyperion (Pillar and Enterprise); and (iii) vendors of
relational/on-line analytical processing database software (ROLAP) such as
Information Advantage, Inc. (Decision Suite); Informix Corporation (Metacube);
and Microstrategy, Inc. (DSS Agent).
The Company has experienced and expects to continue to experience increased
competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, certain current and potential competitors have greater name
recognition or more extensive customer bases that could be leveraged, thereby
gaining market share to the Company's detriment. The Company expects additional
competition as other established and emerging companies enter into the on-line
analytical processing ("OLAP") software market and new products and technologies
are introduced. In addition, as the Company develops and enhances Arbor Essbase
and complementary products, the resulting new functionality may duplicate the
functionality of, and thus compete with, other products offered by indirect
channel partners. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
would materially adversely affect the Company's business, operating results and
financial condition.
The Company's future success depends, in part, upon the availability of
third party tools and applications that address customer requirements and work
with Arbor Essbase through the Company's Arbor Essbase Application Programming
Interface ("API"). Failure by third parties to support the Company's API or
failure by the Company to adopt industry standard API's, if and when they
emerge, could materially adversely affect the Company's business, operating
results and financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's existing and prospective customers. Further competitive pressures,
such as those resulting from competitors' discounting of their products, may
require the Company to reduce the price of Arbor Essbase and complementary
products, which would materially adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.
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Management of Growth; Acquisition-related Risks. The Company's rapid growth
has placed, and is expected to continue to place, a significant strain on the
Company's managerial, operational, financial and other resources. As of March
31, 1998, the Company had grown to 420 employees since its inception in April
1991, and the Company expects that continued hiring of new personnel will be
required to support the growth of its business. The Company's future success
will depend, in part, upon its ability to manage its growth effectively,
particularly as the Company enhances and extends the functionality of Arbor
Essbase with complementary products and expands its international distribution.
This will require that the Company continue to implement and improve its
operational, administrative and financial and accounting systems and controls
and to expand, train and manage its employee base. There can be no assurance
that the Company's systems, procedures or controls will be adequate to support
the Company's operations or that the Company's management will be able to
achieve the rapid execution necessary to exploit the market for the Company's
business model. See "-- Hiring and Retention of Personnel."
A key component of the Company's growth strategy is the acquisition of
complementary businesses, products and technologies that meet the Company's
criteria for revenues, profitability, growth potential and operating strategy.
The successful implementation of this strategy depends on the Company's ability
to identify suitable acquisition candidates, acquire such companies on
acceptable terms and integrate their operations successfully with those of the
Company. There can be no assurance that the Company will be able to identify
suitable acquisition candidates or that the Company will be able to acquire such
candidates on acceptable terms. Moreover, in pursuing acquisition opportunities
the Company may compete with other companies with similar growth strategies,
certain of which competitors may be larger and have greater financial and other
resources than the Company. Competition for these acquisition targets could also
result in increased prices of acquisition targets and a diminished pool of
companies available for acquisition. Acquisitions, such as the acquisition of
AppSource Corporation in December 1997 and the pending merger of the Company
with Hyperion (the "Merger") as described in the Company's Current Report on
Form 8-K, dated May 25, 1998, involve a number of other risks, including, among
other things, adverse effects on the Company's reported operating results from
goodwill amortization, acquired in-process technology, stock compensation
expense and increased compensation expense resulting from newly hired employees,
difficulties in managing diverse geographic sales and research and development
operations, the diversion of management attention, potential disputes with the
sellers of acquired entities, the possible failure to retain key acquired
personnel and the impairment of relationships with employees and strategic
partners as a result of such acquisitions or the integration of new personnel.
Due to the foregoing, the Company's pursuit of an acquisition strategy or any
individual acquisition may have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's future performance will depend on the Company's ability to
integrate any organizations acquired by the Company, including Hyperion if the
Merger is approved, which, even if successful, may take a significant period of
time, will place a significant strain on the Company's resources, and could
subject the Company to additional expenses during the integration process. As a
result, there can be no assurance that the Company will be able to integrate
acquired businesses successfully, including Hyperion if the Merger is approved,
or in a timely manner in accordance with its strategic objectives. If the
Company is unable to manage internal or acquisition-based growth effectively,
the Company's business, operating results and financial condition will be
materially adversely affected.
Uncertainty Relating to Integration as a Result of the Merger. The
integration of Hyperion's and the Company's business and personnel following the
Merger presents difficult challenges for Arbor's management, particularly in
light of the increased time and resources required to effect the combination
with Hyperion. Further, both the Company and Hyperion entered into the Agreement
and Plan of Merger with the expectation that the Merger will result in synergies
for the combined company. The combined company, however, will be more complex
and diverse than either Arbor or Hyperion individually, and the combination and
continued operation of their business operations will be difficult. While the
management and the board of directors of both the Company and Hyperion believe
that the combination can be effected in a manner that will realize the value of
the combined company, the management group of the combined company has limited
experience in combinations of this complexity or size. Accordingly, there can be
no assurance that the process
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of effecting these business combinations can be effectively managed to realize
the synergies anticipated to result therefrom.
The Company and Hyperion entered into the Agreement and Plan of Merger,
among other reasons, in order to achieve potential mutual benefits from
combining each of their respective expertise and product lines for the
enterprise software market. Realization of these potential benefits will
require, among other things, integrating the companies' respective product
offerings and coordinating the combined company's sales and marketing and
research and development efforts. The Company and Hyperion each have different
systems and procedures in many operational areas that must be rationalized and
integrated. There can be no assurance that such integration will be accomplished
effectively, expeditiously or efficiently. The difficulties of such integration
may be increased by the necessity of coordinating geographically separated
divisions, integrating personnel with disparate business backgrounds and
combining different corporate cultures. The integration of certain operations
following the Merger will require the dedication of management resources that
may temporarily distract attention from the day-to-day business of the combined
company. The business of the combined company may also be disrupted by employee
uncertainty and lack of focus during such integration. There can also be no
assurance that the combined company will be able to retain all of its key
technical, sales and other key personnel. Failure to effectively accomplish the
integration of the operations of the Company and Hyperion could have a material
adverse effect on the combined company's business, operating results and
financial condition. Moreover, uncertainty in the marketplace or customer
hesitation relating to the Merger could negatively affect the combined company's
business, operating results and financial condition.
Cost of Integration; Transaction Expenses. Transaction costs relating to
the Merger and the anticipated combination of certain operations of the Company
and Hyperion are expected to result in one-time charges to the combined
company's earnings. Although it will not be feasible to determine the actual
amount of these charges until the operational and transition plans are
completed, the management of the Company and Hyperion believe that the aggregate
charge will be approximately $20 million before taxes, although such amount may
be increased by unanticipated additional expenses incurred in connection with
the Merger. This aggregate charge is expected to include the estimated costs
associated with financial advisory, accounting and legal fees, printing
expenses, filing fees and other merger-related costs. While the exact timing of
these expenses cannot be determined at this time, the management of the Company
anticipates that this aggregate charge to earnings will be recorded primarily in
the quarter ending September 30, 1998, the time at which the Merger is expected
to be consummated.
Potential Dilutive Effect to Stockholders. Although the Company and
Hyperion believe that beneficial synergies will result from the Merger, there
can be no assurance that the combining of the Company's and Hyperion's
businesses, even if achieved in an efficient and effective manner, will result
in combined results of operations and financial condition superior to that which
would have been achieved by each company independently, or as to the period of
time required to achieve such result. The issuance of the Company's Common Stock
in connection with the Merger is likely to have a dilutive effect on the
Company's earnings per share and there is no assurance that Company stockholders
would not achieve greater returns on investment were the Company to remain an
independent company.
Dependence Upon Indirect Channel Partners. In addition to its direct sales
force, the Company relies on indirect channel partners such as OEMs, VARs and
distributors for licensing and support of Arbor Essbase in the United States and
internationally. Sales by indirect channel partners for the fiscal years ended
March 31, 1998, 1997 and 1996 were 23%, 25% and 28% of total revenues,
respectively. The Company's indirect channel partners generally offer products
of several different companies, including, in some cases, products that compete
with Arbor Essbase, and if the Merger is approved, products that are competitive
with Hyperion. Further, as the Company enhances the functionality in Arbor
Essbase, develops complementary products or expands its product offerings
through acquisition or other means, including the Merger, such enhancements and
complementary products may duplicate the functionality of products already
offered by its channel partners. In such event, sales of the Company's products
by such channel partner may decline. There can be no assurance that the
Company's current indirect channel partners will elect, or be able, to market or
support Arbor Essbase or the Company's complementary products effectively or be
able to release their Arbor Essbase embedded products in a timely manner, that
the Company will be able to effectively manage channel conflicts,
9
<PAGE> 10
that economic conditions or industry demand will not adversely affect these or
other indirect channel partners or that these indirect channel partners will not
devote greater resources to marketing and supporting the products of other
companies. No assurance can be given that revenues derived from indirect channel
partners will not fluctuate significantly in subsequent periods or terminate
entirely. The Company has been involved in litigation with a significant channel
partner and, although such litigation has been settled, there can be no
assurance that there will be no future disputes with current or future channel
partners. Such disputes could materially adversely affect the Company's
business, operating results and financial condition.
Product Concentration; Dependence upon the Market for OLAP Server
Software. All of the Company's revenues to date have been derived from licenses
for Arbor Essbase and complementary products and services. The Company currently
expects that Arbor Essbase-related revenues, including revenues from
complementary products, as well as maintenance and support contracts, will
continue to account for substantially all of the Company's revenues for the
foreseeable future. If the Merger is approved by the stockholders of Arbor and
Hyperion and the other closing conditions are satisfied, Arbor Essbase related
revenues are expected to still account for a significant portion of the combined
company's revenues for the foreseeable future. As a result, the Company's future
operating results are dependent upon continued market acceptance of Arbor
Essbase, enhancements and extensions thereto and applications and tools
therefor. There can be no assurance that Arbor Essbase will achieve continued or
increased market acceptance or that the Company will be successful in marketing
Arbor Essbase, enhancements thereto or applications therefor. A decline in
demand for, or market acceptance of, Arbor Essbase as a result of competition,
technological change or other factors would have a material adverse effect on
the Company's business, operating results and financial condition. The Company
intends to continue its efforts to improve and enhance Arbor Essbase by
maintaining its commitment to an open architecture, extending its partnerships,
integrating third party technologies, enhancing its linkage with leading
general-purpose database management systems, continuing to evolve the Arbor
Essbase OLAP Server, and developing complementary products. No assurance can be
given that such efforts will enhance the value of the Company's product
offerings to customers.
Although sales of Arbor Essbase have increased in recent years, the market
in which the Company competes is undergoing rapid change, and there can be no
assurance that existing customers will continue to purchase or that potential
customers will purchase Arbor Essbase and complementary products. The Company
has spent, and intends to continue to spend, considerable resources educating
potential customers about Arbor Essbase and its functions and the market for
OLAP solutions. However, there can be no assurance that such expenditures will
enable Arbor Essbase to achieve any additional degree of market acceptance, and
if the market for Arbor Essbase or utilization of OLAP tools and complementary
applications in general fails to grow or grows more slowly than the Company
currently anticipates, the Company's business, operating results and financial
condition would be materially adversely affected. Historically, the software
industry has experienced significant periodic downturns, often in connection
with, or in anticipation of, declines in general economic conditions during
which MIS budgets often decrease. As a result, the Company's business, operating
results and financial condition may in the future reflect substantial
fluctuations from period to period as a consequence of patterns and general
economic conditions in the software industry.
Risks Associated with International Operations. The Company's future
financial performance will depend in large part on the growth and performance of
the Company's international operations. The Company believes that in order to
increase sales opportunities and profitability it will be required to expand its
international operations. The Company maintains offices in Vancouver, British
Columbia, Canada; London, United Kingdom; Paris, France; Frankfurt, Hamburg and
Munich, Germany; and Sydney, Australia and is currently investing significant
time, financial resources and management attention to developing its
international operations, including the development of certain third party
distributor relationships and the hiring of additional sales representatives.
However, there can be no assurance that the Company will be successful in
expanding its international operations or that the Company will be able to
maintain or increase international market demand for Arbor Essbase. To the
extent that the Company is unable to do so in a timely manner, the Company's
international sales will be limited, and the Company's business, operating
results and financial condition would be materially adversely affected. In the
event of a dispute with an international distributor, it is possible that the
Company would incur additional costs and expenses and certain obstacles to
termination of
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<PAGE> 11
the relationship, as the laws of certain foreign jurisdictions are more
favorable to distributors than those of the United States. In addition, as the
Company establishes and protects its trademarks in jurisdictions outside the
United States, it is possible it will encounter opposition from entities
claiming rights to such trademarks in those jurisdictions.
International revenues, which are attributable primarily to direct export
sales to customers in Europe, accounted for 16%, 13% and 10% of total revenues
in the fiscal years ended March 31, 1998, 1997 and 1996, respectively.
International sales are subject to inherent risks, including the impact of
possible recessionary environments in economies outside the United States,
higher costs of doing business, costs of localizing products for different
languages, longer receivables collection periods and greater difficulty in
accounts receivable collection, unexpected changes in regulatory requirements,
difficulties and costs of staffing and managing foreign operations, reduced
protection for intellectual property rights in some countries, potentially
adverse tax consequences and political and economic instability. There can be no
assurance that the Company or its indirect channel partners will be able to
sustain or increase international revenues from international licenses and
maintenance, support and other services, or that the foregoing factors will not
have a material adverse effect on the Company's future international revenues
and, consequently, on the Company's business, operating results and financial
condition. The Company's direct international sales are currently denominated in
either United States dollars, British pounds sterling, German deutsche marks or
French francs. Although exposure to currency fluctuations has not been material
to date, there can be no assurance that fluctuations in the currency exchange
rates in the future will not have a material adverse impact on revenues from
direct international sales and thus the Company's business, operating results or
financial condition. Sales generated by the Company's indirect channel partners
are currently paid to the Company in United States dollars. If, in the future,
international indirect sales are denominated in local currencies, foreign
currency translations may contribute to significant fluctuations in, and could
have a material adverse effect upon, the Company's business, operating results
and financial condition.
Risks Associated with New Versions and New Products; Rapid Technological
Change. The software industry, and specifically the market in which the Company
competes, is characterized by rapid technological change, frequent introductions
of new products, changes in customer demands and evolving industry standards.
The introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
life cycle of each version of Arbor Essbase is difficult to estimate. The
Company's future success will depend upon its ability to address the
increasingly sophisticated needs of its customers by developing and introducing
enhancements to Arbor Essbase and complementary products on a timely basis that
keep pace with technological developments and emerging industry standards and
customer requirements. There can be no assurance that the Company will be
successful in developing and marketing enhancements to Arbor Essbase and
complementary products that respond to technological change, evolving industry
standards or customer requirements, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements or that such enhancements will
adequately meet the requirements of the marketplace and achieve any significant
degree of market acceptance. The Company has in the past experienced delays in
the release dates of enhancements to Arbor Essbase and complementary products.
If the release dates of any future enhancements of Arbor Essbase or
complementary products are delayed, or if when released, such products fail to
achieve market acceptance, the Company's business, operating results and
financial condition could be materially adversely affected. There can be no
assurance that the introduction or announcement of new product offerings by the
Company or the Company's competitors will not cause customers to defer or forego
purchases of current versions of Arbor Essbase or complementary products, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
Hiring and Retention of Personnel. The Company's future operating results
depend in significant part upon the continued service of its key technical,
sales and senior management personnel, none of whom is bound by an employment
agreement for a term of service. The Company's future success also depends on
its continuing ability to attract and retain highly qualified technical, sales
and managerial personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to retain its key managerial,
technical or sales personnel or attract such personnel in the future. Two
members of senior
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<PAGE> 12
management recently joined the Company and there can be no assurance that the
new management will be able to work effectively with existing management. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel, and there can be no assurance that the Company
will not experience such difficulties in the future, particularly in the San
Francisco Bay Area, where the employment market for qualified marketing and
engineering personnel is extremely competitive. The Company, either directly or
through personnel search firms, actively recruits qualified research and
development, financial and sales personnel. If the Company is unable to hire and
retain qualified personnel in the future, such inability could have a material
adverse effect on the Company's business, operating results and financial
condition. As stock options are a customary component of compensation packages
in the software industry, the Company will need to increase the size of its
stock option pool, and there can be no assurance that requisite stockholder
approval will be achieved. Without adequate stock option reserves, recruiting
may be increasingly difficult. The business of the Company is likely to be
disrupted by employee uncertainty and lack of focus as a result of the Merger,
and the necessary integration of the combined company if such Merger is approved
and the other closing conditions are satisfied. Such disruption could materially
adversely affect the Company's business, operating results and financial
conditions.
Risk of Software Defects. Software products as internally complex as Arbor
Essbase frequently contain errors or defects, especially when first introduced
or when new versions or enhancements are released. Despite product testing by
the Company, the Company has in the past released versions of Arbor Essbase with
defects and has discovered software errors in Arbor Essbase and certain enhanced
versions of Arbor Essbase after their introduction. Although the Company has not
experienced material adverse effects resulting from any such defects and errors
to date, there can be no assurance that, despite testing by the Company and by
current and potential customers, defects and errors will not be found in new
versions or enhancements after commencement of commercial shipments, including
the recently released Arbor Essbase OLAP Server 5 ("Arbor Essbase 5"), resulting
in loss of revenues or delay in market acceptance, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Risks Associated with Litigation and Related Costs. The Company's ongoing
litigation with Gentia Software plc (formerly known as Planning Sciences
International plc and Planning Sciences, Inc.) ("Gentia Software") has resulted
in and will continue to result in increased legal costs to the Company. No
assurance can be given as to when the litigation proceedings will be resolved or
that management will not be distracted from their normal duties as a result of
the proceedings. The Company believes that it has meritorious claims against
Gentia Software and meritorious defenses against Gentia Software's claims that
U.S. Patent No. 5,359,724 (the " '724 patent") is invalid, and intends to pursue
vigorously its claims and defend against Gentia Software's claims. In addition,
Gentia Software has filed two requests for reexamination of the '724 patent by
the U.S. Patent and Trademark Office, both of which have been granted. The
reexamination proceedings are currently pending. The outcomes of the Gentia
Software litigation and the patent reexamination proceedings are uncertain at
this time, and no assurance can be given that the outcome of the litigation will
be in the Company's favor, or that the U.S. Patent and Trademark Office will not
declare the '724 patent invalid or narrow the scope of its claims. Management
believes that the outcome of the Gentia Software litigation or the reexamination
proceedings will not have a material adverse effect on the Company's business,
operating results or financial condition. However, should the '724 patent be
declared invalid or the scope of its claims narrowed, competitors may be able to
implement the technology described in the '724 patent, which could result in
increased competition. Increased competition could materially adversely affect
the Company's future business. See "-- Competition."
Proprietary Rights and Risks of Infringement. The Company relies primarily
on a combination of patent, copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company also believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position. The Company seeks
to protect its software, documentation and other written materials under
contract trade secret and copyright laws, which afford only limited protection.
The Company currently has one United States patent and corresponding patent
applications pending in Europe, Canada and Australia. There can be no
12
<PAGE> 13
assurance that the Company's patent will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future patent
applications, whether or not being currently challenged by applicable
governmental patent examiners, will be issued with the scope of the claims
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology or design around the patents owned by the Company. See
"-- Risks Associated with Litigation and Related Costs."
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competitors will not independently
develop similar technology. The Company has entered into source code escrow
agreements with a number of its customers and indirect channel partners
requiring release of source code under certain conditions. Such agreements
provide that such parties will have a limited, non-exclusive right to use such
code in the event that there is a bankruptcy proceeding by or against the
Company, if the Company ceases to do business or if the Company fails to meet
its contractual obligations. The provision of source code may increase the
likelihood of misappropriation by third parties.
The Company expects that software developers will increasingly be subject
to infringement claims, particularly patent claims, as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
license the infringed or similar technology, the Company's business, operating
results and financial condition would be materially adversely affected. The
Company is engaged currently in litigation with Gentia Software concerning the
enforcement and validity of the '724 patent. In addition, Gentia Software has
filed two requests for reexamination of the '724 patent by the U.S. Patent and
Trademark Office, both of which have been granted. The reexamination proceedings
are currently pending. See "-- Risks Associated with Litigation and Related
Costs."
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in the Company's products to perform key functions.
There can be no assurance that these third-party software licenses will continue
to be available to the Company on commercially reasonable terms. The loss of, or
inability to maintain, any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated, which would materially adversely affect the Company's
business, operating results and financial condition. In addition, there can be
no assurance that third parties will not claim infringement by the Company with
respect to the Company's products or enhancements thereto.
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. Management does not
believe that the functioning of Arbor Essbase is materially affected by dates
containing the year 2000 or subsequent years. This is due to the fact that Arbor
Essbase does not store date information as a data type in its database and does
not perform date calculations. However, the Company could be adversely impacted
by Year 2000 issues in its internal computer systems, as well as by Year 2000
issues faced by customers, resellers and service providers. For example,
customer allocations of financial resources to deal with this issue may reduce
their ability to purchase products such as Arbor Essbase and
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<PAGE> 14
related products and services. This reallocation of financial resources could
have an adverse effect on the Company's business, operating results and
financial condition. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. Although the
Company believes its software products are Year 2000 compliant, there can be no
assurance that the Company's software products contain all necessary software
routines and programs necessary for the accurate calculation, display, storage
and manipulation of data involving dates. If any of the Company's licensees
experience Year 2000 problems, such licensee could assert claims for damages
against the Company. Any such litigation could result in substantial costs and
diversion of the Company's resources even if ultimately decided in favor of the
Company. The occurrence of any of the foregoing could have a material adverse
effect on the Company's business, operating results or financial condition.
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of federal, state or local laws or ordinances enacted in
the future or judicial decisions. Although the Company has not experienced any
material product liability claims to date, the sale and support of Arbor Essbase
by the Company may entail the risk of such claims. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition. See
'-- Year 2000 Compliance."
Subordination. The Notes are unsecured and subordinated in right of payment
in full to all existing and future Senior Indebtedness (as defined) of the
Company. As a result of such subordination, in the event of bankruptcy,
liquidation or reorganization of the Company or upon acceleration of the Notes
due to an Event of Default (as defined) under the Indenture and in certain other
events, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Indebtedness has been paid in full in cash or other
payment satisfactory to the holders of Senior Indebtedness, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes then
outstanding. The Notes also are effectively subordinated to the liabilities,
including trade payables, of any subsidiary of the Company. The Indenture does
not prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company or any subsidiary of the
Company, and the incurrence of additional indebtedness and other liabilities by
the Company or any subsidiary of the Company could adversely affect the
Company's ability to pay its obligations on the Notes. As of March 31, 1998, the
Company had an insignificant amount of indebtedness outstanding that would have
constituted Senior Indebtedness. The Company anticipates that from time to time
it will incur additional indebtedness, including Senior Indebtedness, and that
it will, and subsidiaries of the Company may, from time to time incur other
additional indebtedness and liabilities. See "Description of
Notes -- Subordination of Notes."
Limitations on Redemption of Notes upon Fundamental Change. Upon a
Fundamental Change (as defined), each holder of Notes will have certain rights,
at the holder's option, to require the Company to redeem all or a portion of
such holder's Notes. If a Fundamental Change were to occur, there can be no
assurance that the Company would have sufficient funds to pay the redemption
price for all Notes tendered by the holders thereof. In addition, the terms of
the Company's existing credit facility provide that a Fundamental Change would
constitute an event of default thereunder. Any future credit agreements or other
agreements relating to other indebtedness (including other Senior Indebtedness)
to which the Company becomes a party may contain similar restrictions and
provisions, including restrictions and provisions that prohibit the Company from
purchasing or redeeming any Notes. In the event a Fundamental Change occurs at a
time when the Company is prohibited from purchasing or redeeming Notes, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent to repay such borrowings, the Company
would remain prohibited from purchasing or redeeming Notes. In such case, the
Company's failure to redeem tendered Notes would constitute an Event of Default
under the Indenture and may constitute a default under the terms of other
indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of Notes. The term "Fundamental Change" is
limited to certain specified transactions and may not include other events that
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<PAGE> 15
might adversely affect the financial condition of the Company, nor would the
requirement that the Company offer to repurchase the Notes upon a Fundamental
Change necessarily afford holders of the Notes protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving the Company. See "Description of Notes -- Redemption at Option of the
Holder."
Absence of Public Market for the Notes and Restrictions on Resale. The
Notes were issued in March 1998 to a small number of institutional buyers. Prior
to such issuance there has been no trading market for the Notes. The Notes
issued in the initial private placement were designated for trading on the
PORTAL Market. Notes sold pursuant to this Prospectus will not remain eligible
for trading on the PORTAL Market. Accordingly, there can be no assurance that
any market for the Notes will develop or, if one does develop, that it will be
maintained. If an active market for the Notes fails to develop or be sustained,
the trading price of such Notes could be materially adversely affected. If a
public trading market develops for the Notes future trading prices of the Notes
will depend upon many factors, including among other, prevailing interest rates
and the market price of the shares of Common Stock of the Company. See
"Description of Notes -- Registration Rights of the Noteholders" and "-- Plan of
Distribution."
Rating of Notes. The Company believes it is likely that one or more rating
agencies may rate the Notes. There can be no assurance as to whether any such
agency or agencies will rate the Notes or, if they do, what rating or ratings
they will assign to the Notes. If one or more rating agencies assign the Notes a
rating lower than that expected by investors, such event would likely have a
material adverse effect on the market price of the Notes and the Company's
Common Stock.
Possible Price Volatility of Notes and Common Stock. The market prices for
securities of technology companies have been highly volatile. The market price
of the Notes and the shares of Common Stock into which the Notes are convertible
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, relationships with indirect
channel partners, announcements relating to the Company's current litigation
with Gentia Software or other disputes with indirect channel partners, customers
or others, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the software
industry, adoption of new accounting standards by the software industry, changes
in financial estimates by securities analysts, general market conditions, and
other factors. In addition, the stock market has experienced extreme price and
volume fluctuations that have particularly affected the market price for many
high technology companies and that have often been unrelated to the operating
performance of these companies. The Company's stock price has been, and is
likely to continue to be, highly volatile. The market price (closing sale price)
of the Company's Common Stock has fluctuated substantially in recent periods.
These broad market fluctuations may adversely affect the market price of the
Notes and the Common Stock into which the Notes are convertible, and there can
be no assurance that the market price of the Notes and the Common Stock into
which the Notes are convertible will not decline below the levels prevailing at
the time of this offering. In the past, following periods of volatility in the
market price of a particular company's securities, securities class action
litigation has often been brought against that company. Such litigation, if
brought against the Company, could result in substantial costs and a diversion
of management's attention and resources.
Effect of Certain Charter Provisions; Certificate of Incorporation, Bylaws,
and Delaware Law. Certain provisions of the Company's Restated Certificate of
Incorporation and Bylaws and certain provisions of Delaware law could delay or
make difficult a merger, tender offer or proxy contest involving the Company.
The authorized but unissued capital stock of the Company includes 5,000,000
shares of preferred stock. The Board of Directors is authorized to provide for
the issuance of such preferred stock in one or more series and to fix the
designations, preferences, powers and relative, participating, optional or other
rights and restrictions thereof. Accordingly, the Company may in the future
issue a series of preferred stock, without further stockholder approval, that
will have preference over the Common Stock with respect to the payment of
dividends and upon liquidation, dissolution or winding-up of the Company. See
"Description of Capital Stock -- Preferred Stock." Further, Section 203 of the
General Corporation Law of the State of Delaware (as amended from time to time,
the "DGCL"), which is applicable to the Company, prohibits certain business
combinations with certain stockholders for a period of three years after they
acquire 15% or more of the
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<PAGE> 16
outstanding voting stock of a corporation. Any of the foregoing could adversely
affect holders of the Company's Common Stock or discourage or make difficult any
attempt to obtain control of the Company. See "Description of Capital
Stock -- Antitakeover Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law."
USE OF PROCEEDS
The Company will not receive any of the proceeds from sales of the Notes or
the Shares by the Selling Securityholders.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and currently does not anticipate paying cash dividends in the foreseeable
future. In addition, the Company's credit facility restricts the Company's
ability to pay cash dividends.
RATIO OF EARNINGS TO FIXED CHARGES
For the year ended March 31, 1994, earnings were insufficient to cover
fixed charges by approximately $2.2 million. For purposes of calculating the
ratio of earnings to fixed charges (i) earnings consist of income before income
taxes plus fixed charges and (ii) fixed charges consist of interest expense,
amortization of debt issuance costs and the estimated portion of rental expense
deemed by the Company to be representative of the interest factor of rental
payments under operating leases.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges............... -- 2.3 7.9 14.3 14.4
== === === ==== ====
</TABLE>
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<PAGE> 17
DESCRIPTION OF NOTES
The Notes were issued under an indenture, dated as of March 15, 1998 (the
"Indenture"), between the Company and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"). A copy of the form of Indenture
and Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Notes, the Indenture and the Registration
Rights Agreement do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the Notes,
the Indenture and the Registration Rights Agreement, including the definitions
therein of certain terms which are not otherwise defined in this Prospectus.
Wherever particular provisions or defined terms of the Indenture (or of the Form
of Note which is a part thereof) or the Registration Rights Agreement are
referred to, such provisions or defined terms are incorporated herein by
reference. References in this Section to the "Company" are solely to Arbor
Software Corporation, a Delaware corporation, and not its subsidiaries.
GENERAL
The Notes represent unsecured general obligations of the Company
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Notes" and convertible into Common Stock as
described under "Conversion of Notes." The Notes are limited to $100,000,000
aggregate principal amount, are issued only in denominations of $1,000 and
multiples thereof and will mature on March 15, 2005 unless earlier redeemed at
the option of the Company or at the option of the holder upon a Fundamental
Change (as defined).
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness (as defined
below under "Subordination of Notes") or the issuance or repurchase of
securities of the Company. The Indenture contains no covenants or other
provisions to afford protection to holders of the Notes in the event of a highly
leveraged transaction or a change in control of the Company except to the extent
described below under "Redemption at Option of the Holder."
The Notes bear interest at the annual rate set forth on the cover page
hereof from March 17, 1998 payable semi-annually on March 15 and September 15,
commencing on September 15, 1998, to holders of record at the close of business
on the preceding March 1 and September 1, respectively, except (i) that the
interest payable upon redemption (unless the date of redemption is an interest
payment date) will be payable to the person to whom principal is payable and
(ii) as set forth in the next succeeding sentence. In the case of any Note (or
portion thereof) that is converted into Common Stock of the Company during the
period from (but excluding) a record date to (but excluding) the next succeeding
interest payment date either (i) if such Note (or portion thereof) has been
called for redemption on a redemption date that occurs during such period, or is
to be redeemed in connection with a Fundamental Change on a Repurchase Date (as
defined) that occurs during such period, the Company shall not be required to
pay interest on such interest payment date in respect of any such Note (or
portion thereof) or (ii) if otherwise, any Note (or portion thereof) submitted
for conversion during such period shall be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted (see "Conversion of Notes"). Interest may, at the Company's
option, be paid either (i) by check mailed to the address of the person entitled
thereto as it appears in the Note register or (ii) by transfer to an account
maintained by such person located in the United States; provided, however, that
payments to The Depository Trust Company, New York, New York ("DTC") will be
made by wire transfer of immediately available funds to the account of DTC or
its nominee. Interest will be computed on the basis of a 360-day year composed
of twelve 30-day months.
FORM, DENOMINATION AND REGISTRATION
The Notes are issuable in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof.
Global Note, Book-Entry Form. Notes sold by the Selling Securityholders
pursuant to the Registration Statement of which this Prospectus forms a part may
be represented by a global Note (the "Registered Global Note"), except as set
forth below under "Certificated Notes." The Registered Global Note will be
deposited
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<PAGE> 18
with, or on behalf of, DTC and registered in the name of Cede & Co. ("Cede") as
DTC's nominee. Except as set forth below, the Registered Global Note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Purchasers of the Notes may hold their interests in the Registered Global
Note directly through DTC if such holder is a participant in DTC, or indirectly
through organizations which are participants in DTC (the "Participants").
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearing house funds. The laws
of some states require that certain persons take physical delivery of securities
in definitive form. Consequently, the ability to transfer beneficial interests
into the Registered Global Note to such persons may be limited.
Persons who are not Participants may beneficially own interests in the
Registered Global Note held by DTC only through Participants, or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered owner of the Registered Global Note, Cede for all purposes will
be considered the sole holder of the Registered Global Note. Except as provided
below, owners of beneficial interests in the Registered Global Note will not be
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive registered
form, and will not be considered the holders thereof.
Payment of interest on and the redemption price of the Registered Global
Note will be made to Cede, the nominee for DTC, as the registered owner of the
Registered Global Note by wire transfer of immediately available funds on each
interest payment date or the redemption or repurchase date, as the case may be.
Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Registered
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, the Registered Global Note, DTC's
practice is to credit Participants' accounts on the payment date therefor with
payments in amounts proportionate to their respective beneficial interests in
the principal amount represented by the Registered Global Note as shown on the
records of DTC, unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants to owners of beneficial
interests in the principal amount represented by the Registered Global Note held
through such Participants will be the responsibility of such Participants, as is
now the case with securities held for the accounts of customers registered in
"street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the
Registered Global Note to pledge such interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company nor the Trustee (nor any registrar, paying agent nor
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction of
one or more Participants to whose account with DTC interests in the Registered
Global Note are credited, and only in respect of the principal amount of the
Notes represented by the Registered Global Note as to which such Participant or
Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the
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<PAGE> 19
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations such as the Initial Purchasers.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Registered Global Note among Participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days, the Company will cause Notes to be issued in
definitive registered form in exchange for the Registered Global Note.
Certificated Notes. Holders of Notes may request that certificated Notes be
issued in exchange for Notes represented by the Registered Global Note.
Furthermore, certificated Notes may be issued in exchange for Notes represented
by the Registered Global Note if no successor depositary is appointed by the
Company as set forth above under "Global Note, Book-Entry Form."
CONVERSION OF NOTES
The holders of Notes will be entitled at any time after 90 days following
the latest date of original issuance thereof through the close of business on
the final maturity date of the Notes, subject to prior redemption, to convert
any Notes or portions thereof (in denominations of $1,000 or multiples thereof)
into Common Stock of the Company, at the conversion price set forth on the cover
page of this Prospectus, subject to adjustment as described below. Except as
described below, no payment or other adjustment will be made on conversion of
any Notes for interest accrued thereon or for dividends on any Common Stock
issued. If any Notes not called for redemption are converted during the period
from (but excluding) a record date to (but excluding) the next succeeding
interest payment date, such Notes must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted. See "-- General." The Company is not required to issue
fractional shares of Common Stock upon conversion of Notes and, in lieu thereof,
will pay a cash adjustment based upon the market price of Common Stock on the
last business day prior to the date of conversion. In the case of Notes called
for redemption, conversion rights will expire at the close of business on the
business day preceding the day fixed for redemption unless the Company defaults
in the payment of the redemption price. A Note in respect of which a holder is
exercising its option to require redemption upon a Fundamental Change may be
converted only if such holder withdraws its election to exercise its option in
accordance with the terms of the Indenture.
The initial conversion price of $56.357 share of Common Stock is subject to
adjustment under formulae as set forth in the Indenture in certain events,
including:
(i) the issuance of Common Stock of the Company as a dividend or
distribution on the Common Stock;
(ii) the issuance to all holders of Common Stock of certain rights or
warrants to purchase Common Stock;
(iii) certain subdivisions and combinations of the Common Stock;
(iv) the distribution to all holders of Common Stock of capital stock
(other than Common Stock) or evidences of indebtedness of the Company or of
assets (including securities, but excluding those rights, warrants,
dividends and distributions referred to above or paid in cash);
(v) distributions consisting of cash, excluding any quarterly cash
dividend on the Common Stock to the extent that the aggregate cash dividend
per share of Common Stock in any quarter does not exceed the greater of (x)
the amount per share of Common Stock of the next preceding quarterly cash
dividend
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<PAGE> 20
on the Common Stock to the extent that such preceding quarterly dividend
did not require an adjustment of the conversion price pursuant to this
clause (v) (as adjusted to reflect subdivisions or combinations of the
Common Stock), and (y) 3.75 percent of the average of the last reported
sale price of the Common Stock during the ten trading days immediately
prior to the date of declaration of such dividend, and excluding any
dividend or distribution in connection with the liquidation, dissolution or
winding up of the Company. If an adjustment is required to be made as set
forth in this clause (v) as a result of a distribution that is a quarterly
dividend, such adjustment would be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend permitted to
be excluded pursuant to this clause (v). If an adjustment is required to be
made as set forth in this clause (v) as a result of a distribution that is
not a quarterly dividend, such adjustment would be based upon the full
amount of the distribution;
(vi) payment in respect of a tender offer or exchange offer by the
Company or any Subsidiary (as defined) of the Company for the Common Stock
to the extent that the cash and value of any other consideration included
in such payment per share of Common Stock exceeds the Current Market Price
(as defined) per share of Common Stock on the trading day next succeeding
the last date on which tenders or exchanges may be made pursuant to such
tender or exchange offer; and
(vii) payment in respect of a tender offer or exchange offer by a
person other than the Company or any Subsidiary of the Company in which, as
of the closing date of the offer, the Board of Directors is not
recommending rejection of the offer. The adjustment referred to in this
clause (vii) will only be made if the tender offer or exchange offer is for
an amount that increases the offeror's ownership of Common Stock to more
than 25% of the total shares of Common Stock outstanding, and if the cash
and value of any other consideration included in such payment per share of
Common Stock exceeds the Current Market Price per share of Common Stock on
the business day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer. The
adjustment referred to in this clause (vii) will generally not be made,
however, if, as of the closing of the offer, the offering documents with
respect to such offer disclose a plan or an intention to cause the Company
to engage in a consolidation or merger of the Company or a sale of all or
substantially all of the Company's assets.
The Indenture will provide that if the Company implements a stockholders'
rights plan, such rights plan must provide that, subject to customary
exceptions, upon conversion of the Notes the holders will receive, in addition
to the Common Stock issuable upon conversion, such rights whether or not such
rights have separated from the Common Stock at the time of such conversion.
In the case of (i) any reclassification of the Common Stock, or (ii) a
consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will generally be
entitled thereafter to convert such Notes into the kind and amount of shares of
stock, other securities or other property or assets (including cash) which they
would have owned or been entitled to receive upon such reclassification,
consolidation, merger, combination, sale or conveyance had such Notes been
converted into Common Stock immediately prior to such reclassification,
consolidation, merger, combination, sale or conveyance assuming that a holder of
Notes would not have exercised any rights of election as to the stock, other
securities or other property or assets (including cash) receivable in connection
therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations" below.
The Company from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
the Company shall give at least 15 days' notice of such reduction, if the Board
of Directors has made a determination that such reduction would be in the best
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<PAGE> 21
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after
March 20, 2001, the Notes will be redeemable at the Company's option on at least
30 days' notice as a whole or, from time to time, in part at the following
prices (expressed as a percentage of the principal amount), together with
accrued interest to, but excluding, the date fixed for redemption.
If redeemed during the period beginning March 20, 2001 and ending on March
14, 2002 at a redemption price of 102.571%, and if redeemed during the 12-month
period beginning March 15:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002.............................................. 101.929%
2003.............................................. 101.286
2004.............................................. 100.643
</TABLE>
and 100% at March 15, 2005; provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
record on the relevant record date of the Notes being redeemed.
If less than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, pro rata or by another method the Trustee considers
fair and appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be of the portion selected for redemption.
The Company may not give notice of any redemption of Notes if a default in
payment of interest or premium on the Notes or any other Event of Default has
occurred and is continuing.
REDEMPTION AT OPTION OF THE HOLDER
If a Fundamental Change (as defined) occurs at any time prior to March 15,
2005, each holder of Notes shall have the right, at the holder's option, to
require the Company to redeem any or all of such holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date of the Company's notice of
such Fundamental Change. The Notes will be redeemable in multiples of $1,000
principal amount.
The Company shall redeem such Notes at a price (expressed as a percentage
of the principal amount) equal to (i) 104.500% if the Repurchase Date is before
March 15, 1999, (ii) 103.857% if the Repurchase Date is during the 12-month
period beginning March 15, 1999; (iii) 103.214% if the Repurchase Date is during
the period beginning March 15, 2000 and ending on March 19, 2001 and (iv)
thereafter at the redemption price set forth above under "Optional Redemption by
the Company" which would be applicable to a redemption at the option of the
Company on the Repurchase Date; provided that, if the Applicable Price (as
defined) is less than the Reference Market Price (as defined), the Company shall
redeem such Notes at a price equal to the foregoing redemption price multiplied
by the fraction obtained by dividing the Applicable Price by the Reference
Market Price. In each case, the Company shall also pay accrued interest on the
redeemed Notes to,
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<PAGE> 22
but excluding, the Repurchase Date; provided that, if such Repurchase Date is an
interest payment date, then the interest payable on such date shall be paid to
the holder of record of the Notes on the relevant record date.
The Company is required to mail to all holders of record of the Notes a
notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result thereof on or before the tenth day after the occurrence of
such Fundamental Change. The Company is also required to deliver the Trustee a
copy of such notice. To exercise the redemption right, a holder of Notes must
deliver, on or before the 30th day after the date of the Company's notice of a
Fundamental Change (the "Fundamental Change Expiration Time"), written notice of
the holder's exercise of such right, together with the Notes to be so redeemed,
duly endorsed for transfer, to the Company (or an agent designated by the
Company for such purpose). Payment for Notes surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made promptly
following the Repurchase Date.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all Common Stock shall be
exchanged for, converted into, acquired for or constitute the right to receive,
consideration which is not all or substantially all common stock listed (or,
upon consummation of or immediately following such transaction or event, which
will be listed) on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of
automated dissemination of quotations of securities prices (whether by means of
an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise). The Merger is not
a Fundamental Change. The term "Applicable Price" means (i) in the event of a
Fundamental Change in which the holders of the Common Stock receive only cash,
the amount of cash received by the holder of one share of Common Stock and (ii)
in the event of any other Fundamental Change, the average of the last reported
sale price for the Common Stock during the ten trading days prior to the record
date for the determination of the holders of Common Stock entitled to receive
cash, securities, property or other assets in connection with such Fundamental
Change, or, if there is no such record date, the date upon which the holders of
the Common Stock shall have the right to receive such cash, securities, property
or other assets in connection with the Fundamental Change. The term "Reference
Market Price" shall initially be $29 1/8 and in the event of any adjustment to
the conversion price described above pursuant to the provisions of the
Indenture, the Reference Market Price shall also be adjusted so that the ratio
of the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of $29 1/8 to the
conversion price specified on the cover page of this Prospectus (without regards
to any adjustment thereto).
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act to the extent then applicable in
connection with the redemption rights of the holders of Notes in the event of a
Fundamental Change.
The redemption rights of the holders of Notes could discourage a potential
acquiror of the Company. The Fundamental Change redemption feature, however, is
not the result of management's knowledge of any specific effort to obtain
control of the Company by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of antitakeover
provisions. The term "Fundamental Change" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company, nor would the requirement that the Company
offer to redeem the Notes upon a Fundamental Change necessarily afford the
holders of the Notes protection in the event of a highly leveraged transaction,
reorganization, merger or similar transaction involving the Company.
If a Fundamental Change were to occur, there can be no assurance that the
Company would have sufficient funds to pay the redemption price for all the
Notes tendered by the holders thereof. In addition, the terms of the Company's
existing credit facility provide that a Fundamental Change would constitute an
event of default thereunder. Any future credit agreements or other agreements
relating to other indebtedness (including other Senior Indebtedness) to which
the Company becomes a party may contain similar restrictions and provisions,
including restrictions and provisions that prohibit the Company from purchasing
or redeeming any Notes. In the event a Fundamental Change occurs at a time when
the Company is prohibited from purchasing or redeeming the Notes, the Company
could seek the consent of its then-existing lenders to
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<PAGE> 23
the purchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company would remain prohibited from purchasing or
redeeming the Notes. In such case, the Company's failure to redeem tendered
Notes would constitute an Event of Default under the Indenture, and may
constitute a default under the terms of other indebtedness that the Company may
enter into from time to time. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes.
SUBORDINATION OF NOTES
The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness of the Company. The Notes also are effectively subordinated to all
indebtedness and other liabilities, including trade payables and lease
obligations, if any, of the Company's subsidiaries. Upon any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization, the payment of the principal of, or premium, if any, and
interest (including Liquidated Damages (as defined), if any) on the Notes is to
be subordinated to the extent provided in the Indenture in right of payment to
the prior payment in full in cash or other payment satisfactory to the holders
of Senior Indebtedness of all Senior Indebtedness. In the event of any
acceleration of the Notes because of an Event of Default (as defined), the
holders of any Senior Indebtedness then outstanding would be entitled to payment
in full in cash or other payment satisfactory to the holders of Senior
Indebtedness of all obligations in respect of such Senior Indebtedness before
the holders of the Notes are entitled to receive any payment or distribution in
respect thereof. The Indenture requires that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default.
The Company also may not make any payment upon or in respect of the Notes
(including upon redemption) if (i) a default in the payment of the principal of,
premium, if any, interest, rent or other obligations in respect of Senior
Indebtedness occurs and is continuing beyond any applicable period of grace (a
"Payment Default") or (ii) any other default occurs and is continuing with
respect to Designated Senior Indebtedness (as defined) that permits holders of
such Designated Senior Indebtedness as to which the default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or other person permitted to give
such notice under the Indenture (a "Non-Payment Default"). Payments on the Notes
may and shall be resumed (a) in case of a Payment Default, upon the date on
which such default is cured or waived or ceases to exist and (b) in case of a
Non-Payment Default, the earlier of the date on which such nonpayment default is
cured or waived or ceases to exist or 179 days after the date on which the
applicable Payment Blockage Notice is received. No new period of payment
blockage may be commenced pursuant to a Payment Blockage Notice unless and until
(i) 365 days have elapsed since the initial effectiveness of the immediately
prior Payment Blockage Notice and (ii) all scheduled payments of principal,
premium, if any, and interest (including Liquidated Damages, if any) on the
Notes that have come due have been paid in full in cash. No Non-Payment Default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or shall be made, the basis for a subsequent
Payment Blockage Notice.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of the Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full in cash or other payment satisfactory to
holders of Senior Indebtedness, then such payment or distribution will be held
by the recipient in trust for the benefit of holders of Senior Indebtedness or
their representatives to the extent necessary to make payment in full in cash or
payment satisfactory to the holders of Senior Indebtedness of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
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<PAGE> 24
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined) of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or expressly provides that such Indebtedness is
pari passu or junior to the Notes. Notwithstanding the foregoing, the term
Senior Indebtedness shall not include Indebtedness of the Company to any
subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company.
The term "Indebtedness" means, with respect to any Person (as defined), and
without duplication:
(a) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any loans or
advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of
the assets of such Person or to only a portion thereof), other than any
account payable or other accrued current liability or obligation incurred
in the ordinary course of business in connection with the obtaining of
materials or services,
(b) all reimbursement obligations and other liabilities (contingent or
otherwise) of such Person with respect to letters of credit, bank
guarantees or bankers' acceptances,
(c) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person required, in conformity with generally
accepted accounting principles, to be accounted for as capitalized lease
obligations on the balance sheet of such Person and all obligations and
other liabilities (contingent or otherwise) under any lease or related
document (including a purchase agreement) in connection with the lease of
real property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the lessor and
the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property,
(d) all obligations of such Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange,
purchase or similar instrument or agreement,
(e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations or
liabilities of another Person of the kind described in clauses (a) through
(d),
(f) any indebtedness or other obligations described in clauses (a)
through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have
been assumed by such Person, and
(g) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation
or liability of the kind described in clauses (a) through (f).
The term "Designated Senior Indebtedness" means the Company's credit
facility and the Company's obligations under any other particular Senior
Indebtedness with respect to which the instrument creating or evidencing the
same or the assumption or guarantee thereof (or related agreements or documents
to which the Company is a party) expressly provides that such Senior
Indebtedness shall be "Designated Senior
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<PAGE> 25
Indebtedness" for purposes of the Indenture (provided that such instrument,
agreement or other document may place limitations and conditions on the right of
such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness).
As of March 31, 1998, the Company had an insignificant amount of
indebtedness outstanding that would have constituted Senior Indebtedness. The
Indenture does not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor does
the Indenture limit the amount of indebtedness or other liabilities that any
subsidiary can create, incur, assume or guarantee.
The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against certain losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will generally be senior to those of the
holders of the Notes in respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
An Event of Default is defined in the Indenture as being: default in
payment of the principal of or premium, if any (upon redemption or otherwise),
on the Notes (whether or not such payment is permitted to be made under the
subordination provisions described above); default for 30 days in payment of any
installment of interest (including Liquidated Damages, if any) on the Notes
(whether or not such payment is permitted to be made under the subordination
provisions described above); default by the Company for 60 days after notice in
the observance or performance of any other covenants in the Indenture; or
certain events involving bankruptcy, insolvency or reorganization of the Company
or any of its Significant Subsidiaries (as defined). The Indenture provides that
the Trustee may withhold notice to the holders of the Notes of any default
(except in payment of principal or premium, if any, or interest (including
Liquidated Damages, if any) with respect to the Notes) if the Trustee considers
it in the interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of, premium, if
any, and accrued interest (including Liquidated Damages, if any) on the Notes to
be due and payable immediately. In the case of certain events of bankruptcy or
insolvency of the Company, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on the Notes shall automatically
become and be immediately due and payable. However, if the Company shall cure
all defaults (except the nonpayment of principal of, premium, if any, and
interest (including Liquidated Damages, if any) on any of the Notes which shall
have become due by acceleration) and certain other conditions are met, with
certain exceptions, such declaration may be canceled and past defaults may be
waived by the holders of a majority of the principal amount of the Notes then
outstanding.
The Indenture provides that any payment of principal, premium, if any, or
interest (including Liquidated Damages, if any) that is not made when due
(whether or not such payment is permitted to be made under the subordination
provisions described above) will accrue interest, to the extent legally
permissible, at the annual rate set forth on the cover page hereof from the date
on which such payment was required under the terms of the Indenture until the
date of payment.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
The Indenture provides that no holder of the Notes may pursue any remedy
under the Indenture, except for a default in the payment of principal, premium,
if any (including upon redemption), or interest (including Liquidated Damages,
if any), on the Notes, unless such holder shall have previously given to the
Trustee written notice of a continuing Event of Default, and the holders of at
least 25% in principal amount of the outstanding Notes shall have made a written
request, and offered reasonable indemnity, to the Trustee to pursue the remedy,
and the Trustee shall not have received from the holders of a majority in
principal amount
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of the outstanding Notes a direction inconsistent with such request and shall
have failed to comply with such request within 60 days after receipt of such
request.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of a majority in principal amount of the Notes
at the time outstanding, to modify the Indenture or any supplemental indenture
or the rights of the holders of the Notes, except that no such modification
shall (i) extend the fixed maturity of any Note, reduce the rate or extend the
time for payment of interest thereon, reduce the principal amount thereof or
premium, if any, thereon, reduce any amount payable upon redemption thereof,
change the obligation of the Company to redeem any Note upon the happening of
any Fundamental Change in a manner adverse to the holders of the Notes, impair
the right of a holder to institute suit for the payment thereof, change the
currency in which the Notes are payable, impair the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the holders of the Notes, without the consent of each holder
of a Note so affected or (ii) reduce the aforesaid percentage of Notes whose
holders are required to consent to any such modification of the Indenture or any
such supplemental indenture, in each case without the consent of the holders of
all of the Notes then outstanding. The Indenture also provides for certain
modifications of its terms without the consent of the holders of the Notes.
REGISTRATION RIGHTS OF THE NOTEHOLDERS
Pursuant to the terms of a Registration Rights Agreement dated as of March
15, 1998 between the Company and the initial purchasers named therein (the
"Registration Rights Agreement"), the Company has filed with the Commission the
Shelf Registration Statement, of which this Prospectus forms a part, covering
resales by holders of the Notes and the Common Stock issuable upon conversion of
the Notes. The Company has agreed to keep the Shelf Registration Statement
effective until the earlier of (i) the sale pursuant to the Shelf Registration
Statement of all the securities registered thereunder and (ii) the expiration of
the holding period applicable to such securities held by persons that are not
affiliates of the Company under Rule 144(k) under the Securities Act, or any
successor provision, subject to certain permitted exceptions. The Registration
Rights Agreement provides that the Company may suspend the use of this
Prospectus under certain circumstances relating to pending corporate
developments, public filings with the Commission and similar events for a period
not to exceed 60 days in any three-month period or not to exceed an aggregate of
90 days in any 12-month period. The Company has agreed to pay predetermined
liquidated damages ("Liquidated Damages") (i) in respect of the Notes, at a rate
per annum equal to .5% of the principal amount of the Notes, and (ii) in respect
of any shares of Common Stock, at a rate per annum equal to .5% of the then
applicable Conversion Price, to holders of Notes and holders of Common Stock
issued upon conversion of the Notes if the Shelf Registration Statement is
unavailable for periods in excess of those permitted above. A holder who sells
Notes and Common Stock issued upon conversion of the Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
stockholder in the related prospectus, deliver a prospectus to purchasers and be
bound by certain provisions of the Registration Rights Agreement that are
applicable to such holder (including certain indemnification provisions). The
Company will pay all expenses of the Shelf Registration Statement, provide to
each registered holder copies of such prospectus, notify each registered holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit, subject to the foregoing, unrestricted
resales of the Notes and the Common Stock issued upon conversion of the Notes.
The Shelf Registration Statement permits resales of Registrable Securities by
selling security holders through brokers and dealers.
The Company has agreed in the Registration Rights Agreement to give notice
to all holders of the filing and effectiveness of the Shelf Registration
Statement by release made to Reuters Economic Services and Bloomberg Business
News. Attached to this Prospectus as Annex A is a form of notice and
questionnaire (the "Questionnaire") to be completed and delivered by a holder to
the Company at least three business days prior to any intended distribution of
Registrable Securities pursuant to the Shelf Registration Statement. Holders are
required to complete and deliver the Questionnaire prior to the effectiveness of
the Shelf Registration
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Statement so that such holders may be named as selling stockholders in the
related prospectus at the time of effectiveness. Upon receipt of such a
completed Questionnaire, together with such other information as may be
reasonably requested by the Company, from a holder following the effectiveness
of the Shelf Registration Statement, the Company will, as promptly as
practicable but in any event within five business days of such receipt, file
such amendments to the Shelf Registration Statement or supplements to the
related prospectus as are necessary to permit such holder to deliver such
prospectus to purchasers of Registrable Securities (subject to the Company's
right to suspend the use of the prospectus as described above). The Company has
agreed to pay Liquidated Damages to such holder if the Company fails to make
such filing in the time required or, if such filing is a post-effective
amendment to the Shelf Registration Statement required to be declared effective
under the Securities Act, if such amendment is not declared effective within 45
days of the filing thereof. Any holder that does not complete and deliver a
Questionnaire or provide such other information will not be named as a selling
stockholder in the prospectus and therefore will not be permitted to sell any
Registrable Securities pursuant to the Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the Registration Rights Agreement, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part.
INFORMATION CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., as Trustee under
the Indenture, has been appointed by the Company as paying agent, conversion
agent, Note registrar and custodian with regard to the Notes.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock,
$0.001 par value.
COMMON STOCK
As of July 6, 1998, there were 11,489,842 shares of Common Stock
outstanding that were held of record by approximately 260 stockholders. The
holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
any outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of the liquidation, dissolution, or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable, and the shares of Common Stock
to be issued upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the Preferred
Stock in one or more series and to fix the rights, preferences, privileges, and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences, and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring, or preventing a
change in control of the Company without further action by the stockholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock.
ANTITAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
Certificate of Incorporation and Bylaws
The Certificate of Incorporation provides that all stockholder actions must
be effected at a duly called meeting and not by a consent in writing. In
addition, the Company's Amended and Restated Bylaws will not permit the
stockholders of the Company to call a special meeting of stockholders. These
provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of the
Company. These provisions are designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal. The provisions also are intended
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors -- Effect
of Certain Charter Provisions; Certificate of Incorporation, Bylaws, and
Delaware Law."
Delaware Antitakeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such
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stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge, or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
As of May 31, 1998, the holders of 731,326 shares of Common Stock (assuming
no exercise of options outstanding) (the "Registrable Securities") were entitled
to certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of the agreements between the Company and the
holders of such Registrable Securities, if the Company proposed to register any
of its securities under the Securities Act, either for its own account or, for
certain such holders, for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. Additionally,
certain of such holders are also entitled to certain demand registration rights
pursuant to which they may require the Company to file a registration statement
under the Securities Act at its expense with respect to their shares of Common
Stock, and the Company is required to use its reasonable efforts to effect such
registration. Further, certain such holders may require the Company to file
additional registration statements on Form S-3. All of these registration rights
are subject to certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in such
registration.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
L.P.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to an investor's particular circumstances or to investors that may be
subject to special tax rules, such as banks, holders subject to the alternative
minimum tax, tax-exempt organizations, insurance companies, foreign persons or
entities (except to the extent specifically set forth below), dealers in
securities or currencies, persons that will hold Notes as a position in a
hedging transaction, "straddle" or "conversion transaction" for tax purposes or
persons deemed to sell Notes or Common Stock under the constructive sale
provisions of the Code. The Company has not sought any ruling from the Internal
Revenue Service (the "IRS") or an opinion of counsel with respect to the
statements made and the conclusions reached in the following summary, and there
can be no assurance that the IRS will agree with such statements and
conclusions. In addition, the IRS is not precluded from successfully adopting a
contrary position. This summary does not consider the effect of the federal
estate or gift tax laws or the tax laws of any applicable foreign, state, local
or other jurisdiction.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL
OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
NOTES PURCHASED AT A MARKET DISCOUNT
Subject to a de minimis exception, a holder of a Note acquired at a market
discount will generally be required to (i) recognize as ordinary income any gain
realized on the disposition of the Note to the extent of the accrued market
discount on the Note at the time of disposition and (ii) include in gross
income, as ordinary income, any partial principal payment on the Note to the
extent such payment does not exceed the accrued market discount on the Note at
the time of such partial payment. For purposes of clause (i) of the preceding
sentence, (i) subject to certain exceptions, such gain will generally be
recognized notwithstanding that the Note is disposed of in a transaction in
which gain or loss is otherwise not recognized and (ii) in the case of a
disposition other than a sale, exchange or involuntary conversion, the holder of
the Note shall be treated as realizing an amount equal to the fair market value
of the Note. For this purpose, the market discount on a Note will generally be
equal to the amount, if any, by which the stated redemption price at maturity of
the Note immediately after its acquisition exceeds the holder's tax basis in the
Note. In general, market discount on a Note will be treated as accruing on a
straight-line basis over the term of the Note, or, at the election of the
holder, under a constant yield method. A holder of a Note acquired at a market
discount may also be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
note until the Note is disposed of in a taxable transaction. The foregoing rules
will not apply if the holder elects to include accrued market discount in income
currently. If a holder acquires a Note at a market discount and receives Common
stock upon conversion of the Note, the amount of accrued market discount with
respect to the Note through the date of the conversion will be treated, under
regulations to be issued, as ordinary income on the disposition of the Common
Stock.
NOTES PURCHASED AT A PREMIUM
A holder that purchases a Note for an amount in excess of its principal
amount may be entitled to elect to treat a portion of such excess as
"amortizable bond premium," which will (i) reduce the amount required to be
included in the holder's income each year as interest on the Note by the amount
of such premium allocable to that year based on the Note's yield to maturity and
(ii) reduce the tax basis of the Note by the amount of
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such premium allocable to that year. The amount of amortizable bond premium will
not, however, include any amount attributable to the conversion features of the
Note. An election to amortize bond premium will apply to all bonds (other than
tax-exempt bonds) held by the holder at the beginning of the taxable year to
which the election applies or thereafter acquired by the holder.
TAXATION OF INTEREST
Interest paid on the Notes will be included in the income of a holder as
ordinary income at the time it is treated as received or accrued, in accordance
with the holder's regular method of tax accounting. Failure of the Company to
file or cause to be declared effective a shelf registration statement as
described under "Description of Notes -- Registration Rights of the Noteholders"
may result in the payment of predetermined liquidated damages in the manner
described therein, which payments will result in the recognition of additional
interest or original issue discount income with respect to the Notes. According
to Treasury Regulations, the possibility of an additional payment under a Note
will not affect the amount of interest or original issue discount income
recognized by a holder (or the timing of such recognition) if the likelihood of
the change, as of the date the Notes are issued, is remote. The Company believes
that the likelihood of a liquidated damages payment with respect to the Notes is
remote and does not intend to treat such possibility as affecting the yield to
maturity of any Note. Similarly, the Company intends to take the position that a
"Fundamental Change" is remote under the Treasury Regulations, and likewise does
not intend to treat the possibility of a "Fundamental Change" as affecting the
yield to maturity of any Note. There can be no assurance that the IRS will agree
with such positions.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Except as discussed above under "-- Notes Purchased at a Market Discount,"
upon the sale, exchange or redemption of a Note, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income, which will be taxable
as ordinary income, or is attributable to accrued interest that was previously
included in income, which amount may be received without generating further
income) and (ii) such holder's adjusted tax basis in the Note. A holder's
adjusted tax basis in a Note generally will equal the cost of the Note to such
holder. Such capital gain or loss will be long-term capital gain or loss if the
holder's holding period in the Note is more than one year at the time of sale,
exchange or redemption. Long-term capital gains recognized by an individual will
generally be subject to a maximum rate of tax of 28% on property held more than
one year, and a maximum rate of tax of 20% on property held more than eighteen
months.
CONVERSION OF THE NOTES
A holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except to the extent the Common Stock is
considered attributable to accrued interest not previously included in income
(which is taxable as ordinary income) or with respect to cash received in lieu
of a fractional share of Common Stock. A holder's tax basis in the Common Stock
received on conversion of a Note will be the same as such holder's adjusted tax
basis in the Note at the time of conversion (reduced by any basis allocable to a
fractional share interest), and the holding period for the Common Stock received
on conversion will generally include the holding period of the Note converted.
However, a holder's tax basis in shares of Common Stock considered attributable
to accrued interest generally will equal the amount of such accrued interest
included in income, and the holding period for such shares shall begin on the
date of conversion.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted tax
basis in the fractional share).
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DIVIDENDS
Dividends, if any, paid on the Common Stock after a conversion generally
will be included in the income of a holder as ordinary income to the extent of
the Company's current or accumulated earnings and profits as they are properly
accrued as dividend income.
Holders of convertible debt instruments such as the Notes may, in certain
circumstances, be deemed to have received constructive distributions where the
conversion ratio of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the Notes (including, without limitation, adjustments in respect of taxable
dividends to stockholders of the Company) will not qualify as being pursuant to
a bona fide reasonable adjustment formula. If such adjustments are made, the
holders of Notes might be deemed to have received constructive distributions
taxable as dividends even though they have not received any cash or property as
a result of such adjustments. In certain circumstances the failure of the Notes
to provide for such an adjustment may result in taxable dividend income to the
holders of Common Stock.
SALE OF COMMON STOCK
Except as discussed above under "-- Notes Purchased at a Market Discount,"
upon the sale or exchange of Common Stock, a holder generally will recognize
capital gain or loss equal to the difference between (i) the amount of cash and
the fair market value of any property received upon the sale or exchange and
(ii) such holder's adjusted tax basis in the Common Stock. Such capital gain or
loss will be long-term capital gain or loss if the holder's holding period in
Common Stock is more than one year at the time of the sale or exchange.
Long-term capital gains recognized by an individual will generally be subject to
a maximum rate of tax of 28% on property held more than one year, and a maximum
rate of tax of 20% on property held more than eighteen months. A holder's basis
and holding period in Common Stock received upon conversion of a Note are
determined as discussed above under "Conversion of the Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock, and a 31% backup withholding tax may apply
to some or all of such payments unless the holder of such Note or Common Stock
(i) certifies that it is a corporation, a "United States Alien Holder" (as
defined below) that is not engaged in a United States trade or business, or
comes within certain other exempt categories and when required demonstrates this
fact or (ii) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules from a payment to a holder will be allowed as a credit
against such holder's United States federal income tax and may entitle the
holder to a refund, provided that the required information is furnished to the
IRS.
SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS
For purposes of the following discussion, a "United States Alien Holder" is
any holder who, for United States Federal income tax purposes, is a foreign
corporation, a foreign partnership, a nonresident alien individual, an estate,
other than an estate the income of which is includible in income for Federal
income tax purposes regardless of its source, or a trust other than a trust for
which a court within the United States is able to exercise primary supervision
over the administration of the trust, and for which one or more United States
persons have the authority to control all substantial decisions of the trust.
Payments of interest on the Notes to a United States Alien Holder will not
be subject to United States Federal withholding tax provided that (a) the holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote, (b) the holder is
not a
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"controlled foreign corporation" (within the meaning of the Code) that is
related to the Company through stock ownership, (c) either (1) the beneficial
owner of the Note, under penalties of perjury, provides the Company or its agent
with its name and address and certifies that it is not a United States person or
(2) a securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "financial institution") certifies to the Company or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or another financial institution and furnishes to the
Company or its agent a copy thereof and (d) the Notes are in registered form.
A United States Alien Holder generally will not be subject to United States
Federal income or withholding tax on gain realized on the sale or exchange of
Notes or Common Stock unless (i) subject to certain exceptions, the holder is an
individual who was present in the United States for 183 days or more during the
taxable year and to whom such gain is, under applicable tax rules, considered to
be from United States sources, (ii) the gain is effectively connected with the
conduct of a trade or business of the holder in the United States or, in the
case of certain residents of countries which have an income tax treaty in force
with the United States, attributable to a permanent establishment (or, in the
case of an individual, a fixed base) in the United States as such terms are
defined in the applicable treaty, (iii) the holder is subject to tax pursuant to
the provisions of United States tax law applicable to certain United States
expatriates (including certain former citizens or residents of the United
States) or (iv) the Company is or has been a "United States real property
holding corporation" at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. The Company does not
believe that it is currently a "United States real property holding
corporation," or that it will become one in the future.
Income received by a United States Alien Holder in the form of interest on
Notes or dividends on Common Stock will be subject to a United States Federal
withholding tax at a 30% rate upon the actual payment of the dividends or
interest, except as described above with respect to the payment of interest and
except where an applicable tax treaty provides for the reduction or elimination
of such withholding tax. However, a United States Alien Holder generally will be
taxed in the same manner as a United States corporation or resident with respect
to such income if it is effectively connected with the conduct of a trade or
business in the United States or, in the case of certain residents of countries
which have an income tax treaty in force with the United States, attributable to
a permanent establishment (or, in the case of an individual, a fixed base) in
the United States as such terms are defined in the applicable treaty. Such
effectively connected income or income attributable to a permanent establishment
received by a United States Alien Holder which is a corporation may in certain
circumstances be subject to an additional "branch profits tax" at a 30% rate or,
if applicable, a lower treaty rate.
Dividends paid to United States Alien Holders that are subject to the
withholding tax described above will generally be exempt from United States
backup withholding tax but will be subject to certain information reporting.
Backup withholding generally will not apply to payments of interest made to a
United States Alien Holder if the certification described above under
"Information Reporting and Backup Withholding Tax" is received, but will be
subject to certain information reporting. Payment of the proceeds of the sale of
Notes or Common Stock to or through a United States office of a broker will be
subject to information reporting and possible backup withholding at a rate of
31% unless the owner certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption and the broker does not have
actual knowledge that such certification is false or the exemption is otherwise
not applicable. Payment of the proceeds of the sale of Notes or Common Stock to
or through a foreign office of a broker generally will not be subject to backup
withholding tax. However, in the case of the payment of proceeds from the
disposition of Notes or Common Stock through a foreign office of a broker that
is (i) a United States person, (ii) a "controlled foreign corporation" for
United States Federal income tax purposes, or (iii) a foreign person 50% or more
of whose gross income from all sources for a specified period is derived from
activities that are effectively connected with the conduct of a United States
trade or business, information reporting is required on the payment unless the
broker has documentary evidence in its files that the owner is a non-United
States person and the broker has no actual knowledge to the contrary or unless
another exemption is established. Both backup withholding and information
reporting will apply to the proceeds of such dispositions if the broker has
actual knowledge
33
<PAGE> 34
that the payee is a United States person. Payments of principal on the Notes by
the Company may in certain circumstances be required to be reported to the IRS.
Any amounts withheld under the backup withholding rules from a payment to a
United States Alien Holder will be allowed as a refund or a credit against such
United States Alien Holder's United States Federal income tax, provided that the
required information is furnished to the IRS. Copies of any informational
reports made to the IRS may be made available under the provisions of a specific
treaty or agreement to the tax authorities of the country in which the United
States Alien Holder resides.
Recently issued Treasury Regulations that are generally effective on and
after January 1, 1999 (the "Withholding Regulations") alter the foregoing rules
in certain respects. The Withholding Regulations provide presumptions under
which a United States Alien Holder is subject to backup withholding at the rate
of 31% and information reporting unless the Company receives certification of
the holder's non-U.S. status. Depending on the circumstances, this certification
will need to be provided (i) directly by the holder, (ii) in the case of a
holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the holder.
Prospective investors should generally consult their tax advisors with
respect to the presumptions and procedures that apply in obtaining any
applicable treaty benefits. In this connection, prospective investors should be
aware that the Withholding Regulations will in some cases impose an additional
certification requirement in order to obtain such benefits. Moreover, recently
released Treasury Regulations that are effective for payments made on or after
January 1, 1998, provide special rules for determining whether, for purposes of
determining the applicability of a treaty, dividends paid to a non-U.S. holder
that is an entity should be treated as having been paid to an entity or to those
holding an interest in that entity.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY,
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO THE
PARTICULAR UNITED STATES FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND COMMON STOCK OF THE COMPANY.
TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE UNITED STATES ESTATE AND GIFT
TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF THE NOTES AND COMMON STOCK OF THE COMPANY, AS WELL AS THE
CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
34
<PAGE> 35
SELLING SECURITYHOLDERS
The Notes were originally acquired on March 17, 1998 from the Company by
the Initial Purchasers in a private placement. The Initial Purchasers advised
the Company that the Initial Purchasers have resold the Notes in transactions
exempt from the registration requirements of the Securities Act to "qualified
institutional buyers" (as defined in Rule 144A of the Securities Act) and
certain institutional "accredited investors" (as defined in Rule 501 (a) (1),
(2), (3) or (7) under the Securities Act). The Notes and the Shares that may be
offered pursuant to this Prospectus will be offered by the Selling
Securityholders. The following table sets forth certain information concerning
the principal amount of Notes beneficially owned by each Selling Securityholder
and the number of Shares that may be offered from time to time pursuant to this
Prospectus.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY OWNED PERCENTAGE OF SHARES THAT MAY BE
NAME OF SELLING SECURITYHOLDER THAT MAY BE SOLD NOTES OUTSTANDING SOLD (1)(2)
------------------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C>
Alexandra Global Investment Fund 1
Ltd................................. $ 2,500,000 2.50% 44,360
AFTRA Health Fund..................... 1,000,000 1.00 17,744
Aloha Airlines Non-Pilots Pension
Trust............................... 175,000 * 3,105
Aloha Airlines Pilots Retirement
Trust............................... 100,000 * 1,744
Argent Classic Convertible Arbitrage
Fund L.P............................ 1,400,000 1.40 24,841
Argent Classic Convertible Arbitrage
Fund (Bermuda) L.P.................. 1,600,000 1.60 28,390
Christian Science Trustees For Gifts
and Endowments...................... 200,000 * 3,548
COVA Bond Debenture................... 500,000 * 8,872
Declaration of Trust for the Defined
Benefit Plans of ICI American
Holdings Inc........................ 770,000 * 13,662
Declaration of Trust for the Defined
Benefit Plans of ZENECA Holdings
Inc................................. 510,000 * 9,049
Delaware PERS......................... 850,000 * 15,082
Delaware State Employees' Retirement
Fund................................ 2,820,000 2.82 50,038
Deutsche Bank A.G..................... 4,500,000 4.50 79,848
Deutsche Morgan Grenfell Inc.......... 5,345,000 5.34 94,841
ELF Aquitaine......................... 100,000 * 1,744
First Church of Christ, Scientist --
Endowment........................... 220,000 * 3,903
General Motors Employees Domestic
Group Trust......................... 10,070,000 10.07 178,682
Goldman, Sachs & Co................... 5,250,000 5.25 93,156
Hawaiian Airlines Employees Pension
Plan-IAM............................ 55,000 * 975
Hawaiian Airlines Pension Plan for
Salaried Employees.................. 15,000 * 266
Hawaiian Airlines Pilots Retirement
Plan................................ 80,000 * 1,419
ICI American Holdings Trust........... 400,000 * 7,097
Kapiolani Medical Center.............. 125,000 * 2,218
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY OWNED PERCENTAGE OF SHARES THAT MAY BE
NAME OF SELLING SECURITYHOLDER THAT MAY BE SOLD NOTES OUTSTANDING SOLD (1)(2)
------------------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C>
MainStay Convertible Portfolio........ $ 2,000,000 2.00% 35,488
MainStay VP Convertible Portfolio..... 1,000,000 1.00 17,744
MassMutual Corporate Value Partners
Limited............................. 1,075,000 1.07 19,074
Massachusetts High Yield Partners
LLC................................. 500,000 * 8,872
Massachusetts Mutual Life Insurance
Company............................. 3,125,000 3.12 55,450
MassMutual Corporate Investors........ 200,000 * 3,548
MassMutual Participation Investors.... 100,000 * 1,774
Nalco Chemical Company................ 200,000 * 3,548
Sailflag Co. in favor of State Street
Bank & Trust Co. (Quest Growth &
Income Fund)........................ 3,000,000 3.00 53,232
Societe General Securities Corp....... 1,500,000 1.50 26,616
Starvest Discretionary Portfolio...... 325,000 * 5,766
State of Oregon Equity................ 4,050,000 4.05 71,863
The TWC Group, Inc.................... 3,885,000 3.88 68,935
Thermo Electron Balanced Investment
Fund................................ 810,000 * 14,372
TQA Vantage Fund, Ltd................. 500,000 * 8,872
Van Kampen American Capital Harbor
Fund................................ 3,400,000 3.40 60,329
Van Kampen American Capital
Convertible Securities Fund......... 600,000 * 10,646
Zeneca Holdings Trust................. 400,000 * 7,097
Any other holders of Notes or future
transferee, pledgee, donee or
successor of or from any such other
holder(3)(4)........................ 45,255,000 45.25 803,005
------------ ------ ---------
TOTAL....................... $100,000,000 100.00% 1,774,403
============ ====== =========
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes conversion of the full amount of Notes held by such holder at the
initial conversion price of $56.357 per share; such conversion price is
subject to adjustment as described under "Description of Notes -- Conversion
of Notes." Accordingly, the number of shares of Common Stock issuable upon
conversion of the Notes may increase or decrease from time to time. Under
the terms of the Indenture, fractional shares will not be issued upon
conversion of the Notes; cash will be paid in lieu of fractional shares, if
any.
(2) Except for the 178,682 Shares issuable upon conversion of the Notes to the
General Motors Employees Domestic Group Trust which constitutes 1.56% of the
Company's outstanding Common Stock as of May 31, 1998, the number of Shares
held by each holder named herein is less than 1% of the Company's
Outstanding Common Stock as of May 31, 1998.
(3) Information concerning other Selling Securityholders will be set forth in
supplements to this Prospectus from time to time, if required.
(4) Because a Selling Securityholder may sell all or a portion of the Notes and
the Shares pursuant to this Prospectus, no estimate can be given as to the
number and percentages of Notes or Shares that will be held by the Selling
Securityholder upon termination of any such sales.
The preceding table has been prepared based upon the information furnished
to the Company by the Selling Securityholders named therein.
36
<PAGE> 37
The Selling Securityholders identified above may have sold, transferred or
otherwise disposed of, in transactions exempt from the registration requirements
of the Securities Act, all or a portion of their Notes since the date on which
the information in the preceding table is presented. Information concerning the
Selling Securityholders may change from time to time and any such changed
information will be set forth in supplements to this Prospectus if and when
necessary. Because the Selling Securityholders may offer all or some of the
Notes that they hold and/or Shares pursuant to the offering contemplated by this
Prospectus, no estimate can be given as to the amount of the Notes or Shares
that will be held by the Selling Securityholders upon the termination of this
offering. See "Plan of Distribution."
PLAN OF DISTRIBUTION
The Notes and the Shares are being registered to permit public secondary
trading of such securities by the holders thereof from time to time after the
date of this Prospectus. The Company has agreed, among other things, to bear all
expenses (other than underwriting discounts and selling commissions and fees and
expenses of counsel and other advisors to holders of the Notes and the Shares)
in connection with the registration and sale of the Notes and the Shares covered
by this Prospectus.
The Company will not receive any of the proceeds from the sale of Notes and
the Shares by the Selling Securityholders. The Selling Securityholders may sell
all or a portion of the Notes and Shares beneficially owned by them and offered
hereby from time to time on any exchange on which the securities are listed on
terms to be determined at the times of such sales. The Selling Securityholders
may also make private sales directly or through a broker or brokers.
Alternatively, any of the Selling Securityholders may from time to time offer
the Notes or Shares of Common Stock beneficially owned by them through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling
Securityholders and the purchasers of the Notes or Shares for whom they may act
as agent. The aggregate proceeds to the Selling Securityholders from the sale of
the Notes or Shares offered by them hereby will be the purchase price of such
Notes or Shares less discounts and commissions, if any.
The Notes and the Shares may be sold from time to time in one or more
transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection therewith. At any time a particular offer of the Securities is made,
a revised Prospectus or Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Securities being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions, concessions and other items
constituting compensation from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers. Such
Prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this Prospectus is a part, will be filed with
the Commission to reflect the disclosure of additional information with respect
to the distribution of the Securities.
The outstanding Common Stock is publicly traded on the Nasdaq National
Market, and the Shares have been approved for trading on the Nasdaq National
Market.
The Company does not intend to apply for listing of the Notes on any
securities exchange. No assurance can be given as to the development or
liquidity of any trading market that may develop for the Notes. See "Risk
Factors -- Absence of Public Market for the Notes."
In order to comply with the securities laws of certain states, if
applicable, the Notes and Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Notes and Shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions received by such broker-dealers,
37
<PAGE> 38
agents or underwriters and any profits realized by the Selling Securityholders
on the resales of the Notes or the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144, Rule 144A or any other available exemption from
registration under the Securities Act may be sold under Rule 144, Rule 144A or
such other available exemption rather than pursuant to this Prospectus. There is
no assurance that any Selling Securityholder will sell any or all of the Notes
or Shares described herein, and any Selling Securityholders may transfer, devise
or gift such securities by other means not described herein.
The Notes were originally sold by the Company to the Initial Purchasers on
April 15, 1997 in a private placement. The Company agreed to indemnify and hold
the Initial Purchasers harmless against certain liabilities under the Securities
Act that could arise in connection with the sale of the Notes by the Initial
Purchasers. The Registration Rights Agreement provides for the Company and the
Selling Securityholders to indemnify each other against certain liabilities
arising under the Securities Act.
The Company has agreed to use reasonable efforts to cause the registration
statement to which this Prospectus relates to become effective as promptly as is
practicable and to keep the registration statement effective until the earlier
of (i) the sale pursuant to the registration statement of all the securities
registered thereunder and (ii) the expiration of the holding period applicable
to such securities under Rule 144(k) under the Securities Act or any successor
provision. The Registration Rights Agreement provides that the Company may
suspend the use of this Prospectus in connection with sales of Notes and Shares
by holders for a period not to exceed 60 days in any three-month period, or not
to exceed an aggregate of 90 days in any 12-month period, under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. Expenses of preparing and filing the
registration statement and all post-effective amendments will be borne by the
Company.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. Furthermore, Regulation M
of the Exchange Act may restrict the ability of any person engaged in the
distribution of the Securities to engage in market-making activities with
respect to the particular Securities being distributed for a period of up to
five business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
LEGAL MATTERS
The validity of the Notes and the Shares will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo
Park, California.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Arbor Software Corporation for
the year ended March 31, 1998 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
38
<PAGE> 39
ANNEX A
ARBOR SOFTWARE CORPORATION
FORM OF SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial holder of 4 1/2% Convertible Subordinated Notes
due 2005 (the "Notes") of Arbor Software Corporation (the "Company" or
"Registrant") or Common Stock, $0.001 par value (the "Common Stock" and,
together with the Notes, the "Registrable Securities") of the Company
understands that the Registrant has filed or intends to file with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-3
(the "Shelf Registration Statement") for the registration and resale under Rule
415 of the Securities Act of 1933, as amended (the "Securities Act"), of the
Registrable Securities, in accordance with the terms of the Registration Rights
Agreement, dated as of March 15, 1998 (the "Registration Rights Agreement"),
between the Company and the Initial Purchasers named therein. A copy of the
Registration Rights Agreement is available from the Company upon requests at the
address set forth below. All capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to the benefits
of the Registration Rights Agreement. In order to sell or otherwise dispose of
any Registrable Securities pursuant to the Shelf Registration Statement, a
beneficial owner of Registrable Securities generally will be required to be
named as a selling securityholder in the related prospectus, deliver a
prospectus to purchasers of Registrable Securities and be bound by those
provisions of the Registration Rights Agreement applicable to such beneficial
owner (including certain indemnification provisions, as described below).
Beneficial owners that do not complete this Notice and Questionnaire and deliver
it to the Company as provided below will not be named as selling securityholders
in the prospectus and therefore will not be permitted to sell any Registrable
Securities pursuant to the Shelf Registration Statement. Beneficial owners are
encouraged to complete and deliver this Notice and Questionnaire prior to the
effectiveness of the Shelf Registration Statement so that such beneficial owners
may be named as selling securityholders in the related prospectus at the time of
effectiveness. Upon receipt of a completed Notice and Questionnaire from a
beneficial owner following the effectiveness of the Shelf Registration
Statement, the Company will, as promptly as practicable but in any event within
five business days of such receipt, file such amendments to the Shelf
Registration Statement or supplements to the related prospectus as are necessary
to permit such holder to deliver such prospectus to purchasers of Registrable
Securities. The Company has agreed to pay liquidated damages pursuant to the
Registration Rights Agreement under certain circumstances as set forth therein.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "Selling Securityholder") of
Registrable Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Registrable Securities beneficially owned by it and
listed below in Item 3 (unless otherwise specified under Item 3) pursuant to the
Shelf Registration Statement. The undersigned, by signing and returning this
Notice and Questionnaire, understands that it will be bound by the terms and
conditions of this Notice and Questionnaire and the Registration Rights
Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has agreed
to indemnify and hold harmless the Company's directors, the Company's officers
who sign the Company Registration Statement, and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against
A-1
<PAGE> 40
certain losses arising in connection with statements concerning the undersigned
made in the Company's Registration Statement or the related prospectus in
reliance upon the information provided in this Notice and Questionnaire.
The undersigned hereby provides the following information to the Company
and represents and warrants that such information is accurate and complete:
QUESTIONNAIRE
1. (a) Full Legal Name of Selling Securityholder:
-------------------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities listed in (3) below are held:
-------------------------------------------------------------------------
(c) Full Legal Name of DTC Participant (if applicable and if not the same as
(b) above) through which Registrable Securities listed in (3) below are
held:
-------------------------------------------------------------------------
2. Address for Notices to Selling Securityholder:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Telephone:
-----------------------------------------------------------------------------
Fax:
-----------------------------------------------------------------------------
Contact Person:
-----------------------------------------------------------------------------
3. Beneficial Ownership of Registrable Securities:
(a) Type and Principal Amount Registrable Securities beneficially owned:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(b) CUSIP No(s). of such Registrable Securities beneficially owned:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A-2
<PAGE> 41
4. Beneficial Ownership of Other Securities of the Company owned by the Selling
Securityholder:
Except as set forth below in this Item (4), the undersigned is not the
beneficial or registered owner of any securities of the Company other than the
Registrable Securities listed above in Item (3).
(a) Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) CUSIP No(s). of such Other Securities beneficially owned:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
- -------------------------------------------------------------------------------
6. Plan of Distribution:
Except as set forth below, the undersigned (including its donees or pledgees)
intends to distribute the Registrable Securities listed above in Item (3)
pursuant to the Shelf Registration Statement only as follows (if at all): Such
Registrable Securities may be sold from time to time directly by the undersigned
or, alternatively, through underwriters, broker-dealers or agents. If the
Registrable Securities are sold through underwriters or broker-dealers, the
Selling Securityholder will be responsible for underwriting discounts or
commissions or agent's commissions. Such Registrable Securities may be sold in
one or more transactions at fixed prices, at prevailing market prices at the
time of sale, at varying prices determined at the time of sale, or at negotiated
prices. Such sales may be effected in transactions (which may involve block
transactions) (i) on any national securities exchange or quotation service on
which the Registrable Securities may be listed or quoted at the time of sale,
(ii) in the over-the-counter market, (iii) in transactions otherwise than on
such exchanges or services or in the over-the-counter market, or (iv) through
the writing of options. In connection with sales of the Registrable Securities
or otherwise, the undersigned may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the Registrable
Securities in the course of hedging in positions they assume. The undersigned
may also sell Registrable Securities short and deliver Registrable Securities to
close out short positions, or loan or pledge Registrable Securities to
broker-dealers that in turn may sell such securities.
State any exceptions here:
- -------------------------------------------------------------------------------
Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Registrable Securities without the prior agreement
of the Company.
The undersigned acknowledges that it understands its obligation to comply
with the provisions of the Exchange Act and the rules thereunder relating to
stock manipulation, particularly Regulation M thereunder (or any successor rules
or regulations), in connection with any offering of Registrable Securities
pursuant to the Shelf Registration Agreement. The undersigned agrees that
neither it nor any person acting on its behalf will engage in any transaction in
violation of such provisions.
The Selling Securityholder hereby acknowledges its obligations under the
Registrable Rights Agreement to indemnify and hold harmless certain persons as
set forth herein.
A-3
<PAGE> 42
Pursuant to the Registration Rights Agreement, the Company has agreed under
certain circumstances to indemnify the Selling Securityholder against certain
liabilities.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Shelf Registration Statement, the undersigned agrees to
promptly notify the Company of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Shelf Registration Statement remains effective. All notices hereunder and
pursuant to the Registration Rights Agreement shall be made in writing at the
address set forth below.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and the
related prospectus. The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
the Shelf Registration Statement and the related prospectus.
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated
--------------------------- --------------------------------------
Beneficial Owner
By:
------------------------------------
Name:
----------------------------------
Title:
-----------------------------------
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE
TO ARBOR SOFTWARE CORPORATION AT:
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, California 94089
Attn: Stephen V. Imbler, Senior Vice President and
Chief Financial Officer
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
A-4
