<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARBOR SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0277772
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94809
(408) 744-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN M. DILLON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARBOR SOFTWARE CORPORATION
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94809
(408) 744-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
ROBERT V. GUNDERSON, JR., ESQ. JOHN A. BURGESS, ESQ.
STEVEN M. SPURLOCK, ESQ. HAL J. LEIBOWITZ, ESQ.
GUNDERSON DETTMER STOUGH HALE AND DORR LLP
VILLENEUVE FRANKLIN & HACHIGIAN, LLP 60 STATE STREET
155 CONSTITUTION DRIVE BOSTON, MASSACHUSETTS 02109
MENLO PARK, CALIFORNIA 94025 (617) 526-6000
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and the effective time of the merger (the "Merger") of a wholly owned
subsidiary of Arbor Software Corporation with and into Hyperion Software
Corporation, as described in the Agreement and Plan of Merger, dated as of May
25, 1998, attached as Appendix A to the Joint Proxy Statement/Prospectus forming
a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
======================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001,
including associated
preferred stock purchase
rights...................... 18,172,966 $30.41 $552,639,897 $163,029
======================================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, $.001 par
value per share, of Arbor Software Corporation ("Arbor Common Stock")
issuable in connection with the Merger, based upon an exchange ratio of 0.95
of a share of Arbor Common Stock for each outstanding share of common stock,
$.01 par value per share, of Hyperion Software Corporation ("Hyperion Common
Stock").
(2) Estimated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, based on (a) $30.41, the average of the high and low prices per
share of Hyperion Common Stock on June 15, 1998, as reported on the Nasdaq
National Market, multiplied by (b) 19,129,437, the aggregate number of
shares of Hyperion Common Stock outstanding as of June 15, 1998, after
applying an exchange ratio of 0.95 of a share of Arbor Common Stock for each
outstanding share of Hyperion Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
LOGO
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94089
(408) 744-9500
, 1998
Dear Arbor Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Arbor Software Corporation, a Delaware corporation, to be held at
, on , 1998 at local time. At the
annual meeting, you will be asked to vote on proposals relating to the
combination of Arbor with Hyperion Software Corporation, proposals relating to
Arbor's stock incentive plans and certain other matters.
Your Board of Directors believes that the merger of Arbor and Hyperion will
result in a combined company that will be a leading supplier of comprehensive
analytic software enabling large companies to improve their financial
performance by maximizing the value of information. We further believe that the
combination of Arbor and Hyperion will enable the combined company to provide
customers with a broader range of enhanced products, product features and
solutions.
The merger of the two companies will be effected by the issuance of 0.95 of
a share of Arbor common stock for each share of Hyperion common stock.
Concurrent with the exchange, the continuing company will be renamed Hyperion
Solutions Corporation. Each share of Arbor common stock will remain outstanding
and will represent one share of the combined company.
Based upon the capitalization of Arbor and Hyperion as of ,
1998 (the record date for the annual meeting), it is anticipated that the shares
of Arbor Common Stock to be issued to Hyperion stockholders in the merger will
represent approximately % of the outstanding common stock of the combined
company after the merger. If the requisite approvals of the stockholders of
Arbor and Hyperion are received, the Merger is expected to be consummated on or
about , 1998.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR
TO AND IN THE BEST INTERESTS OF ARBOR AND ITS STOCKHOLDERS. THE BOARD HAS ALSO
UNANIMOUSLY APPROVED EACH OF THE OTHER PROPOSALS TO BE CONSIDERED AT THE ANNUAL
MEETING. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ARBOR MERGER PROPOSAL AND THE OTHER
MATTERS PRESENTED.
In the material accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Arbor stockholders at the Annual Meeting and a proxy
card. The Joint Proxy Statement/Prospectus more fully describes the Arbor Merger
Proposal and the other matters to be voted on and includes information about
Arbor and Hyperion.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
ANNUAL MEETING.
Sincerely,
John M. Dillon
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
ARBOR SOFTWARE CORPORATION
1344 CROSSMAN AVENUE
SUNNYVALE, CALIFORNIA 94089
(408) 744-9500
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
Notice is hereby given that the 1998 Annual Meeting of Stockholders (the
"Arbor Annual Meeting") of Arbor Software Corporation, a Delaware corporation
("Arbor"), will be held at on , 1998 at
, local time, for the following purposes:
(1) To consider and vote upon three proposals (collectively, the
"Arbor Merger Proposal") in connection with the merger (the "Merger") of
HSC Merger Corp., a Delaware corporation and a wholly owned subsidiary of
Arbor, with and into Hyperion Software Corporation, a Delaware corporation
("Hyperion"), which include: (a) the issuance of shares of Arbor common
stock, $.001 par value (the "Arbor Common Stock"), to stockholders of
Hyperion in connection with the Merger (together with associated preferred
stock purchase rights); (b) the amendment of the Arbor Certificate of
Incorporation (i) to effect a name change from "Arbor Software Corporation"
to "Hyperion Solutions Corporation," (ii) to increase the authorized amount
of Arbor Common Stock from 50,000,000 shares to 300,000,000 shares and
(iii) to divide the Arbor Board of Directors (the "Arbor Board") into three
classes of directors, with each class serving a staggered three-year term
(collectively, the "Arbor Charter Amendment Proposal"); and (c) the
election of seven members to the Board of Directors of Hyperion Solutions
Corporation ("Hyperion Solutions"). In the Merger, each share of Hyperion's
common stock, $.01 par value (the "Hyperion Common Stock"), outstanding as
of the closing of the Merger (other than shares that are owned by Arbor or
Hyperion or any direct or indirect wholly owned subsidiary of Arbor or of
Hyperion) will be converted into the right to receive 0.95 of a share of
Arbor Common Stock (the "Exchange Ratio"). In addition, all Hyperion stock
options, together with the underlying Hyperion stock plans, will be assumed
by Arbor and converted into options to purchase shares of Arbor Common
Stock. The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. The enactment of each of the constituent proposals
comprising the Arbor Merger Proposal is conditioned upon stockholder
approval of all of such constituent proposals.
(2) If the Arbor Merger Proposal is approved, to approve an amendment
to Arbor's 1995 Stock Option/Stock Issuance Plan (the "Arbor 1995 Option
Plan") to increase the number of shares of Arbor Common Stock reserved for
issuance thereunder by 5,000,000 shares or, if the Arbor Merger Proposal is
not approved, to approve an amendment to the Arbor 1995 Option Plan to
increase the number of shares of Arbor Common Stock reserved for issuance
thereunder by 2,000,000 shares.
(3) If the Arbor Merger Proposal is approved, to approve an amendment
to Arbor's Employee Stock Purchase Plan to increase the number of shares of
Arbor Common Stock reserved for issuance thereunder by 1,000,000 shares or,
if the Arbor Merger Proposal is not approved, to approve an amendment to
Arbor's Employee Stock Purchase Plan to increase the number of shares of
Arbor Common Stock reserved for issuance thereunder by 250,000 shares.
(4) If the Arbor Merger Proposal is not approved, to elect four
members of the Arbor Board to serve until the next Annual Meeting or until
their successors have been duly elected and qualified.
(5) To ratify the appointment of Price Waterhouse LLP as Arbor's
independent accountants for the fiscal year ending March 31, 1999.
(6) To transact such other business as may properly come before the
Arbor Annual Meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on ,
1998 are entitled to notice of and to vote at the Arbor Annual Meeting, or at
any postponements or adjournments thereof. The affirmative vote
<PAGE> 4
of a majority of the outstanding shares of Arbor Common Stock is required to
approve the Arbor Charter Amendment Proposal. The election of directors requires
a plurality of votes cast. The affirmative vote of a majority of those shares
present in person or represented by proxy and entitled to vote at the Arbor
Annual Meeting is required to approve each of the other matters to be voted on
at the Arbor Annual Meeting.
A complete list of stockholders entitled to vote at the Arbor Annual
Meeting will be available for examination at Arbor's principal executive
offices, for any purpose germane to the Arbor Annual Meeting, during ordinary
business hours, for a period of at least ten days prior to the Arbor Annual
Meeting.
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ARBOR ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ARBOR ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE ARBOR ANNUAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
ARBOR ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert V. Gunderson, Jr.
Secretary
Sunnyvale, California
, 1998
<PAGE> 5
LOGO
900 Long Ridge Road
Stamford, Connecticut 06902
(203) 703-3000
, 1998
Dear Hyperion Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Hyperion Software Corporation, a Delaware corporation, to be held at Hyperion's
offices, located at 900 Long Ridge Road in Stamford, Connecticut, on
, 1998 at local time. At the special meeting, you
will be asked to vote on a proposal relating to the combination of Hyperion with
Arbor Software Corporation.
Your Board of Directors believes that the merger of Hyperion and Arbor will
result in a combined company that will be a leading supplier of comprehensive
analytic software enabling large companies to improve their financial
performance by maximizing the value of information. We further believe that the
combination of Hyperion and Arbor will enable the combined company to provide
customers with a broader range of enhanced products, product features and
solutions.
The merger of the two companies will be effected by the issuance of 0.95 of
a share of Arbor common stock for each share of Hyperion common stock.
Concurrent with the exchange, the continuing company will be renamed Hyperion
Solutions Corporation. Each share of Arbor common stock will remain outstanding
and will represent one share of the combined company.
Based upon the capitalization of Arbor and Hyperion as of ,
1998 (the record date for the special meeting), it is anticipated that the
shares of Arbor Common Stock to be issued to Hyperion stockholders in the merger
will represent approximately % of the outstanding common stock of the combined
company after the merger. If the requisite approvals of the stockholders of
Arbor and Hyperion are received, the merger is expected to be consummated on or
about , 1998.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER, THE RELATED
PLAN OF MERGER AND THE TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY
DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST INTERESTS OF HYPERION AND ITS
STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE MERGER PROPOSAL.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Hyperion stockholders at the Hyperion Special Meeting and
a proxy card. The Joint Proxy Statement/Prospectus more fully describes the
merger proposal and includes information about Arbor and Hyperion.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
James A. Perakis
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 6
HYPERION SOFTWARE CORPORATION
900 LONG RIDGE ROAD
STAMFORD, CONNECTICUT 06902
(203) 703-3000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
Notice is hereby given that a Special Meeting of Stockholders (the
"Hyperion Special Meeting") of Hyperion Software Corporation, a Delaware
corporation ("Hyperion"), will be held at Hyperion's offices, located at 900
Long Ridge Road in Stamford, Connecticut, on , 1998, at
, local time, for the following purposes:
(1) To consider and vote upon a proposal (the "Hyperion Merger
Proposal") to approve an Agreement and Plan of Merger dated May 25, 1998
(the "Plan of Merger"), among Hyperion, Arbor Software Corporation, a
Delaware corporation ("Arbor"), and HSC Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Arbor ("Merger Sub"), pursuant
to which, among other things, (a) Merger Sub will be merged with and into
Hyperion (the "Merger"); (b) each share of Hyperion common stock, $.01 par
value (together with associated preferred stock purchase rights, the
"Hyperion Common Stock"), outstanding as of the closing of the Merger
(other than shares that are owned by Arbor or Hyperion or any direct or
indirect wholly owned subsidiary of Arbor or of Hyperion) will be converted
into the right to receive 0.95 of a share of the common stock, $.001 par
value, of Arbor (the "Exchange Ratio") together with the associated
preferred stock purchase rights; (c) all Hyperion stock options, together
with the underlying Hyperion stock plans, will be assumed by Arbor and
converted into options to purchase shares of the common stock, $.001 par
value, of Arbor (the "Arbor Common Stock"); (d) Arbor will change its name
to Hyperion Solutions Corporation ("Hyperion Solutions"); and (e) Hyperion
will become a wholly owned subsidiary of Hyperion Solutions.
(2) To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Plan of Merger is attached to the Joint
Proxy Statement/Prospectus as Appendix A.
Only stockholders of record at the close of business on ,
1998 are entitled to notice of and to vote at the Hyperion Special Meeting, or
at any postponements or adjournments thereof. The affirmative vote of a majority
of the outstanding shares of Hyperion Common Stock is required to approve the
Hyperion Merger Proposal.
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE HYPERION SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE HYPERION SPECIAL MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE HYPERION SPECIAL MEETING, YOU MAY THEN WITHDRAW
YOUR PROXY AND VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AND VOTED AT THE HYPERION SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
Craig M. Schiff
Corporate Secretary
Stamford, Connecticut
, 1998
PLEASE DO NOT SEND IN ANY
STOCK CERTIFICATES AT THIS TIME.
<PAGE> 7
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1998
LOGO LOGO
JOINT PROXY STATEMENT
ARBOR SOFTWARE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1998
HYPERION SOFTWARE CORPORATION
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1998
------------------------
PROSPECTUS
ARBOR SOFTWARE CORPORATION
------------------------
This Joint Proxy Statement/Prospectus of Arbor Software Corporation, a
Delaware corporation ("Arbor"), and Hyperion Software Corporation, a Delaware
corporation ("Hyperion"), is being used (a) to solicit proxies on behalf of the
Arbor Board of Directors (the "Arbor Board") from holders of the outstanding
Arbor common stock, $.001 par value ("Arbor Common Stock"), in connection with
the 1998 Annual Meeting of Stockholders to be held at , on
, 1998 at , local time (the "Arbor Annual Meeting"), and
(b) to solicit proxies on behalf of the Hyperion Board of Directors (the
"Hyperion Board") from holders of the outstanding Hyperion common stock, $.01
par value ("Hyperion Common Stock"), in connection with a Special Meeting of
Stockholders to be held at Hyperion's offices, located at 900 Long Ridge Road in
Stamford, Connecticut, on , 1998 at , local time (the
"Hyperion Special Meeting"). This Joint Proxy Statement/Prospectus and the
accompanying proxies are first being mailed to stockholders of Arbor and
stockholders of Hyperion on or about , 1998.
At the Arbor Annual Meeting, stockholders of Arbor will be asked (i) to
consider and vote upon three proposals (collectively, the "Arbor Merger
Proposal") in connection with the merger (the "Merger") of HSC Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Arbor ("Merger Sub"), with
and into Hyperion pursuant to the terms of an Agreement and Plan of Merger dated
May 25, 1998 (the "Plan of Merger") among Arbor, Hyperion and Merger Sub, a copy
of which is attached to this Joint Proxy Statement/Prospectus as Appendix A,
which include: (a) the issuance of shares of Arbor common stock, $.001 par value
(the "Arbor Common Stock"), in connection with the Merger (together with
associated preferred stock purchase rights); (b) the amendment of the Arbor
Certificate of Incorporation (i) to change Arbor's name from "Arbor Software
Corporation" to "Hyperion Solutions Corporation," (ii) to increase the
authorized amount of Arbor Common Stock from 50,000,000 shares to 300,000,000
shares and (iii) to divide the Arbor Board of Directors (the "Arbor Board") into
three classes of directors, with each class serving a staggered three-year term
(collectively, the "Arbor Charter Amendment Proposal"); and (c) the election of
seven members to the Arbor Board; (ii) to approve an amendment to Arbor's 1995
Stock Option/Stock Issuance Plan (the "Arbor 1995 Option Plan") to increase the
number of shares of Arbor Common Stock reserved for issuance thereunder by
5,000,000 shares if the Arbor Merger Proposal is approved or, if the Arbor
Merger Proposal is not approved, by 2,000,000 shares; (iii) to approve an
amendment to Arbor's Employee Stock Purchase Plan to increase the number of
shares of Arbor Common Stock reserved for issuance thereunder by 1,000,000
shares if the Arbor Merger Proposal is approved or, if the Arbor Merger Proposal
is not approved, by 250,000 shares; (iv) if the Arbor Merger Proposal is not
approved, to elect four members of the Arbor Board to serve until the next
Annual Meeting or until their successors have been duly elected or qualified;
(v) to ratify the appointment of Price Waterhouse LLP as Arbor's independent
accountants for the fiscal year ending March 31, 1999; and (vi) to transact such
other business as may properly come before the Arbor Annual Meeting or any
adjournments or postponements thereof.
<PAGE> 8
The enactment of each of the constituent sub-proposals comprising the Arbor
Merger Proposal is conditioned upon approval by the Arbor stockholders of all of
such constituent proposals.
At the Hyperion Special Meeting, stockholders of Hyperion will be asked to
consider and vote upon a proposal (the "Hyperion Merger Proposal") to approve
the Merger and Plan of Merger, pursuant to which, among other things, (a) Merger
Sub will be merged with and into Hyperion, (b) each share of Hyperion Common
Stock outstanding (together with associated preferred stock purchase rights) as
of the closing of the Merger (other than shares that are owned by Arbor or
Hyperion or any direct or indirect wholly owned subsidiary of Arbor or of
Hyperion) will be converted into the right to receive 0.95 of a share of Arbor
Common Stock (the "Exchange Ratio") together with the associated preferred stock
purchase rights, (c) all Hyperion stock options, together with the underlying
Hyperion stock plans, including without limitation the Hyperion 1991 Stock Plan
(collectively, the "Hyperion Stock Plans"), will be assumed by Arbor and
converted into options to purchase shares of Arbor Common Stock, (d) Arbor will
change its name to "Hyperion Solutions Corporation" and (e) Hyperion will become
a wholly owned subsidiary of Hyperion Solutions.
Based upon the number of outstanding shares of Arbor Common Stock and
Hyperion Common Stock as of , 1998 (the record date for the Arbor
Annual Meeting and the Hyperion Special Meeting), the shares of Arbor Common
Stock issued to Hyperion stockholders in the Merger would represent
approximately % of the outstanding shares of Hyperion Solutions Common Stock
immediately following the closing of the Merger.
If the Merger is consummated, the Board of Directors of Hyperion Solutions
(the "Hyperion Solutions Board") will be comprised of seven members: four
nominees who are currently members of the Hyperion Board and three nominees who
are currently members of the Arbor Board. The Arbor nominees are John M. Dillon,
Mark W. Perry and Jeffrey R. Rodek. The Hyperion nominees are James A. Perakis,
Gary G. Greenfield, Harry S. Gruner and Aldo Papone. In addition, if the Merger
is consummated, James A. Perakis, who is currently Chief Executive Officer,
President and Chairman of Hyperion, will serve as the Chairman of Hyperion
Solutions; John M. Dillon, who is currently Chief Executive Officer and
President of Arbor, will serve as the Chief Executive Officer and President of
Hyperion Solutions; and Stephen V. Imbler, currently Senior Vice President and
Chief Financial Officer of Arbor, will serve as the Chief Financial Officer of
Hyperion Solutions.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Arbor under the Securities Act of 1933, as amended (the "Securities Act"), for
the offering of shares of Arbor Common Stock in connection with the Merger.
Arbor Common Stock and Hyperion Common Stock are traded on the Nasdaq National
Market under the symbols "ARSW" and "HYSW," respectively. On June 17, 1998, the
closing sale prices of the Arbor Common Stock and Hyperion Common Stock as
reported on the Nasdaq National Market were $32 1/2 and $30 1/2 per share,
respectively. The information set forth in this Joint Proxy Statement/Prospectus
concerning Arbor and Merger Sub has been furnished by Arbor, and the information
set forth in this Joint Proxy Statement/Prospectus concerning Hyperion has been
furnished by Hyperion. The current market quotations for the Arbor Common Stock
and the Hyperion Common Stock may be obtained on the World Wide Web at
http://www.nasdaq.com.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED CAREFULLY BY BOTH ARBOR STOCKHOLDERS AND HYPERION STOCKHOLDERS IN
EVALUATING THE MERGER AND THE ACQUISITION OF SECURITIES OFFERED HEREBY.
THE SECURITIES TO BE ISSUED BY ARBOR IN CONNECTION WITH THE MERGER 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
JOINT PROXY STATEMENT/PROSPECTUS. FURTHERMORE, NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED THE
FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is , 1998.
<PAGE> 9
AVAILABLE INFORMATION
Arbor and Hyperion are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, each files reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at Seven World Trade Center (13th Floor), New
York, New York 10048. Copies of such material may be obtained by mail from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also makes electronic
filings publicly available on the Internet within 24 hours of acceptance. The
SEC's Internet address is http://www.sec.gov. The SEC web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC. Arbor Common Stock and
Hyperion Common Stock are quoted on the Nasdaq National Market, and the reports,
proxy statements and other information referred to above can also be inspected
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006. After the consummation of the Merger, Hyperion will no longer file
reports, proxy statements or other information with the SEC or the Nasdaq
National Market. Instead, such information will be provided, to the extent
required, in filings made by Hyperion Solutions.
Arbor has filed with the SEC a registration statement on Form S-4,
including this Joint Proxy Statement/Prospectus and other information (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement"), under the Securities Act with respect to the shares of Arbor Common
Stock and associated preferred stock purchase rights to be issued to holders of
Hyperion Common Stock in the Merger. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement and the exhibits
and schedules thereto may be inspected, without charge, at the offices of the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, or obtained from the SEC web site. Although statements contained in this
Joint Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein set forth all material elements of such documents,
such statements are not necessarily complete. With respect to each such contract
or other document filed as an exhibit to the Registration Statement, reference
is made to the exhibit for a more complete description of the matters involved,
and each such statement, although setting forth all material elements of such
document, shall be deemed qualified in all respects by such reference.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ARBOR OR HYPERION SINCE SUCH DATE. THIS JOINT PROXY
STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES OF ARBOR TO BE ISSUED
IN THE MERGER, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
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<PAGE> 10
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed with the SEC by Arbor under the
Exchange Act are incorporated herein by reference:
(a) Arbor's Annual Report on Form 10-K for the year ended March 31,
1998;
(b) Arbor's Current Report on Form 8-K dated as of May 25, 1998, filed
with the SEC on May 29, 1998;
(c) Arbor's Current Report on Form 8-K dated as of June 12, 1998,
filed with the SEC on June 17, 1998;
(d) The description of Arbor's Common Stock contained in Arbor's
Registration Statement on Form 8-A, dated October 9, 1995;
(e) The description of Arbor's Common Stock contained in Arbor's
Registration Statement on Form 8-A/A, dated November 3, 1995; and
(f) The description of Arbor's Preferred Share Purchase Rights on Form
8-A dated as of June 12, 1998, and filed with the SEC on June 17, 1998.
The following documents previously filed with the SEC by Hyperion under the
Exchange Act are incorporated herein by reference:
(a) Hyperion's Annual Report on Form 10-K for the year ended June 30,
1997;
(b) Hyperion's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1997, December 31, 1997, and March 31, 1998;
(c) Hyperion's Current Reports on Form 8-K, each dated as of May 25,
1998 and filed with the SEC on May 29, 1998 and June 9, 1998; and
(d) The description of Hyperion's Common Stock contained in Hyperion's
Registration Statement on Form 8-A, dated November 21, 1995.
All documents filed by Arbor or Hyperion pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Arbor Annual Meeting and Hyperion Special
Meeting shall be deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in the document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Arbor or Merger Sub has been supplied by Arbor
and all such information relating to Hyperion has been supplied by Hyperion.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED,
IN THE CASE OF DOCUMENTS RELATING TO ARBOR, FROM INVESTOR RELATIONS, ARBOR
SOFTWARE CORPORATION, 1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089, AND IN
THE CASE OF DOCUMENTS RELATING TO HYPERION, FROM INVESTOR RELATIONS, HYPERION
SOFTWARE CORPORATION, 900 LONG RIDGE ROAD, STAMFORD, CONNECTICUT 06902. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
, 1998.
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<PAGE> 11
TRADEMARKS
Arbor, Arbor Software and Essbase are registered trademarks of Arbor, and
Essbase-Ready, Driving Business Performance, WIRED for OLAP and the Arbor
Software logo are trademarks of Arbor. Hyperion, Hyperion Software, the Hyperion
Software Logo, Hyperion Admin, Hyperion Analyst, Hyperion Assets, Hyperion
Financials, Hyperion Forms, Hyperion Ledger, Hyperion OLAP, Hyperion OnTrack,
Hyperion Payables, Hyperion Pillar, Hyperion Receivables, Hyperion Reporting,
Hyperion Retrieve, Hyperion Tools, Business Intelligence, Financial
Intelligence, IMRS, LedgerLink, Micro Control and Pillar are registered
trademarks, and Hyperion Analytical Ledger, Hyperion Enterprise, Hyperion MBA,
Hyperion Purchasing, HyperionReady, Build&Link, Business Analytics, ERPLINK and
Listen to your Business are trademarks, of Hyperion Software Operations Inc., a
wholly-owned subsidiary of Hyperion Software Corporation. MARVEL COMICS,
SPIDER-MAN: TM & (C) 1998 Marvel Characters, Inc. All rights reserved. This
Joint Proxy Statement/Prospectus also includes trademarks of companies other
than Arbor and Hyperion.
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT (THE "FORWARD-LOOKING STATEMENTS"). FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE
WORDS "BELIEVES," "ANTICIPATES," "PLANS," "INTENDS" AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF
THE FACTORS SET FORTH UNDER "RISK FACTORS" HEREIN. IN CONNECTION WITH THE
FORWARD-LOOKING STATEMENTS, HYPERION STOCKHOLDERS AND ARBOR STOCKHOLDERS SHOULD
CAREFULLY REVIEW THE FACTORS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
UNDER "RISK FACTORS."
NEITHER ARBOR NOR HYPERION MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED OR ESTIMATED FINANCIAL
INFORMATION REFERENCED OR SET FORTH HEREIN UNDER "THE MERGER AND RELATED
TRANSACTIONS -- OPINION OF FINANCIAL ADVISOR TO ARBOR," "THE MERGER AND RELATED
TRANSACTIONS -- OPINION OF FINANCIAL ADVISOR TO HYPERION" OR ELSEWHERE HEREIN OR
AS TO THE ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED
OR ESTIMATED INFORMATION IS DERIVED. PROJECTIONS OR ESTIMATIONS OF THE COMBINED
COMPANY'S FUTURE PERFORMANCE ARE NECESSARILY SUBJECT TO A HIGH DEGREE OF
UNCERTAINTY AND MAY VARY MATERIALLY FROM ACTUAL RESULTS. REFERENCE IS MADE TO
THE PARTICULAR DISCUSSIONS SET FORTH UNDER "RISK FACTORS."
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<PAGE> 12
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION....................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... ii
TRADEMARKS.................................................. iii
FORWARD-LOOKING STATEMENTS.................................. iii
SUMMARY..................................................... 1
The Parties to the Merger................................. 1
Arbor Annual Meeting of Stockholders...................... 2
Hyperion Special Meeting of Stockholders.................. 3
The Merger................................................ 3
Risk Factors.............................................. 10
Selected Historical and Unaudited Pro Forma Condensed
Combined Financial Data................................ 11
Comparative Per Share Data................................ 15
MARKET PRICE AND DIVIDENDS ON ARBOR AND HYPERION COMMON
STOCK..................................................... 17
RISK FACTORS................................................ 19
Uncertainty Relating to Integration of Multiple Operations
and Product Lines; Management of Growth................ 19
Fixed Merger Consideration Despite Potential Changes in
Stock Prices........................................... 19
Interests of Certain Persons in the Merger................ 20
Fluctuations in Quarterly Results; Future Operating
Results Uncertain...................................... 20
Competition............................................... 21
Cost of Integration; Transaction Expenses................. 22
Potential Dilutive Effect to Stockholders................. 22
Shares Eligible for Public Sale........................... 22
Future Acquisition-Related Risks.......................... 23
Dependence Upon Indirect Channel Partners................. 23
Product Concentration; Dependence upon the Market for
Enterprise Software.................................... 24
Hiring and Retention of Personnel......................... 24
Risks Associated with International Operations............ 25
Risks Associated with New Versions and New Products; Rapid
Technological Change................................... 26
Risk of Software Defects.................................. 26
Risks Associated with Litigation and Related Costs........ 26
Proprietary Rights and Risks of Infringement.............. 27
Year 2000 Compliance...................................... 28
Product Liability......................................... 29
Possible Volatility of Common Stock and Notes............. 29
Effect of Certain Charter Provisions; Rights Plan;
Certificate of Incorporation, Bylaws and Delaware
Law.................................................... 29
PROPOSALS AND BOARD RECOMMENDATIONS......................... 31
VOTING AND PROXIES.......................................... 32
Date, Time and Place of Arbor Annual Meeting and Hyperion
Special Meeting........................................ 32
Record Date and Outstanding Shares........................ 32
Arbor Stockholder Vote Required........................... 32
Hyperion Stockholder Vote Required........................ 33
Solicitation of Proxies; Expenses......................... 33
</TABLE>
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<PAGE> 13
<TABLE>
<CAPTION>
PAGE
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<S> <C>
APPRAISAL RIGHTS............................................ 34
THE MERGER AND RELATED TRANSACTIONS......................... 34
General................................................... 34
Material Contacts and Board Deliberations................. 34
Reasons for the Merger.................................... 36
Opinion of Financial Advisor to Arbor..................... 39
Opinion of Financial Advisor to Hyperion.................. 43
Conversion of Hyperion Shares............................. 47
Representations and Warranties............................ 48
Certain Covenants......................................... 48
No Solicitation........................................... 49
Resale of Arbor Common Stock; Agreements with
Affiliates............................................. 50
Management of Hyperion Solutions Following the Merger;
Interests of Certain Persons in the Merger............. 50
New Company Name; Related Matters After the Merger........ 51
Stock Options............................................. 51
Stockholders Rights Plans................................. 51
Director and Officer Indemnification...................... 52
Conditions................................................ 52
Termination; Termination Fees and Expenses................ 53
Closing................................................... 55
Amendment and Waiver...................................... 55
Stock Option Agreements................................... 55
Certain Federal Income Tax Considerations................. 58
Accounting Treatment...................................... 60
ARBOR AND HYPERION UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS...................................... 61
ARBOR BUSINESS.............................................. 66
Overview.................................................. 66
Pending and Potential Litigation.......................... 66
HYPERION BUSINESS........................................... 68
DIRECTORS OF HYPERION SOLUTIONS FOLLOWING THE MERGER........ 69
Directors................................................. 69
Committees of the Board of Directors of Hyperion
Solutions.............................................. 70
Stock Ownership of Directors and Executive Officers....... 71
DESCRIPTION OF ARBOR CAPITAL STOCK.......................... 71
Common Stock.............................................. 71
Preferred Stock........................................... 71
Stockholder Rights Plan................................... 72
Antitakeover Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law................. 74
DESCRIPTION OF 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE
2005...................................................... 75
General................................................... 75
Form, Denomination and Registration....................... 76
Conversion of Notes....................................... 77
Optional Redemption by Arbor.............................. 79
Redemption at Option of the Holder........................ 80
Subordination of Notes.................................... 81
Events of Default; Notice and Wavier...................... 83
</TABLE>
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<TABLE>
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<S> <C>
Modification of the Indenture............................. 84
Registration Rights of the Noteholders.................... 84
Information Concerning the Trustee........................ 85
OTHER INFORMATION FOR ARBOR ANNUAL MEETING.................. 86
PROPOSAL TWO -- AMENDMENT OF ARBOR 1995 STOCK OPTION/STOCK
ISSUANCE PLAN............................................. 86
Summary of the Arbor 1995 Option Plan..................... 86
Discretionary Option Grant Program........................ 87
Federal Income Tax Considerations of Options Granted Under
the Arbor 1995 Option Plan............................. 92
Recommendation of the Arbor Board......................... 93
PROPOSAL THREE -- AMENDMENT OF ARBOR EMPLOYEE STOCK PURCHASE
PLAN...................................................... 94
Summary of the Arbor Employee Stock Purchase Plan......... 94
Federal Income Tax Considerations......................... 97
Recommendation of the Arbor Board......................... 97
PROPOSAL FOUR -- ELECTION OF DIRECTORS...................... 98
Nominees for Election as Arbor Directors.................. 98
Board of Directors Meetings and Committees................ 99
Director Compensation..................................... 99
Recommendation of the Arbor Board......................... 99
PROPOSAL FIVE -- RATIFICATION OF INDEPENDENT ACCOUNTANTS.... 100
Recommendation of the Arbor Board......................... 100
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE........ 101
FORM 10-K................................................... 101
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING............... 101
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS..... 101
COMPENSATION COMMITTEE REPORT............................... 101
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION............................................. 103
ARBOR COMMON STOCK PERFORMANCE GRAPH........................ 104
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG ARBOR SOFTWARE
CORPORATION, THE NASDAQ STOCK MARKET -- U.S. INDEX AND THE
H&Q SOFTWARE SECTOR INDEX................................. 104
OTHER MATTERS............................................... 105
LEGAL MATTERS............................................... 105
EXPERTS..................................................... 105
</TABLE>
APPENDICES
<TABLE>
<CAPTION>
<S> <C>
Appendix A Agreement and Plan of Merger among Hyperion Software
Corporation, Arbor Software Corporation and HSC Merger Corp.
and Exhibits Thereto
Appendix B Written Opinion of Morgan Stanley & Co. Incorporated
Appendix C Written Opinion of Goldman, Sachs & Co.
</TABLE>
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<PAGE> 15
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus and the appendices hereto, is not
intended to be a complete statement of all material features of the proposals to
be voted on, and is qualified in its entirety by the more detailed information
and unaudited pro forma condensed combined financial statements and related
notes and appendices appearing elsewhere in this Joint Proxy Statement or
incorporated by reference herein. Capitalized terms used but not defined in this
Summary have the meanings given to them elsewhere in this Joint Proxy
Statement/Prospectus. Stockholders are urged to read this Joint Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
For purposes of this Joint Proxy Statement/Prospectus, "Arbor" refers to
Arbor Software Corporation and its subsidiaries including HSC Merger Corp.
("Merger Sub"), "Hyperion" refers to Hyperion Software Corporation and its
subsidiaries, and "Hyperion Solutions" or the "combined company" refers to the
combined business of Arbor and Hyperion formed as a result of the Merger.
THE PARTIES TO THE MERGER
Arbor. Arbor develops and markets enterprise on-line analytical processing
("OLAP") software for management reporting, analysis and planning applications.
Arbor'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. Arbor's principal executive offices are located at 1344
Crossman Avenue, Sunnyvale, California 94089, and its telephone number is (408)
744-9500.
Hyperion. Hyperion develops, markets and supports comprehensive analytic
solutions that enable large, multinational companies to improve financial
performance by maximizing the value of information. Hyperion's
internet/intranet-enabled applications support and enhance enterprise-wide
financial processes, including planning, budgeting, forecasting, accounting,
consolidation and performance analysis. Hyperion's products provide executives,
managers, analysts and accountants with the capability to collect, process,
report and analyze business information. Hyperion Enterprise products
consolidate and report financial and other business data; Hyperion Pillar is
used for corporate budgeting and financial planning; Hyperion MBA provides
multidimensional analysis and reporting capabilities regarding complex,
high-volume business data; and Hyperion's Spider-Man web delivery application is
a web-based business information access solution for the global user community
of an organization. Hyperion also offers installation, training, consulting and
support services. Hyperion's principal executive offices are located at 900 Long
Ridge Road, Stamford, Connecticut 06902, and its telephone number is (203)
703-3000.
Merger Sub. Merger Sub is a wholly owned subsidiary of Arbor with no
business operations other than in connection with facilitating the Merger.
Merger Sub's principal executive offices are located at 1344 Crossman Avenue,
Sunnyvale, California 94089, and its telephone number is (408) 744-9500.
1
<PAGE> 16
ARBOR ANNUAL MEETING OF STOCKHOLDERS
Time, Date and Purpose. The Arbor Annual Meeting will be held at
, on , 1998 at local time. The purpose of the
Arbor Annual Meeting is to consider and vote upon the following proposals:
1. To adopt the Arbor Merger Proposal, which consists of three separate
sub-proposals: (a) the issuance of shares of Arbor Common Stock in
connection with the Merger; (b) the Arbor Charter Amendment Proposal;
and (c) the election of seven members to the Arbor Board. The enactment
of each of the constituent proposals comprising the Arbor Merger
Proposal is conditioned upon approval by the Arbor stockholders of all
of such constituent proposals.
2. To approve an amendment to Arbor's 1995 Stock Option/Stock Issuance Plan
(the "Arbor 1995 Option Plan") to increase the number of shares of Arbor
Common Stock reserved for issuance thereunder by 5,000,000 shares if the
Arbor Merger Proposal is approved, or, if the Arbor Merger Proposal is
not approved, by 2,000,000 shares.
3. To approve an amendment to Arbor's Employee Stock Purchase Plan to
increase the number of shares of Arbor Common Stock reserved for
issuance thereunder by 1,000,000 shares if the Arbor Merger Proposal is
approved, or, if the Arbor Merger Proposal is not approved, by 250,000
shares.
4. If the Arbor Merger Proposal is not approved, to elect four directors to
the Arbor Board.
5. To ratify the appointment of Price Waterhouse LLP as Arbor's independent
accountants for the fiscal year ending March 31, 1999.
6. To transact such other business as may properly come before the Arbor
Annual Meeting or any adjournments or postponements thereof.
Record Date; Vote Required. The record date for determining stockholders of
Arbor entitled to notice of and to vote at the Arbor Annual Meeting is
, 1998 (the "Arbor Record Date"). On the Arbor Record Date there
were shares of Arbor Common Stock outstanding, held by
approximately holders of record. Each share of Arbor Common Stock
entitles the holder thereof to one vote upon all matters submitted to a vote of
stockholders. The presence at the Arbor Annual Meeting in person or by proxy of
the holders of a majority of the outstanding shares of Arbor Common Stock
constitutes a quorum.
Proposal One. The Arbor Merger Proposal consists of three separate
sub-proposals, the approval of which is conditioned upon the approval of all
such constituent proposals: (a) the issuance of shares of Arbor Common Stock in
connection with the Merger; (b) the amendment of the Arbor Certificate of
Incorporation (i) to effect a name change from "Arbor Software Corporation" to
"Hyperion Solutions Corporation," (ii) to increase the authorized amount of
Arbor Common Stock from 50,000,000 shares to 300,000,000 shares, and (iii) to
divide the Arbor Board into three classes of directors, with each class serving
a staggered three-year term (collectively, the "Arbor Charter Amendment
Proposal"); and (c) the election of seven members to the Arbor Board. Approval
of the issuance of shares of Arbor Common Stock requires the affirmative vote of
a majority of those shares present in person or represented by proxy and
entitled to vote at the Arbor Annual Meeting. Approval of the Arbor Charter
Amendment Proposal requires the affirmative vote of a majority of shares of
Arbor Common Stock outstanding on the Arbor Record Date. Directors are elected
by a plurality of the affirmative votes cast by those present in person or
represented by proxy and entitled to vote at the Arbor Annual Meeting. In
determining whether the issuance of shares of Arbor Common Stock and the Arbor
Charter Amendment Proposal have received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as a vote
against such proposals. In connection with the election of directors,
abstentions and broker non-votes are not counted towards a nominee's total.
Proposal Two. Approval of the adoption of the amendments to the Arbor 1995
Option Plan requires the affirmative vote of a majority of those shares present
in person or represented by proxy and entitled to vote at the Arbor Annual
Meeting. Abstentions will be treated as votes against the proposal. Broker
non-votes will be treated as not entitled to vote on this matter and thus will
have no effect on the outcome of the vote.
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<PAGE> 17
Proposal Three. Approval of the adoption of the amendments to Arbor's
Employee Stock Purchase Plan requires the affirmative vote of a majority of
those shares present in person or represented by proxy entitled to vote at the
Arbor Annual Meeting. Abstentions will be treated as votes against the proposal.
Broker non-votes will be treated as not entitled to vote on the matter and thus
will have no effect on the outcome of the vote.
Proposal Four. Directors are elected by a plurality of the affirmative
votes cast by those shares present in person or represented by proxy and
entitled to vote at the Arbor Annual Meeting. The four nominees for director
receiving the highest number of affirmative votes will be elected. Abstentions
and broker non-votes are not counted toward a nominee's total. Stockholders may
not cumulate votes in the election of directors.
Proposal Five. Ratification of the appointment of Price Waterhouse LLP as
Arbor's independent accountants for the fiscal year ending March 31, 1999
requires the affirmative vote of a majority of those shares present in person,
or represented by proxy, and cast either affirmatively or negatively at the
Arbor Annual Meeting. Abstentions and broker non-votes will not be counted as
having been voted on the proposal.
On the Arbor Record Date, Arbor directors and executive officers
beneficially owned in the aggregate approximately % of the outstanding
shares of Arbor Common Stock entitled to vote at the Arbor Annual Meeting. See
"Voting and Proxies."
HYPERION SPECIAL MEETING OF STOCKHOLDERS
Time, Date and Purpose. The Hyperion Special Meeting will be held at
Hyperion's offices, located at 900 Long Ridge Road in Stamford, Connecticut, on
, 1998 at local time. The purpose of the Hyperion Special
Meeting is to consider and vote upon the Hyperion Merger Proposal and to
transact such other business as may properly come before the Hyperion Special
Meeting or any adjournments or postponements thereof.
Record Date; Vote Required. The record date for determining stockholders of
Hyperion entitled to notice of and to vote at the Hyperion Special Meeting is
, 1998 (the "Hyperion Record Date"). On the Hyperion Record Date
there were shares of Hyperion Common Stock outstanding, held by
approximately holders of record. Each share of Hyperion Common
Stock entitles the holder thereof to one vote upon all matters submitted to a
vote of stockholders. The presence at the Hyperion Special Meeting in person or
by proxy of a majority of the outstanding shares of Hyperion Common Stock
constitutes a quorum.
The affirmative vote of the holders of a majority of the outstanding shares
of Hyperion Common Stock is required for the approval of the Hyperion Merger
Proposal. On the Hyperion Record Date, Hyperion directors and executive officers
held in the aggregate approximately % of the outstanding shares of Hyperion
Common Stock entitled to vote at the Hyperion Special Meeting. See "Voting and
Proxies."
THE MERGER
General. At the time and on the date the Certificate of Merger is filed
with the Office of the Secretary of State of the State of Delaware (the
"Effective Time" or "Closing Date" of the Merger), (a) Merger Sub will be merged
with and into Hyperion, (b) the separate existence of Merger Sub will cease and
(c) Hyperion will become a wholly owned subsidiary of Hyperion Solutions
(following the change of Arbor's name from "Arbor Software Corporation" to
"Hyperion Solutions Corporation"). In addition, at the Effective Time of the
Merger, (a) each share of Hyperion Common Stock (together with associated
preferred stock purchase rights) outstanding as of the closing of the Merger
(other than Shares that are owned by Arbor or Hyperion or any direct or indirect
wholly owned subsidiary of Arbor or of Hyperion) will be converted into the
right to receive 0.95 of a share of Arbor Common Stock (together with associated
preferred stock purchase rights); (b) all Hyperion stock options, together with
the underlying Hyperion Stock Plans, will be assumed by Arbor and converted into
options to purchase shares of Arbor Common Stock at an exercise price based upon
the Exchange Ratio; (c) the Arbor Certificate of Incorporation will be amended
to provide (i) that the name of Arbor will be changed from "Arbor Software
Corporation" to "Hyperion Solutions Corporation," (ii) that the
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<PAGE> 18
authorized amount of Arbor Common Stock will be increased from 50,000,000 shares
to 300,000,000 shares and (iii) that the Arbor Board will be divided into three
classes of directors, with each class serving a three-year term and (d) seven
members will be elected to the Board of Directors of Hyperion Solutions. Each
share of Arbor Common Stock will remain outstanding and will represent one share
of the combined company. The options issued to non-employee directors under the
Arbor 1995 Option Plan will accelerate, by their terms, automatically upon
consummation of the Merger.
Assuming that all conditions to the Merger are met or waived prior thereto,
and that the Hyperion Merger Proposal and the Arbor Merger Proposal (including
the Arbor Charter Amendment Proposal) are approved, it is anticipated that the
Effective Time of the Merger will occur on the date of or promptly following the
Hyperion Special Meeting and the Arbor Annual Meeting. The current market
quotations for the Arbor Common Stock and the Hyperion Common Stock may be
obtained on the World Wide Web at http://www.nasdaq.com. No fractional shares of
Arbor Common Stock will be issued in the Merger. Instead, cash will be paid in
lieu of the issuance of fractional shares. See "The Merger and Related
Transactions -- Conversion of Hyperion Shares."
Based on the number of shares of Hyperion Common Stock outstanding as of
, 1998, an aggregate of up to shares of Arbor Common
Stock will be issued in the Merger. In addition, Arbor will assume outstanding
options to purchase an aggregate of approximately shares of
Hyperion Common Stock (based on the number of shares subject to outstanding
Hyperion stock options on , 1998), which, as adjusted to give effect
to the Exchange Ratio, will become options to purchase an aggregate of
approximately shares of Arbor Common Stock. The conversion will
be effected by multiplying the number of shares of Hyperion Common Stock subject
to each Hyperion Stock Option immediately prior to the Merger by the Exchange
Ratio and dividing the exercise price of each such option by the Exchange Ratio.
If a holder of a Hyperion Stock Option were to exercise such option after
, 1998 and before the Effective Time of the Merger, each share of
Hyperion Common Stock issued pursuant to such option will be converted into the
right to receive 0.95 of a share of Arbor Common Stock. Within five days after
the Closing Date, Arbor will file a registration statement on Form S-8 with
respect to the shares of Arbor Common Stock issuable with respect to Hyperion
stock options assumed by Arbor pursuant to the Merger. See "The Merger and
Related Transactions -- Stock Options and Employee Benefits."
The following table presents the fully diluted equity interests in the
combined company of Arbor stockholders and Hyperion stockholders on a pro forma
combined basis as of , 1998 (including shares issuable upon the
exercise of outstanding options to purchase shares of Arbor Common Stock and
Hyperion Common Stock):
<TABLE>
<CAPTION>
SHARES
(IN THOUSANDS) %
-------------- ------
<S> <C> <C>
Arbor Stockholders...................................
Hyperion Stockholders................................
Total Pro Forma Combined Company Stockholders........ 100.0%
</TABLE>
Exchange of certificates evidencing Hyperion Common Stock for certificates
evidencing Arbor Common Stock will be made upon surrender of certificates
evidencing Hyperion Common Stock to Boston EquiServe, L.P., as exchange agent.
It is anticipated that after the Effective Time, holders of Arbor Common Stock
will be able to exchange their certificates evidencing shares of Arbor Common
Stock for certificates in the name of Hyperion Solutions.
CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE PRIOR TO THE RECEIPT OF
THE NECESSARY APPROVALS OF THE ARBOR STOCKHOLDERS AT THE ARBOR ANNUAL MEETING
AND OF THE HYPERION STOCKHOLDERS AT THE HYPERION SPECIAL MEETING. IN ADDITION,
FORMER HYPERION STOCKHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL THEY
ARE PROVIDED WITH A LETTER OF TRANSMITTAL AND RELATED INSTRUCTIONS AND MATERIALS
FOR THE EXCHANGE OF THEIR CERTIFICATES AFTER THE EFFECTIVE TIME. SEE "THE MERGER
AND RELATED TRANSACTIONS -- CONVERSION OF HYPERION SHARES."
4
<PAGE> 19
Material Contacts and Board Deliberations. From October 16, 1997 through
May 25, 1998, senior executives of Arbor and Hyperion met at various times to
discuss a potential alliance or merger of their respective companies and the key
business and financial issues involved in such a transaction. At such meetings,
senior executives of Arbor and Hyperion and their respective financial advisors
worked together to arrive at a tentative, mutually acceptable share exchange
ratio. In addition, throughout May 1998, senior executives of Arbor and Hyperion
and their respective financial, accounting and legal advisors conducted due
diligence reviews. On May 22, 1998 (in the case of the Hyperion Board) and May
25, 1998 (in the case of the Arbor Board), the respective boards of directors
met separately at which time each Board concluded that the Merger was fair and
in the best interests of their respective companies and stockholders and
approved and adopted the Plan of Merger, a copy of which is attached hereto as
Appendix A. The Plan of Merger was then executed by Arbor and Hyperion on May
25, 1998. For a more detailed discussion of the background of the Merger, see
"The Merger and Related Transactions -- Material Contacts and Board
Deliberations."
Recommendations; Reasons for the Merger. The Arbor Board unanimously
approved the Arbor Merger Proposal and recommends that holders of Arbor Common
Stock vote in favor of the Arbor Merger Proposal.
The Hyperion Board unanimously approved the Plan of Merger and the Merger
and recommends that holders of Hyperion Common Stock vote in favor of the
Hyperion Merger Proposal.
Both the Arbor Board and the Hyperion Board considered many factors in
reaching their conclusion to approve the Plan of Merger and the Merger and to
recommend that stockholders vote for approval of the Arbor Merger Proposal and
the Hyperion Merger Proposal, as the case may be. See "The Merger and Related
Transactions -- Reasons for the Merger" and "-- Interests of Certain Persons in
the Merger."
Opinion of Financial Advisor to Arbor. On May 25, 1998, Morgan Stanley &
Co. Incorporated ("Morgan Stanley") rendered a written opinion (the "Morgan
Stanley Opinion") to the Arbor Board that, as of such date, and based on the
procedures followed, factors considered and assumptions made as set forth
therein, the Exchange Ratio pursuant to the Plan of Merger was fair from a
financial point of view to the holders of Arbor Common Stock. The full text of
the Morgan Stanley Opinion, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken, is
attached as Appendix B to this Joint Proxy Statement/Prospectus and should be
read carefully and in its entirety in connection with this Joint Proxy
Statement/Prospectus. The Morgan Stanley Opinion is directed to the Arbor Board,
addresses only the fairness to the holders of Arbor Common Stock as of May 25,
1998, from a financial point of view, of the Exchange Ratio pursuant to the Plan
of Merger and does not constitute a recommendation to any holder of Arbor Common
Stock as to how such stockholder should vote at the Arbor Annual Meeting. A
summary of all material provisions of the Morgan Stanley Opinion is set forth in
this Joint Proxy Statement/Prospectus and such summary is qualified in its
entirety by reference to the full text of such opinion. See "The Merger and
Related Transactions -- Opinion of Financial Advisor to Arbor" and "Appendix B."
Opinion of Financial Advisor to Hyperion. Goldman, Sachs & Co. ("Goldman
Sachs") has rendered a written opinion (the "Goldman Sachs Opinion") to the
Hyperion Board that, as of May 25, 1998, and based on the procedures followed,
factors considered and assumptions made as set forth therein, the Exchange Ratio
pursuant to the Plan of Merger was fair from a financial point of view to the
holders of Hyperion Common Stock. The full text of the Goldman Sachs Opinion,
which sets forth the assumptions made, procedures followed, matters considered
and limitations on the review undertaken, is attached as Appendix C to this
Joint Proxy Statement/Prospectus and should be read carefully and in its
entirety in connection with this Joint Proxy Statement/Prospectus. The Goldman
Sachs Opinion was provided to the Hyperion Board in connection with its
consideration of the Merger and does not constitute a recommendation as to how
any holder of Hyperion Common Stock should vote at the Hyperion Special Meeting.
A summary of all material elements of the Goldman Sachs Opinion is set forth in
this Joint Proxy Statement/Prospectus and such summary is qualified in its
entirety by reference to the full text of such opinion. See "The Merger and
Related Transactions -- Opinion of Financial Advisor to Hyperion" and "Appendix
C."
Representations and Warranties and Certain Covenants. Under the Plan of
Merger, Arbor and Hyperion made a number of representations and warranties
regarding their respective capital structures, operations,
5
<PAGE> 20
financial conditions and other matters. Each of Arbor and Hyperion has agreed
that, until the closing of the Merger or the termination of the Plan of Merger,
it will (a) carry on its business in the ordinary course and attempt to preserve
its present business and relationships with customers, suppliers and others, (b)
not take certain actions without the other's consent and (c) use its best
efforts to complete the Merger. See "The Merger and Related
Transactions -- Representations and Warranties" and "-- Certain Covenants."
No Solicitation. Each of Arbor and Hyperion has agreed not to solicit,
initiate discussions with or engage in negotiations with any person relating to
a possible acquisition of Arbor or Hyperion, respectively, except that if the
respective Board of Directors of Arbor or Hyperion receives an unsolicited
Acquisition Proposal (as defined in the Plan of Merger) that it reasonably
believes in its good faith reasonable judgment (based upon and consistent with
advice received in consultation with independent financial and legal advisors)
that such Acquisition Proposal is reasonably capable of being completed on the
terms proposed and, after taking into account the strategic benefits anticipated
to be derived from the Merger and the long-term prospects of Arbor and Hyperion
as a combined company, would, if consummated, result in a transaction more
favorable over the long term from a financial point of view than the Merger,
then the Arbor Board or the Hyperion Board, as the case may be, will not be
prevented from providing information to or entering into discussions or
negotiations with the party making the Superior Proposal (as defined in the Plan
of Merger), as may be necessary to discharge the directors' fiduciary duties.
However, in the event that either Hyperion or Arbor terminates the Plan of
Merger following a failure of the stockholders of Hyperion to approve the
Hyperion Merger Proposal or of the stockholders of Arbor to approve the Arbor
Merger Proposal, respectively, and a Superior Proposal with respect to Hyperion
or Arbor, as the case may be, shall not have been rejected by Hyperion or Arbor,
respectively, and withdrawn by the third party, then Hyperion or Arbor, as the
case may be, must promptly pay the other party a termination fee of $20,000,000.
In addition, the terminating party's right to exercise its option to purchase
shares of the Common Stock of the other party will be triggered. See
"-- Expenses and Termination Fees" and "The Merger and Related
Transactions -- No Solicitation" and "The Merger and Related
Transactions -- Stock Option Agreements."
Resale of Arbor Common Stock; Agreements with Affiliates. The shares of
Arbor Common Stock to be issued in the Merger have been registered under the
Securities Act and will be freely transferable, subject to certain limitations
on resale described in this Joint Proxy Statement/Prospectus. As a condition to
the obligations of the parties under the Plan of Merger, Arbor and Hyperion have
each received agreements from each person or entity who may be deemed an
affiliate (as defined in the Securities Act and the rules and regulations
thereunder) of Arbor or Hyperion, as appropriate, pursuant to which such persons
have agreed not to sell, transfer or otherwise dispose of shares of Hyperion
Common Stock or Arbor Common Stock until such time after the Effective Time as
Hyperion Solutions has publicly released a report including financial results
for a period of at least 30 days of combined operations of Arbor and Hyperion.
Furthermore, pursuant to such agreements, the affiliates of Hyperion have agreed
to refrain from the sale or transfer of any Arbor Common Stock received in
connection with the Merger, except in accordance with the provisions of the
Securities Act and the general rules and regulations thereunder. Such agreements
also limit the ability of the affiliates of Arbor to sell, transfer or otherwise
dispose of shares of Arbor Common Stock during the period preceding and
following the Merger. See "The Merger and Related Transactions -- Resale of
Arbor Common Stock; Agreements with Affiliates."
Management of Hyperion Solutions Following the Merger; Interests of Certain
Persons in the Merger. The Plan of Merger provides that, upon the closing of the
Merger, James A. Perakis, who is currently Chairman, Chief Executive Officer and
President of Hyperion, will become Chairman of Hyperion Solutions; John M.
Dillon, who is currently Chief Executive Officer, President and Chairman of the
Board of Arbor, will become Chief Executive Officer and President of Hyperion
Solutions; and Stephen V. Imbler, who is currently Senior Vice President and
Chief Financial Officer of Arbor, will become Chief Financial Officer of
Hyperion Solutions. The Plan of Merger further provides that the Board of
Directors of Hyperion Solutions will be a classified or staggered Board,
initially consisting of two Class I Directors, whose terms will expire at the
1999 Annual Meeting of Stockholders of Hyperion Solutions, three Class II
Directors, whose terms will expire at the 2000 Annual Meeting of Stockholders of
Hyperion Solutions, and two Class III Directors, whose terms will expire at the
2001 Annual Meeting of Stockholders of Hyperion Solutions. If the Merger is
consummated,
6
<PAGE> 21
the initial Board of Directors of Hyperion Solutions will consist of the
following seven persons: John M. Dillon, Mark W. Perry and Jeffrey R. Rodek (all
of whom are currently directors of Arbor), and James A. Perakis, Gary G.
Greenfield, Harry S. Gruner and Aldo Papone (all of whom are currently directors
of Hyperion). The Class I Directors will be Messrs. Greenfield and Perry, the
Class II Directors will be Messrs. Gruner, Papone and Rodek, and the Class III
Directors will be Messrs. Dillon and Perakis.
In considering the recommendation of the Arbor Board and Hyperion Board
with respect to the Merger and Plan of Merger, Arbor and Hyperion stockholders
should be aware that certain members of Arbor's and Hyperion's management and
Boards of Directors have interests in connection with the Merger and the
agreements and transactions contemplated thereby that are in addition to those
of Arbor and Hyperion stockholders generally. For example, after the Merger,
each outstanding option and unvested stock issuance held by Arbor employees,
including Arbor officers, will be subject to full and immediate vesting if the
holder's employment by Hyperion Solutions is actually or constructively
terminated without cause within 18 months after the Closing Date, and the
Employment Agreement, dated as of November 1, 1997, by and between Hyperion and
James A. Perakis, currently the President and Chief Executive Officer of
Hyperion, contains provisions that accelerate the vesting of options held by Mr.
Perakis upon the termination of Mr. Perakis' employment without cause (as
defined in such agreement) or without proper notice by Hyperion and/or any of
its successors or upon certain relocation events. The options issued by Arbor to
its non-employee directors under the Arbor 1995 Option Plan will accelerate, by
their terms, automatically upon consummation of the Merger. In addition, Arbor
has entered into agreements with John M. Dillon, currently the Chief Executive
Officer, President and Chairman of the Board of Arbor, Stephen V. Imbler,
currently the Senior Vice President and Chief Financial Officer of Arbor, and
Kirk A. Cruikshank, the Senior Vice President of Marketing of Arbor, pursuant to
which Arbor has agreed to accelerate the vesting of up to 25% of the unvested
stock options then held by each such officer following the occurrence of certain
changes in control, including the transactions contemplated by the Plan of
Merger. In addition, should such affected officer's employment be involuntarily
or constructively terminated within the 24-month period following such a change
in control, then all of such officer's option shares will become fully vested.
See "The Merger and Related Transactions -- Management of Hyperion Solutions
Following the Merger; Interests of Certain Persons in the Merger" and
"-- Director and Officer Indemnification."
New Company Name; Related Matters After the Merger. Upon consummation of
the Merger, the name of Arbor will be changed to "Hyperion Solutions
Corporation," and Hyperion will operate as a wholly owned subsidiary of Hyperion
Solutions. The Certificate of Incorporation of Hyperion, as in effect
immediately prior to the Effective Time and as the capitalization provisions are
amended in accordance with the provisions of the Plan of Merger, shall become
the Certificate of Incorporation of Hyperion. The Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall become the Bylaws of
Hyperion at the Effective Time. See "The Merger and Related
Transactions -- Management of Hyperion Solutions Following the Merger; Interests
of Certain Persons in the Merger."
Regulatory Matters. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the rules promulgated thereunder, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice and the specified waiting
periods have been satisfied. Each of Arbor and Hyperion submitted its
Notification and Report Form under the HSR Act on June 9, 1998.
Stockholders Rights Plans. Hyperion entered into a Rights Agreement, dated
as of November 17, 1995, and Amendment No. 1 to the Rights Agreement, dated as
of May 25, 1998, with American Stock Transfer & Trust Co. (the "Hyperion Rights
Plan"). The Hyperion Rights Plan provides that the transactions contemplated by
the Plan of Merger and the Arbor Stock Option Agreement are exempt from the
provisions of the Hyperion Rights Plan. On June 15, 1998, Arbor entered into the
Rights Agreement, dated as of June 15, 1998, with BankBoston, N.A. Arbor will
not redeem the rights issued under such rights agreement or amend or terminate
such rights agreement prior to the Effective Time unless required to do so by
order of a court of competent jurisdiction or in connection with the exercise by
directors of Arbor of their fiduciary duties. See "The Merger and Related
Transactions -- Stockholder Rights Plans."
7
<PAGE> 22
Director and Officer Indemnification. Arbor has agreed that, after the
Effective Time of the Merger, Arbor will indemnify each present and former
officer and director of Hyperion as provided in the General Corporation Law of
the State of Delaware ("DGCL") and the Hyperion Certificate of Incorporation and
Bylaws. Arbor is currently a party to indemnification agreements with each of
its executive officers and directors, and it is anticipated that the combined
company will enter into similar agreements with its new directors and executive
officers following consummation of the Merger. See "The Merger and Related
Transactions -- Indemnification" and "-- Interests of Certain Persons."
Conditions. The closing of the Merger is subject to various conditions,
including the approval by Arbor's stockholders of the Arbor Merger Proposal, the
approval by Hyperion's stockholders of the Hyperion Merger Proposal, the receipt
of certain consents and approvals from various third parties and governmental
agencies, including the approval of the Federal Trade Commission and the
Department of Justice pursuant to the filings made by the parties under the HSR
Act, receipt of opinions of counsel to the effect that the Merger will qualify
as a reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), and receipt of a letter from each of Price Waterhouse
LLP, independent accountants to Arbor, concurring with Arbor management's
conclusion, that the Merger will qualify for pooling of interests accounting
treatment if consummated in accordance with the Plan of Merger and Ernst &
Young, LLP, independent auditor to Hyperion, concurring with Hyperion
management's conclusion that, as of the date of such letter, no conditions exist
related to Hyperion that would preclude accounting for the Merger, if closed and
consummated in accordance with the Plan of Merger, as a pooling of interests
under Accounting Principles Board Opinion No. 16. Except for matters required by
law, each of the parties to the Plan of Merger may, at its option, waive
compliance with any condition to its obligation to consummate the Merger. See
"The Merger and Related Transactions -- Conditions" and "-- Accounting
Treatment."
Termination; Termination Fees and Expenses. The Plan of Merger may be
terminated (a) by mutual agreement of Arbor and Hyperion; (b) by either Arbor or
Hyperion if the closing of the Merger has not occurred on or before October 30,
1998 (the "Outside Date"); or (c) by either Arbor or Hyperion before the Outside
Date upon the occurrence of certain events. See "The Merger Agreement and
Related Transactions -- Termination; Termination Fees and Expenses."
Under certain circumstances, either Arbor or Hyperion may be required to
reimburse the other party for expenses up to $2,500,000 or to pay the other
party a termination fee of $20,000,000 if the Plan of Merger is terminated. In
addition, the terminating party's right to exercise its option to purchase
shares of the Common Stock of the other party will be triggered if the Plan of
Merger is terminated under certain circumstances. See "The Merger and Related
Transactions -- Termination, Termination Fees and Expenses" and "-- Stock Option
Agreements."
Closing. The Merger will be completed on the date that the Certificate of
Merger is filed with the Office of the Secretary of State of the State of
Delaware. The Effective Time is expected to occur as soon as practicable upon
receipt of the necessary approvals at the Arbor Annual Meeting and the Hyperion
Special Meeting and satisfaction or waiver of the other conditions precedent to
the Merger, as set forth in the Plan of Merger (the "Closing"). It is
anticipated that the Closing will occur no later than two business days
following receipt of the necessary approvals at the Arbor Annual Meeting and the
Hyperion Special Meeting. See "The Merger and Related Transactions -- Closing."
Amendment and Waiver. The Plan of Merger may be amended by the agreement of
the Boards of Directors of Arbor and Hyperion at any time before or after
approval by the Hyperion stockholders or the Arbor stockholders, except that,
after such approval, no amendment may be made which by law requires further
approval by such stockholders without such further approval. See "The Merger and
Related Transactions -- Amendment and Waiver."
Stock Option Agreements. Arbor and Hyperion have entered into Stock Option
Agreements, each dated as of May 25, 1998, pursuant to which (i) Arbor has the
right, under certain circumstances, to purchase up to 3,789,000 shares of
Hyperion Common Stock (or approximately 19.9% of the outstanding Hyperion Common
Stock as of May 25, 1998 prior to giving effect to such issuance) at a price
based on the average market price of Hyperion Common Stock (the "Arbor Stock
Option Agreement"), and (ii) Hyperion has the right, under certain
circumstances, to purchase up to 2,274,000 shares of Arbor Common Stock (or
approximately 19.9%
8
<PAGE> 23
of the outstanding Arbor Common Stock as of May 25, 1998 prior to giving effect
to such issuance) at a price based on the average market price of Arbor Common
Stock (the "Hyperion Stock Option Agreement"). Each Stock Option Agreement
contains other features which, among other things, (a) permit the optionholder
to receive a cash payment in lieu of stock upon exercise of the option and (b)
limit the profit which the optionholder can realize in connection with the
option to $30,000,000, inclusive of any termination fees that the optionholder
may receive pursuant to the Plan of Merger. If the Merger is consummated, each
Stock Option Agreement will terminate by its respective terms. See "The Merger
and Related Transactions -- Stock Option Agreements."
Certain Federal Income Tax Considerations. As a condition to the
consummation of the Merger, Arbor and Hyperion will receive opinions from
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Hale and Dorr
LLP, respectively, that the Merger will be treated for federal income tax
purposes as a tax-free reorganization under Section 368(a) of the Code (a
"Reorganization") if the Merger is consummated in accordance with the terms of
the Plan of Merger. Provided that the Merger does qualify as a Reorganization,
no gain or loss should be recognized for federal income tax purposes by Hyperion
stockholders upon their receipt of shares of Common Stock of Hyperion Solutions
in exchange for their shares of Hyperion Common Stock, except to the extent of
cash received in lieu of fractional shares. Such legal opinions have been filed
as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, are subject to certain limitations and
qualifications and are based upon certain factual assumptions and
representations. Furthermore, such legal opinions are not binding on the
Internal Revenue Service. ALL HYPERION STOCKHOLDERS SHOULD READ CAREFULLY THE
DISCUSSION UNDER "THE MERGER AND RELATED TRANSACTIONS -- CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS." IN VIEW OF THE COMPLEXITIES OF FEDERAL INCOME AND OTHER TAX
LAWS, EACH HYPERION STOCKHOLDER SHOULD CONSULT WITH SUCH STOCKHOLDER'S TAX
ADVISOR REGARDING, AMONG OTHER THINGS, THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF THE MERGER APPLICABLE TO SUCH STOCKHOLDER'S SPECIFIC
CIRCUMSTANCES.
The Merger will not have any United States federal tax consequences for
Arbor stockholders. See "The Merger and Related Transactions -- Certain Federal
Income Tax Considerations."
Accounting Treatment. The Merger is expected to be accounted for as a
pooling of interests in accordance with the provisions of Accounting Principles
Board Opinion No. 16. Under this method of accounting, the recorded assets and
liabilities of Arbor and Hyperion will be carried forward to the combined
company at their recorded amounts, the operating results of the combined company
will include the operating results of Arbor and Hyperion for the entire fiscal
year in which the combination occurs, and the reported operating results of the
separate companies for prior periods will be combined and restated as the
operating results of the combined company. As a condition to the consummation of
the Merger, Arbor will receive a letter from Price Waterhouse LLP, independent
accountants to Arbor, concurring with Arbor's management's conclusion that the
Merger will qualify for pooling of interests accounting treatment if consummated
in accordance with the Plan of Merger. Similarly, as a condition to the
consummation of the Merger, Hyperion will receive a letter from Ernst & Young
LLP, independent auditors to Hyperion, concurring with Hyperion management's
conclusion that, as of the date of such letter, no conditions exist related to
Hyperion that would preclude accounting for the Merger, if closed and
consummated in accordance with the Plan of Merger, as a pooling of interests
under Accounting Principles Board Opinion No. 16. See "The Merger and Related
Transactions -- Accounting Treatment."
No Appraisal Rights. Holders of Hyperion Common Stock are not entitled to
appraisal rights under Section 262 of the DGCL in connection with the Merger
because the Hyperion Common Stock was listed on the Nasdaq National Market on
the record date for the Hyperion Special Meeting and the shares of Hyperion
Solutions Common Stock to be issued pursuant to the Merger will be listed on the
Nasdaq National Market as of the Effective Time. Holders of Arbor Common Stock
are not entitled to appraisal rights under Section 262 of the DGCL in connection
with the Merger because Arbor is not a constituent corporation in the Merger.
9
<PAGE> 24
RISK FACTORS
The completion of the Merger and an investment in shares of Arbor Common
Stock each involve substantial risks. Stockholders of Hyperion and stockholders
of Arbor should consider the information set forth in "Risk Factors" and the
other information contained herein before deciding whether or not to approve the
Hyperion Merger Proposal or the Arbor Merger Proposal, as applicable.
10
<PAGE> 25
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected historical financial information of Arbor and
Hyperion has been derived from their respective historical financial statements
and should be read in conjunction with such consolidated financial statements
and notes thereto. The consolidated financial statements for Arbor for the three
fiscal years ended March 31, 1998 and the consolidated financial statements for
Hyperion for the three fiscal years ended June 30, 1997 are incorporated by
reference in this Joint Proxy Statement/Prospectus. The selected historical
financial information as of March 31, 1998, and for the nine month periods ended
March 31, 1997 and 1998, for Hyperion has been derived from the unaudited
consolidated financial statements of Hyperion, and in the opinion of Hyperion's
management reflects all adjustments, consisting only of normal recurring
accruals, considered necessary for the fair presentation of the unaudited
interim financial information. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire fiscal
year or any future period.
The selected pro forma combined financial information set forth below is
derived from the unaudited pro forma condensed combined financial statements,
and should be read in conjunction with such unaudited pro forma condensed
combined financial statements and the notes thereto included in this Joint Proxy
Statement/ Prospectus. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of future operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position.
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
-----------------------------------------------
FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ARBOR
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License.................................................. $3,853 $10,268 $21,538 $39,087 $ 66,696
Maintenance, support and other........................... 415 1,252 3,596 8,296 15,541
------ ------- ------- ------- --------
Total revenues.................................... 4,268 11,520 25,134 47,383 82,237
Income (loss) from operations(1)........................... (2,128) 527 3,126 7,522 11,328
Net income (loss)(1)....................................... (2,180) 374 2,878 5,826 6,916
Earnings (loss) per share(1)
Basic.................................................... $(1.02) $ 0.17 $ 0.49 $ 0.53 $ 0.61
Diluted.................................................. $(1.02) $ 0.04 $ 0.27 $ 0.50 $ 0.58
Shares used to compute earnings (loss) per share
Basic.................................................... 2,145 2,190 5,933 10,997 11,246
Diluted.................................................. 2,145 8,902 10,563 11,729 11,988
</TABLE>
- ---------------
(1) Results of operations for the fiscal year ended March 31, 1998 include a
charge of $3.0 million relating to in-process technology resulting from the
acquisition of AppSource Corporation. Excluding the $3.0 million charge, net
income and diluted earnings per share for the fiscal year ended March 31,
1998 would have been $9.9 million and $0.83, respectively.
11
<PAGE> 26
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ARBOR
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Cash and short-term investments............................. $2,274 $2,818 $36,663 $28,851 $137,786
Working capital............................................. 1,490 1,512 32,069 30,244 136,028
Total assets................................................ 4,289 6,494 45,883 59,589 186,233
Deferred revenue............................................ 673 1,246 3,781 5,954 12,840
Long-term debt.............................................. 406 833 1,093 279 100,000
Stockholders' equity........................................ 1,920 2,305 34,306 42,572 56,084
</TABLE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
------------------------------------------------------------------------
NINE MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HYPERION
HISTORICAL CONSOLIDATED
STATEMENT OF INCOME DATA:(1)
Revenues:
Software licenses................... $35,801 $51,687 $ 77,985 $ 90,304 $112,115 $ 70,316 $ 93,395
License renewals and services....... 30,844 42,575 59,156 82,520 110,715 78,890 104,126
------- ------- -------- -------- -------- -------- --------
Total revenues............... 66,645 94,262 137,141 172,824 222,830 149,206 197,521
Operating income...................... 4,735 14,015 18,638 14,020 17,680 8,717 16,017
Net income............................ 2,343 8,609 12,139 9,457 11,878 5,992 11,438
Earnings per share (2)
Basic............................... $ 0.16 $ 0.57 $ 0.78 $ 0.57 $ 0.68 $ 0.35 $ 0.61
Diluted............................. $ 0.15 $ 0.52 $ 0.70 $ 0.53 $ 0.64 $ 0.33 $ 0.58
Average number of shares
outstanding(2)
Basic............................... 14,413 15,053 15,633 16,626 17,410 17,263 18,730
Diluted............................. 15,500 16,584 17,316 17,875 18,455 18,364 19,697
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
-------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HYPERION
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:(1)
Cash and short-term investments....... $24,520 $37,913 $ 45,494 $ 42,361 $ 67,059 $ 52,966 $ 93,817
Working capital....................... 25,839 34,829 37,306 27,449 42,236 27,996 65,391
Total assets.......................... 67,358 94,715 146,158 179,448 218,639 191,180 255,184
Deferred revenue...................... 12,026 21,055 30,599 36,832 44,619 38,840 51,250
Long-term debt........................ -- -- 8,910 8,336 7,823 7,956 7,454
Stockholders' equity.................. 40,683 53,661 71,706 90,003 113,037 101,052 137,866
</TABLE>
- ---------------
(1) Results for all periods prior to November 29, 1994 have been restated to
reflect Hyperion's acquisition of Pillar Corporation, which was accounted
for as a pooling of interests.
(2) All share and per share data have been retroactively adjusted to reflect a
two-for-one stock split effected in the form of a 100% stock dividend paid
in December 1995.
12
<PAGE> 27
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA(1)(2)(3):
Revenues:
Software licenses........................................ $111,842 $151,202 $201,890
Maintenance and services................................. 86,116 119,011 151,492
-------- -------- --------
Total revenues................................... 197,958 270,213 353,382
Income from operations..................................... 17,146 25,202 36,308
Net income................................................. 12,335 17,704 24,240
Earnings per share
Basic.................................................... $ 0.57 $ 0.64 $ 0.84
Diluted.................................................. $ 0.45 $ 0.61 $ 0.80
Shares used to compute earnings per share
Basic.................................................... 21,728 27,537 28,831
Diluted.................................................. 27,544 29,261 30,470
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------
<S> <C>
COMBINED BALANCE SHEET DATA(1)(2):
Cash and short-term investments............................. $231,603
Working capital............................................. 183,469
Total assets................................................ 441,417
Deferred revenue............................................ 64,090
Long-term debt.............................................. 107,454
Stockholders' equity........................................ 176,000
</TABLE>
- ---------------
(1) It is anticipated that Hyperion Solutions will incur charges to operations
related to the Merger currently estimated to be $20 million, principally in
the quarter in which the Merger is consummated. These charges include direct
transaction costs, primarily for financial advisory and legal fees, and
costs associated with combining the operations of the two companies. The
estimated charge, less estimated income tax benefits of $2.1 million, is
reflected in the unaudited pro forma condensed combined balance sheet data,
but is not reflected in the unaudited pro forma condensed combined statement
of income data. This charge is a preliminary estimate only, and is,
therefore, subject to change.
(2) The unaudited pro forma condensed combined balance sheet as of March 31,
1998 gives effect to the Merger as if it had occurred on March 31, 1998, and
combines the audited historical consolidated balance sheet of Arbor and the
unaudited consolidated balance sheet of Hyperion as of March 31, 1998. The
unaudited pro forma condensed combined statements of income give effect to
the Merger, as if it had occurred at the beginning of the earliest period
presented. The unaudited pro forma condensed statements of income for the
fiscal years ended March 31, 1996 and 1997 combine the audited historical
consolidated statements of operations of Arbor for each of the fiscal years
in the two year period ended March 31, 1997 with the audited historical
consolidated statements of income of Hyperion for each of the fiscal years
in the two year period ended June 30, 1997. The unaudited pro forma
condensed combined statement of income for the fiscal year ended March 31,
1998 combines the audited historical consolidated statement of operations of
Arbor for the fiscal year ended March 31, 1998 with the unaudited historical
consolidated statement of income of Hyperion for the nine months ended March
31, 1998 and the three months ended June 30, 1997. Consequently, Hyperion
revenues of approximately $73,624,000 and net income of approximately
$5,886,000 for the three months ended June 30, 1997 have been reflected in
the unaudited pro forma condensed combined statements of income for both the
fiscal years ended March 31, 1997 and 1998.
13
<PAGE> 28
(3) It is anticipated upon consummation of the Merger that Arbor will change its
fiscal year-end from March 31 to June 30. Accordingly, the following
selected supplemental unaudited pro forma condensed combined statements of
income data for the nine months ended March 31, 1997 and 1998 combine the
unaudited historical consolidated statement of income data of Arbor for the
nine months ended December 31, 1996 and 1997 with the unaudited historical
consolidated statement of income data of Hyperion for the nine months ended
March 31, 1997 and 1998. The following selected supplemental unaudited pro
forma condensed combined financial information is presented for illustrative
purposes and is not necessarily indicative of the results of operations that
would have actually been reported had the Merger occurred at the beginning
of the periods presented, nor is it necessarily indicative of the future
results of operations. Amounts for the fiscal years ended June 30, 1997 and
June 30, 1996 will not differ from the amounts reflected above for the
fiscal years ended March 31, 1997 and March 31, 1996 respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Revenues:
Software licenses.................................... $ 97,230 $138,346
Maintenance and services............................. 84,515 114,671
-------- --------
Total revenues............................... 181,745 253,017
Income from operations................................. 13,912 22,512
Net income............................................. 10,106 15,090
Earnings per share
Basic................................................ $ 0.37 $ 0.52
Diluted.............................................. $ 0.35 $ 0.49
Shares used to compute earnings per share
Basic................................................ 27,357 28,995
Diluted.............................................. 29,161 30,641
</TABLE>
14
<PAGE> 29
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Arbor
and Hyperion and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis of accounting. The
information set forth below should be read in conjunction with the selected
historical financial data, and the unaudited pro forma condensed combined
financial information, included elsewhere in this Joint Proxy
Statement/Prospectus or incorporated herein by reference. The pro forma combined
per share data are not necessarily indicative of the operating results that
would have been achieved had the Merger been consummated as of the beginning of
the periods presented and should not be construed as representative of future
operating results. Neither Arbor nor Hyperion has paid cash dividends during the
periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
HISTORICAL ARBOR
Basic earnings per share.................................... $0.49 $0.53 $0.61
Diluted earnings per share.................................. 0.27 0.50 0.58
Book value per common share(1).............................. 4.92
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE
FISCAL YEAR ENDED JUNE 30, MONTHS ENDED
--------------------------- MARCH 31,
1995 1996 1997 1998
------- ------- ------- --------------
<S> <C> <C> <C> <C>
HISTORICAL HYPERION
Basic earnings per share................................ $ 0.78 $ 0.57 $ 0.68 $0.61
Diluted earnings per share.............................. 0.70 0.53 0.64 0.58
Book value per common share(1).......................... 7.24
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
PRO FORMA COMBINED -- ARBOR
Basic earnings per share.................................... $0.57 $0.64 $0.84
Diluted earnings per share(2)(3)............................ 0.45 0.61 0.80
Book value per common share(1)(2)(4)........................ 5.97
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
EQUIVALENT PRO FORMA COMBINED -- HYPERION(5)
Basic earnings per share.................................... $0.54 $0.61 $0.80
Diluted earnings per share.................................. 0.43 0.58 0.76
Book value per common share................................. 5.67
</TABLE>
- ---------------
(1) Historical book value per common share is computed by dividing total
stockholders' equity by the number of common shares outstanding at the end
of the period. Pro forma combined book value per common share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
common stock outstanding.
(2) The unaudited pro forma condensed combined balance sheet as of March 31,
1998 gives effect to the Merger as if it had occurred on March 31, 1998, and
combines the audited historical consolidated balance sheet of Arbor and the
unaudited consolidated balance sheet of Hyperion as of March 31, 1998. The
unaudited pro forma condensed combined statements of income give effect to
the Merger, as if it had occurred at the beginning of the earliest period
presented. The unaudited pro forma condensed statements of income for the
fiscal years ended March 31, 1996 and 1997 combine the audited historical
consolidated statements of operations of Arbor for each of the fiscal years
in the two year period ended March 31, 1997 with the audited historical
consolidated statements of income of Hyperion for each of the fiscal years
in the two year period ended June 30, 1997. The unaudited pro forma
condensed combined statement of
15
<PAGE> 30
income for the fiscal year ended March 31, 1998 combines the audited
historical consolidated statement of operations of Arbor for the fiscal year
ended March 31, 1998 with the unaudited historical consolidated statements
of income of Hyperion for the nine months ended March 31, 1998 and the three
months ended June 30, 1997. Consequently, Hyperion revenues of approximately
$73,624,000 and net income of approximately $5,886,000 for the three months
ended June 30, 1997 have been reflected in the unaudited pro forma condensed
combined statements of income for both the fiscal years ended March 31, 1997
and 1998. In addition, it is estimated that the combined company will incur
costs of $20 million associated with the Merger, consisting primarily of
costs for financial advisory services and legal fees, and costs associated
combining the operations of the two companies. These nonrecurring costs are
reflected in the unaudited pro forma condensed combined balance sheet at
March 31, 1998 as a reduction, net of estimated tax benefits, to
stockholders' equity and an increase in accrued expenses. These nonrecurring
costs, which have not been reflected in the unaudited pro forma condensed
combined statements of income, will be charged to operations principally in
the fiscal quarter in which the Merger is consummated.
(3) Pro forma combined basic earnings per share is calculated by dividing the
pro forma net income for the combined company by the weighted average number
of shares outstanding of Arbor Common Stock during the period, and the
weighted average number of shares outstanding of Hyperion Common Stock
during the period multiplied by the exchange ratio of 0.95 of a share of
Arbor Common Stock for each share of Hyperion Common Stock. Pro forma
combined diluted earnings per share is calculated by dividing the pro forma
net income for the combined company by the weighted average number of shares
and potential common shares outstanding of Arbor Common Stock during the
period, and the weighted average number of shares and potential common
shares outstanding of Hyperion Common Stock during the period multiplied by
the exchange ratio of 0.95 of a share of Arbor Common Stock for each share
of Hyperion Common Stock.
(4) Pro forma combined book value per common share is calculated by dividing the
pro forma book value for the combined company by the number of shares of
common stock outstanding of Arbor at the end of the period, and the number
of shares of common stock outstanding of Hyperion at the end of the period
multiplied by the exchange ratio of 0.95 of a share of Arbor Common Stock
for each share of Hyperion Common Stock.
(5) The Equivalent Pro Forma Combined -- Hyperion amounts are calculated by
multiplying the Pro Forma Combined -- Arbor per share amounts by the
exchange ratio of 0.95.
16
<PAGE> 31
MARKET PRICE AND DIVIDENDS ON ARBOR AND HYPERION COMMON STOCK
Arbor Common Stock is traded on the Nasdaq National Market under the symbol
"ARSW" and Hyperion Common Stock is traded on the Nasdaq National Market under
the symbol "HYSW." Trading of Arbor Common Stock began on November 7, 1995, and
trading of Hyperion Common Stock began on October 25, 1991.
The following table sets forth the closing price per share of Arbor Common
Stock and Hyperion Common Stock, as reported by the Nasdaq National Market, on
(a) May 22, 1998, the last full trading day preceding the date of the
announcement of the execution of the Plan of Merger by Arbor and Hyperion, and
(b) June 16, 1998, the latest practicable trading day before printing this Joint
Proxy Statement/Prospectus, as well as the equivalent pro forma per share value
of Hyperion Common Stock based on the Exchange Ratio of 0.95 and the Arbor
Common Stock prices as of such dates. Arbor stockholders and Hyperion
stockholders are strongly encouraged to obtain current market information for
shares of Arbor Common Stock and Hyperion Common Stock. The current market
quotations for the Arbor Common Stock and the Hyperion Common Stock may be
obtained on the World Wide Web at http://www.nasdaq.com. See "Risk
Factors -- Possible Volatility of Common Stock and Notes."
<TABLE>
<CAPTION>
HYPERION
ARBOR HYPERION EQUIVALENT
COMMON COMMON PER
STOCK PRICE STOCK PRICE SHARE PRICE
----------- ----------- -----------
<S> <C> <C> <C>
May 22, 1998.............................................. 42$1/8 38$1/8 $ 40
June 17, 1998............................................. 32$1/2 30$1/2 30$7/8
</TABLE>
Apart from the publicly disclosed information concerning Arbor which is
included in this Joint Proxy Statement/Prospectus, Arbor cannot state with
certainty what factors account for changes in the market price of the Arbor
Common Stock. See "Risk Factors -- Possible Volatility of Common Stock and
Notes."
The following table sets forth, for the fiscal quarters indicated, the
reported high and low closing prices of Arbor Common Stock and Hyperion Common
Stock on the Nasdaq National Market. For purposes of comparison, the Hyperion
Common Stock price information is presented for the fiscal periods of Arbor
rather than for Hyperion's historical fiscal periods.
<TABLE>
<CAPTION>
ARBOR HYPERION
COMMON STOCK COMMON STOCK
-------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
Fiscal Year Ended March 31, 1997:
First Quarter......................................... $79 1/4 $43 1/4 $21 $10 3/4
Second Quarter........................................ 61 5/ 34 15 3/ 10 5/
Third Quarter......................................... 42 3/ 21 3/ 24 9/1 14 1/
Fourth Quarter........................................ 36 1/ 24 1/ 26 3/ 16 1/
Fiscal Year Ended March 31, 1998:
First Quarter......................................... $35 1/4 $18 1/2 $22 3/8 $14 1/4
Second Quarter........................................ 50 3/ 34 13/1 32 21 5/1
Third Quarter......................................... 51 29 45 3/1 29 1/
Fourth Quarter........................................ 46 7/1 34 1/ 44 1/ 31 3/
Fiscal Year Ending March 31, 1999:
First Quarter (through June 17, 1998)................. $49 1/4 $31 1/8 $45 1/2 $29 5/8
</TABLE>
As of , 1998, there were approximately holders
of record of Arbor Common Stock and approximately holders of record of
Hyperion Common Stock. No cash dividends have been paid on the Arbor Common
Stock since Arbor's initial public offering in November 1995. Arbor does not
anticipate paying cash dividends in the foreseeable future.
Hyperion has never declared or paid any cash dividends on its capital
stock. Hyperion currently anticipates that it will retain any future earnings
for use in its business and does not anticipate paying any cash
17
<PAGE> 32
dividends in the foreseeable future. Hyperion's credit agreement with The Bank
of New York contains covenants that restrict the ability of Hyperion to pay
dividends.
Prior to Arbor's initial public offering on November 7, 1995, there was no
public market for Arbor's Common Stock. On May 22, 1998, the last full trading
day before the date of the commencement of the execution of the Plan of Merger
by Arbor and Hyperion, the closing price of Arbor Common Stock and Hyperion
Common Stock as reported by the Nasdaq National Market was $42 1/8 and $38 1/8
per share, respectively. On June 17, 1998, the last trading day for which
quotations were available at the time of printing this Joint Proxy
Statement/Prospectus, the closing sale price of Arbor Common Stock and Hyperion
Common Stock as reported by the Nasdaq National Market was $32 1/2 and $30 1/2
per share, respectively.
18
<PAGE> 33
RISK FACTORS
This Joint Proxy Statement/Prospectus contains Forward-Looking Statements.
Actual results could differ materially from those projected in the
Forward-Looking Statements as a result of the factors set forth below and other
matters described elsewhere in this Joint Proxy Statement/Prospectus. See
"Forward-Looking Statements." The following risk factors, in addition to the
other information contained or incorporated by reference herein, should be
considered carefully in evaluating the proposals to be considered and voted upon
at each of the Arbor Annual Meeting and the Hyperion Special Meeting and the
acquisition of the securities offered hereby. For periods following the Merger,
references to the services, business, financial results or financial condition
of Hyperion Solutions and references to the "combined company" should be
considered to refer to Hyperion Solutions and its subsidiaries, including
Hyperion, unless the context requires otherwise.
UNCERTAINTY RELATING TO INTEGRATION OF MULTIPLE OPERATIONS AND PRODUCT LINES;
MANAGEMENT OF GROWTH
The integration of Hyperion's and Arbor's business and personnel following
the Merger presents difficult challenges for the management of the combined
company. Further, both Arbor and Hyperion entered into the 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 Boards of both Arbor and Hyperion believe that the combination of Arbor and
Hyperion 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 of effecting the business combination can be effectively
managed to realize the synergies anticipated to result therefrom.
Arbor and Hyperion entered into the Plan of Merger, among other reasons, in
order to achieve potential mutual benefits from combining each of their
respective expertise, product lines and distribution channels 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. Arbor 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 personnel. Failure to effectively accomplish the
integration of the operations of Arbor 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.
Arbor and Hyperion have experienced periods of rapid growth and expansion
that has placed and will continue to place significant strains upon their
respective management systems and resources. The combined company's ability to
compete effectively and to manage future growth, if any, will require the
combined company to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. There can be no assurance that the combined company's
personnel, systems, procedures and controls will be adequate to support the
combined company's operations.
FIXED MERGER CONSIDERATION DESPITE POTENTIAL CHANGES IN STOCK PRICES
Pursuant to the Plan of Merger, each share of Hyperion Common Stock
outstanding at the close of the Merger will be converted into the right to
receive 0.95 of a share of Arbor Common Stock. The Exchange
19
<PAGE> 34
Ratio is a fixed number and will not be adjusted in the event of any increases
or decreases in the price of either Arbor Common Stock or Hyperion Common Stock.
The prices of Arbor Common Stock and Hyperion Common Stock at the Effective Time
may vary from their respective prices at the date of this Joint Proxy
Statement/Prospectus and at the date of the Arbor Annual Meeting and the
Hyperion Special Meeting. Such variations may be the result of changes in the
business operations or prospects of Arbor or Hyperion, market assessments of the
likelihood that the Merger will be consummated, the timing thereof, the
prospects of the Merger and post-Merger operations, regulatory considerations
and general market and economic conditions. Because the Effective Time may occur
at a date later than the Arbor Annual Meeting and Hyperion Special Meeting,
there can be no assurance that the prices of Arbor Common Stock and Hyperion
Common Stock on the date of the Arbor Annual Meeting and Hyperion Special
Meeting will be indicative of their respective prices at the Effective Time.
Stockholders of Arbor and Hyperion are urged to obtain current market quotations
for Arbor Common Stock and Hyperion Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Arbor Board and Hyperion Board
with respect to the Merger and the Plan of Merger, Arbor and Hyperion
stockholders should be aware that certain members of Arbor's and Hyperion's
management and Boards of Directors have interests in connection with the Merger
and the agreements and transactions contemplated thereby that are in addition to
those of Arbor and Hyperion stockholders generally. See "The Merger and Related
Transactions -- Management of Hyperion Solutions Following the Merger; Interests
of Certain Persons in the Merger" and "-- Director and Officer Indemnification."
FLUCTUATIONS IN QUARTERLY RESULTS; FUTURE OPERATING RESULTS UNCERTAIN
The quarterly operating results of Hyperion have varied, and it is
anticipated that the quarterly operating results of Arbor and Hyperion, if the
Merger is not consummated, and, if the Merger is consummated, the combined
company could vary significantly in the future depending on a number of factors,
including: (i) demand for the combined company's software products; (ii) the
number, timing and significance of product enhancements and new product
announcements by the combined company and its current or future competitors;
(iii) changes in pricing policies by the combined company or its competitors;
(iv) the level of price and product competition; (v) unanticipated events or
announcements relating to the Merger; (vi) the integration of newly acquired
products, technologies and businesses, if any, by the combined company; (vii)
the impact of acquisitions by competitors and indirect channel partners; (viii)
changes in the mix of indirect channels through which the combined company's
products are offered; (ix) customer order deferrals in anticipation of
enhancements to the combined company's products or enhancements or new products
of competitors or in anticipation of the Merger; (x) the ability of the combined
company to develop, introduce and market new and enhanced versions of its
enterprise software and complementary products on a timely basis; (xi) changes
in the combined company's sales incentive strategy; (xii) the timing of revenue
recognition under the combined company's agreements and changes in accounting
standards with respect to revenue recognition; (xiii) the size, timing and
structure of significant licenses; (xiv) changes in the combined company's
strategy; (xv) the level of the combined company's international revenues; (xvi)
the renewal of maintenance and support agreements; (xvii) product life cycles;
(xviii) software defects and other product quality problems; (xix) personnel
changes; (xx) changes in the level of operating expenses; (xxi) foreign currency
exchange rates; and (xxii) general domestic and international economic and
political conditions. In addition, it is anticipated that the quarterly
operating results of Arbor, if the Merger is not consummated, and, if the Merger
is consummated, the combined company could vary significantly in the future
depending on the successful development and marketing of platform-specific
versions of the companies' products by certain third parties that independently
market such versions. The operating results of many software companies reflect
seasonal trends, and the combined company's business, operating results and
financial condition may experience comparatively slower growth in its first
fiscal quarter and summer months. Each of Arbor and Hyperion 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. Each of Arbor and Hyperion experience traditionally slow purchase
activity in the summer months, and Hyperion also exper-
20
<PAGE> 35
iences reduced purchase activity in the corporate financial applications market
during the quarter ending March 31, as many potential customers are busy with
their year-end closing and financial reporting. In any case, due to the
relatively fixed nature of certain costs, including personnel and facilities
expenses, a decline or shortfall in quarterly and/or annual revenues typically
results in lower profitability or may result in losses. Arbor and Hyperion
anticipate that these trends will continue with the combined company. As a
result, the magnitude of any quarterly fluctuations may not become evident until
the last few days of a quarter. In addition, Arbor and Hyperion orders are
typically shipped shortly after receipt, and as a result each of Arbor and
Hyperion has had limited ability to predict quarterly revenues at the beginning
of any quarter. As a result, Arbor's and Hyperion's license revenues in any
quarter are substantially dependent on orders booked and shipped in that
quarter.
Due to all of the foregoing, Arbor's and Hyperion's revenues for any future
quarter are not predictable, and the combined company's revenues for any future
period are not expected to be predictable, with any significant degree of
accuracy. Quarterly revenues are also difficult to forecast because Arbor's and
Hyperion's sales cycle, from initial evaluation to license and maintenance and
support purchases, varies substantially from customer to customer. Accordingly,
Arbor and Hyperion believe that period-to-period comparisons of their operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance. Although each of Arbor and Hyperion has
experienced significant growth in total revenues in recent years, neither Arbor
nor Hyperion believes that historical growth rates are sustainable. Accordingly,
the rate at which each of Arbor and Hyperion has grown in the past should not be
considered indicative of future revenue growth, if any, or future operating
results of the combined company.
Arbor's and Hyperion's expense levels are based in significant part on
Arbor's and Hyperion's respective 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 combined company
will be able to achieve or maintain profitability on a quarterly or annual
basis. In addition, it is possible that in some future quarter the combined
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 combined
company's business, the price of Hyperion Solutions' Common Stock would likely
be materially adversely affected.
COMPETITION
The markets in which Arbor and Hyperion compete, and the markets in which
Hyperion Solutions will compete, are intensely competitive, highly fragmented
and characterized by rapidly changing technology and evolving standards. Arbor'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; (ii) vendors of dedicated
software applications for budgeting and financial consolidation; and (iii)
vendors of relational/on-line analytical processing database software. Hyperion
faces competition from a variety of financial analytic application vendors and
software tool vendors, as well as from software developed by IT departments of
potential customers. Many of Hyperion's existing and potential customers utilize
legacy software developed internally for mainframes or minicomputers. The market
for client/server and internet/intranet-enabled corporate financial software is
still an emerging one. As markets develop for products of the combined company,
additional competitors may enter or expand into those markets and competition
may intensify.
Each of Arbor and Hyperion has experienced, and it is anticipated that the
combined company will continue to experience, increased competition from current
and potential competitors, many of whom have significantly greater financial,
technical, marketing and other resources than Arbor, Hyperion or the combined
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 combined 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 combined company's detriment. The combined company expects
additional competition as other established and emerging companies enter into
the enterprise software market and new products and technologies are
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introduced. In addition, as the combined company develops and enhances its
enterprise software 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 combined
company's business, operating results and financial condition.
The combined company's future success will depend in part upon the
availability of third party tools and applications that address customer
requirements and work with Arbor Essbase through Arbor's Arbor Essbase
Application Programming Interface ("API"). Failure by third parties to support
Arbor's API, or failure by the combined company to maintain, develop and market
competitive analytic applications or to adopt industry standard API's, if and
when they emerge, could materially adversely affect the combined 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 Arbor's
and Hyperion's existing customers and the combined company's prospective
customers. Further competitive pressures, such as those resulting from
competitors' discounting of their products, may require the combined company to
reduce the price of its enterprise software and complementary products, which
would materially adversely affect the combined company's business, operating
results and financial condition. There can be no assurance that the combined
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 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 Arbor 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 Arbor and Hyperion believe
that the aggregate charge will be $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, it is anticipated that this
aggregate charge to earnings will be recorded principally in the quarter in
which the Merger is consummated. In addition, in the third quarter of fiscal
1998, Arbor incurred an expense of $3.0 million for acquired in-process
technology associated with Arbor's acquisition of AppSource Corporation. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although Arbor and Hyperion believe that beneficial synergies will result
from the Merger, there can be no assurance that the combining of Arbor'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. There is no assurance that
Arbor stockholders or Hyperion stockholders would not achieve greater returns on
their respective investments were Arbor or Hyperion to remain independent
companies.
SHARES ELIGIBLE FOR PUBLIC SALE
Sales of substantial amounts of the Common Stock of Hyperion Solutions in
the public market after the consummation of the Merger could materially
adversely affect prevailing market prices of the Common Stock of the combined
company. The shares of Arbor Common Stock to be issued in the Merger as well as
the shares issued in Arbor's acquisition of AppSource Corporation during
December 1997 will be eligible for immediate sale in the public market, subject
to certain limitations under the Securities Act applicable to affiliates of the
combined company and certain agreements to be entered into by certain affiliates
of Arbor and
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Hyperion which prohibit such persons from disposing of any shares of the Common
Stock of Hyperion Solutions during the period immediately following the
Effective Time. See "The Merger and Related Transactions -- Resale of Arbor
Common Stock; Agreements with Affiliates."
FUTURE ACQUISITION-RELATED RISKS
It is anticipated that a key component of the combined company's growth
strategy will be the acquisition of complementary businesses, products and
technologies that meet the combined company's criteria for revenues,
profitability, growth potential and operating strategy. The successful
implementation of this strategy depends on the combined company's ability to
identify suitable acquisition candidates, acquire such companies on acceptable
terms and integrate their operations successfully with those of the combined
company. There can be no assurance that the combined company will be able to
identify suitable acquisition candidates or that the combined company will be
able to acquire such candidates on acceptable terms. Moreover, in pursuing
acquisition opportunities the combined company may compete with other companies
with similar growth strategies. Certain of these competitors may be larger and
have greater financial and other resources than the combined 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 Arbor's acquisition of AppSource Corporation
in December 1997 and Hyperion's acquisition of Pillar Corporation in November
1994, involve a number of other risks, including, among other things, adverse
effects on the combined 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 and 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 combined company's pursuit of an acquisition strategy
or any individual acquisition may have a material adverse effect on the combined
company's business, operating results and financial condition.
The combined company's future performance will depend on its ability to
integrate any acquired organization, which, even if successful, may take a
significant period of time, will place a significant strain on the combined
company's resources, and could subject the combined company to additional
expenses. As a result, there can be no assurance that the combined company will
be able to integrate acquired businesses successfully or in a timely manner in
accordance with its strategic objectives. If the combined company is unable to
manage acquisition-based growth effectively, the combined company's business,
operating results and financial condition will be materially adversely affected.
DEPENDENCE UPON INDIRECT CHANNEL PARTNERS
In addition to its direct sales force, each of Arbor and Hyperion relies on
indirect channel partners such as original equipment manufacturers ("OEMs"),
value added resellers ("VARs") and distributors for licensing and support of its
products in the United States and internationally. Sales by Arbor's indirect
channel partners for Arbor's fiscal years ended March 31, 1996, 1997 and 1998
were 28%, 25% and 23% of Arbor's total revenues, respectively. Sales by
Hyperion's indirect channel partners, including independent sales agents, for
Hyperion's fiscal years ended June 30, 1995, 1996 and 1997 were 4%, 4% and 3% of
Hyperion's total revenues, respectively. Arbor's and Hyperion's indirect channel
partners generally offer products of several different companies, including, in
some cases, products that compete with the products offered by Arbor or
Hyperion. Further, as the combined company enhances the functionality in its
products and develops complementary products or expands its product offerings
through acquisition or other means, such enhancements and complementary products
may duplicate the functionality of products already offered by the combined
company's channel partners. In such event, sales of the combined company's
products by such channel partner may decline. There can be no assurance that
Arbor's and Hyperion's current indirect channel partners will elect, or be able,
to market or support the combined company's products effectively or be able to
release their products embedded with Arbor or Hyperion products in a timely
manner, that the combined company will be able to effectively manage channel
conflicts, that economic conditions or industry demand will not adversely
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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. Arbor 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
combined company's business, operating results and financial condition.
PRODUCT CONCENTRATION; DEPENDENCE UPON THE MARKET FOR ENTERPRISE SOFTWARE
Hyperion derives approximately 60% and 20% of its worldwide total revenues
from licenses and related services for its Hyperion Enterprise and Hyperion
Pillar products, respectively. Accordingly, any reduction in demand or increase
in competition in the market for financial consolidation and reporting software
or corporate budgeting and financial planning software, or decline in sales of
such products, in particular Hyperion Enterprise, could have a material adverse
effect on Hyperion's business and financial condition.
All of Arbor's revenues to date have been derived from licenses for Arbor
Essbase and complementary products and services. It is anticipated that Arbor
Essbase-related revenues, including revenues from complementary products, as
well as maintenance and support contracts, will continue to account for a
significant portion of the combined company's revenues for the foreseeable
future. As a result, it is anticipated that the combined company's future
operating results will be dependent upon continued market acceptance of Hyperion
Enterprise, Arbor Essbase and Hyperion Pillar, enhancements and extensions
thereto and applications and tools therefor. There can be no assurance that
these products will achieve continued or increased market acceptance or that the
combined company will be successful in marketing these products, enhancements
thereto or applications therefor. A decline in demand for, or market acceptance
of, these products as a result of competition, technological change or other
factors would have a material adverse effect on the combined company's business,
operating results and financial condition. The combined 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 combined company's product offerings to
customers.
Although sales of Arbor Essbase have increased in recent years, the market
in which Arbor 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. Arbor has
spent, and it is anticipated that the combined company will continue to spend,
considerable resources educating potential customers about Arbor Essbase and its
functions and the market for OLAP and enterprise software 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 Arbor currently anticipates, the
combined 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 combined 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.
HIRING AND RETENTION OF PERSONNEL
The combined company's future operating results will depend in significant
part upon the continued service of its key technical, sales and senior
management personnel. Few of the combined company's employees are bound by
employment or non-competition agreements, and due to the intense competition for
such personnel, as well as the uncertainty caused by the integration of Arbor's
and Hyperion's businesses, it is possible that the combined company will be
unable to retain such key technical, sales and senior managerial personnel. The
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combined company's future success also depends on its ability to attract and
retain additional highly qualified technical, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the combined company will be able to retain its key managerial, technical or
sales personnel or attract such personnel in the future. Each of Arbor and
Hyperion has at times experienced and continues to experience difficulty in
recruiting qualified personnel, and there can be no assurance that the combined
company will not experience such difficulties in the future, particularly in the
San Francisco Bay Area, where the employment market for qualified marketing,
finance and engineering personnel is extremely competitive. Each of Arbor and
Hyperion, either directly or through personnel search firms, actively recruits
qualified research and development, financial and sales personnel. If the
combined company is unable to hire and retain qualified personnel in the future,
such inability could have a material adverse effect on the combined company's
business, operating results and financial condition. As stock options are a
customary component of compensation packages in the software industry, the
combined 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. See "Other Information for Arbor Annual Meeting -- Proposal
Two -- Amendment of Arbor 1995 Stock Option/Stock Issuance Plan" and "Other
Information for Arbor Annual Meeting -- Proposal Three -- Amendment of Arbor
Employee Stock Purchase Plan."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The combined company's future financial performance will depend in large
part on the growth and performance of the combined company's international
operations. Arbor maintains sales and service offices in 11 cities outside the
United States and Hyperion maintains sales and service offices in 24 cities
outside the United States. Each of Arbor and Hyperion 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 combined company will be successful
in expanding its international operations or that the combined company will be
able to maintain or increase international market demand for Arbor's and
Hyperion's enterprise software products. To the extent that the combined company
is unable to do so in a timely manner, the combined company's international
sales will be limited, and the combined 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 combined
company would incur additional costs and expenses and certain obstacles to
termination of the relationship, as the laws of certain foreign jurisdictions
are more favorable to distributors than those of the United States. In addition,
as the combined 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.
Included in Arbor's total revenues are direct export sales from the United
States to international customers. Arbor's international revenues, which are
attributable primarily to direct export sales to customers in Europe, accounted
for 10%, 13% and 16% of total revenues in Arbor's fiscal years ended March 31,
1996, 1997 and 1998, respectively. Hyperion's international revenues accounted
for 28%, 33% and 36% of total revenues in Hyperion's fiscal years ended June 30,
1995, 1996 and 1997, 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 combined 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 combined
company's future international revenues and, consequently, on the combined
company's business, operating results and financial condition. Arbor's and
Hyperion's direct international sales are currently denominated in either United
States dollars or local currency. Although neither Arbor's nor Hyperion's
exposure to currency fluctuations has 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
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the combined company's business, operating results or financial condition. Sales
generated by Arbor's indirect channel partners are currently paid to Arbor 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
combined 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 markets in which Arbor and
Hyperion each compete, 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 the products offered by each of
Arbor and Hyperion is difficult to estimate. The combined company's future
success will depend upon its ability to address the increasingly sophisticated
needs of its customers by developing and introducing enhancements to its
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 combined company will be successful in developing and marketing
enhancements to its products that respond to technological change, evolving
industry standards or customer requirements, that the combined 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. Each of Arbor and Hyperion has in the past
experienced delays in the release dates of enhancements to its products. If the
release dates of any future product enhancement are delayed, or if when
released, such products fail to achieve market acceptance, the combined
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 combined company or the combined
company's competitors will not cause customers to defer or forego purchases of
current versions of Arbor or Hyperion products, which could have a material
adverse effect on the combined company's business, operating results and
financial condition.
RISK OF SOFTWARE DEFECTS
Software products as internally complex as those offered by Arbor and
Hyperion frequently contain errors or defects, especially when first introduced
or when new versions or enhancements are released. Despite product testing, each
of Arbor and Hyperion has in the past released versions of its products with
defects and has discovered software errors in those products after their
introduction. Although neither Arbor nor Hyperion has experienced material
adverse effects resulting from any such defects and errors to date, there can be
no assurance that, despite testing by the combined company and by current and
potential customers, defects and errors will not be found in new versions or
enhancements after commencement of commercial shipments resulting in loss of
revenues or delay in market acceptance, which could have a material adverse
effect upon the combined company's business, operating results and financial
condition. See "-- Year 2000 Compliance."
RISKS ASSOCIATED WITH LITIGATION AND RELATED COSTS
Arbor's ongoing litigation with Gentia Software plc (formerly known as
Planning Sciences International plc and Planning Sciences, Inc.) ("Gentia
Software") has resulted in increased legal costs to Arbor and will continue to
result in increased legal costs to the combined 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.
Arbor 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"), owned by Arbor, 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 combined
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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. Arbor's management
believes that the outcome of the Gentia Software litigation or the reexamination
proceedings will not have a material adverse effect on the combined 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 combined company's future business. See "-- Competition"
and "Arbor Business -- Pending and Potential Litigation."
PROPRIETARY RIGHTS AND RISKS OF INFRINGEMENT
Each of Arbor and Hyperion relies primarily on a combination of patent,
copyright and trademark laws, trade secrets, confidentiality procedures and
contractual provisions to protect its proprietary rights. Arbor and Hyperion
also believe that factors such as the technological and creative skills of their
personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. Each of Arbor and Hyperion seeks
to protect its software, documentation and other written materials under
contract, trade secret and copyright laws, which afford only limited protection.
Arbor currently has one United States patent and corresponding patent
applications pending in Europe and Canada. Hyperion currently has three United
States patents, one foreign patent and a number of patent applications pending
in the United States and abroad. There can be no assurance that Arbor's and
Hyperion's patents will not be invalidated, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to the combined
company or that any of Arbor's and Hyperion's pending, or the combined company's
future patent applications, whether or not being currently challenged before
applicable governmental patent agencies, will be issued with the scope of the
claims sought by Arbor, Hyperion or the combined company, if at all.
Furthermore, there can be no assurance that others will not develop technologies
that are similar or superior to the combined company's technology or design
around the patents owned by the combined company. See "-- Risks Associated with
Litigation and Related Costs."
Despite Arbor's and Hyperion's efforts to protect their respective
proprietary rights, unauthorized parties may attempt to copy aspects of the
combined company's products or to obtain and use information that the combined
company regards as proprietary. Policing unauthorized use of Arbor's and
Hyperion's products is difficult, and while each of Arbor and Hyperion is unable
to determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem for the combined
company. In addition, the laws of some foreign countries do not protect Arbor's
and Hyperion's proprietary rights as fully as do the laws of the United States.
There can be no assurance that the combined 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. Arbor and
Hyperion have each 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 Arbor and Hyperion, if Arbor and Hyperion
respectively ceases to do business or if Arbor and Hyperion respectively fails
to meet its contractual obligations. The provision of source code may increase
the likelihood of misappropriation by third parties.
Arbor and Hyperion expect that software providers will increasingly be
subject to infringement claims, particularly patent claims, as the number of
products and competitors in Arbor's and Hyperion's markets grows and the
functionality of products in different markets 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 combined company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the combined company, if at all. In the event
of a successful claim of product infringement against the combined company and
failure or inability of the combined company to license the infringed or similar
technology, the combined company's business, operating results and financial
condition could be materially adversely affected. Arbor is
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currently engaged 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."
Each of Arbor and Hyperion relies upon certain software that it licenses
from third parties, including software that is integrated with each of Arbor's
and Hyperion's internally developed software and used in Arbor's and Hyperion's
products to perform key functions. There can be no assurance that these
third-party software licenses will continue to be available to the combined
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 combined company's business,
operating results and financial condition. In addition, there can be no
assurance that third parties will not claim infringement by the combined company
with respect to the combined company's products or enhancements thereto.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products do not
handle or process dates falling on or after the Year 2000 correctly, and as a
result, in less than two years, such computer systems and/or software may need
to be upgraded. Arbor 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.
Hyperion is assessing both the readiness of its internal business
information systems for handling the Year 2000 and the compliance of products
sold by Hyperion. Hyperion has determined that it will need to modify or replace
portions of its internal business information systems so that the systems will
function properly with respect to dates in the Year 2000 and beyond. Hyperion
has also initiated discussions with its significant vendors, service providers
and large customers to evaluate Year 2000 issues, if any, relating to the
interaction of their systems with Hyperion's internal systems. Hyperion
anticipates that it will successfully address Year 2000 issues relating to its
internal business information systems by the end of Hyperion's fiscal 1999. The
cost of Hyperion's internal systems Year 2000 efforts is not expected to be
material to Hyperion's financial position.
Hyperion believes that its current products are Year 2000 compliant.
However, prior versions of certain of these products currently installed at
customer sites will require upgrading or other modifications to become Year 2000
compliant. Hyperion believes that it is not legally responsible for costs
incurred by these customers to achieve Year 2000 compliance. However, there can
be no assurance that these customers will not assert claims against Hyperion or
the combined company with respect to Year 2000 issues.
Hyperion accounting software, a product set formerly offered by Hyperion,
is not Year 2000 compliant. Hyperion is aware of a limited number of customers
continuing to use this product. Hyperion is, and the combined company will be,
obligated under its agreements with certain of these customers to provide
upgrades which are Year 2000 compliant. Hyperion expects to make available to
these customers a Year 2000 compliant release of its accounting software prior
to the end of calendar year 1998. Hyperion has also made available to these
customers a migration path to a product which Hyperion believes is Year 2000
compliant, offered pursuant to Hyperion's alliance with Baan/Coda, a third-party
provider of accounting software. There can be no assurance that customers of
Hyperion's accounting software will migrate to such product. Hyperion does not
expect the cost associated with this compliance effort, including planning,
implementation and testing, to be material to the financial position of Hyperion
or the combined company, although there can be no assurance that Hyperion or the
combined company will not be required to incur significant unanticipated costs
in relation to their compliance obligations.
Arbor uses a significant number of computer software programs and operating
systems in its internal operations. The use of computer programs that rely on
two-digit date programs to perform computations and decision-making functions
may cause computer systems to malfunction in the year 2000 and lead to
significant business delays and disruptions. While Arbor believes that the key
software applications that it uses are year
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2000 compliant, to the extent that any of these software applications in its
business are unable to appropriately interpret dates fully in or after the year
2000, some level of modification or possible replacement of such applications
will be necessary. Arbor has received assurances that the software applications
that it uses are year 2000 compliant and, as a result, Arbor at this time does
not anticipate any significant expense in ensuring compliance. However, until
the year 2000 arrives, Arbor cannot be absolutely certain that the assurances
received are correct. Arbor has also initiated discussions with its significant
vendors, service providers and large customers to evaluate Year 2000 issues, if
any, relating to the interaction of their systems with Arbor's internal systems.
Failure of third-party enterprises with which Arbor interacts to achieve year
2000 compliance could have a material adverse effect on Arbor's business,
financial condition and results of operations. In the event there is a year 2000
problem, there can be no assurance that there will not be a delay in, or
increased costs associated with, implementation of changes to address any such
issues, which could have a material adverse effect on Arbor and its financial
position and future results of operations.
In addition, the combined 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
the combined company's products. This reallocation of financial resources could
have an adverse effect on the combined company's business, operating results and
financial condition. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. If any of the
combined company's licensees experience Year 2000 problems, such licensee could
assert claims for damages against the combined 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 combined company's
business, operating results or financial condition.
PRODUCT LIABILITY
Arbor's and Hyperion's license agreements with their customers typically
contain provisions designed to limit Arbor's and Hyperion's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in Arbor's and Hyperion'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 each of Arbor and Hyperion
has not experienced any material product liability claims to date, the sale and
support of enterprise software products by the combined company may entail the
risk of such claims. A successful product liability claim brought against the
combined company could have a material adverse effect upon the combined
company's business, operating results and financial condition. See "-- Year 2000
Compliance."
POSSIBLE VOLATILITY OF COMMON STOCK AND NOTES
The market price of each of Arbor's and Hyperion's Common Stock has
fluctuated in the past, and it is likely that such market prices and the market
price of the Common Stock of the combined company will continue to fluctuate in
the future. In addition, the market price of Arbor's 4 1/2% Convertible
Subordinated Notes due 2005 (the "Notes") has fluctuated in the past, and it is
likely will continue to fluctuate in the future. Various factors, including
quarterly fluctuations in results of operations, announcements of new products
by the combined company or by its competitors, and changes in the software
industry in general may significantly affect the market price of the combined
company's Common Stock and the Notes. In addition, in recent years the stock
market in general, and the shares of technology companies in particular, have
experienced extreme price fluctuations. This volatility has had a substantial
effect on the market prices of securities issued by Arbor, Hyperion and other
high technology companies, often for reasons unrelated to the operating
performance of the specific companies. The market prices of many high technology
companies stocks are at or near their historical highs and reflect price/earning
ratios substantially above historical norms. There can be no assurance that the
market price of the combined company's Common Stock in the future will remain at
or near the current level of Arbor's Common Stock. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against that
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company. Such litigation, if instituted against the combined company, could
result in substantial costs and a diversion of management attention and
resources, which could have a material adverse effect on the combined company's
business, financial condition and results of operation, even if the combined
company is successful in such litigation. These market fluctuations, as well as
general economic, political and market conditions such as recessions, may
adversely affect the market price of Arbor's Common Stock and the Notes before
the Closing of the Merger and the market price of the Common Stock and the Notes
of Hyperion Solutions thereafter.
EFFECT OF CERTAIN CHARTER PROVISIONS; RIGHTS PLAN; CERTIFICATE OF INCORPORATION,
BYLAWS, AND DELAWARE LAW
Certain provisions of the Restated Certificate of Incorporation and Bylaws
of Arbor as proposed to be in effect at the Effective Time, as well as certain
provisions of Delaware law, could delay or make difficult a merger, tender offer
or proxy contest involving the combined company. The authorized but unissued
capital stock of the combined company will include 5,000,000 shares of preferred
stock. The Arbor Board is authorized, and the Board of Directors of Hyperion
Solutions will be 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 combined company may in the future issue a series of preferred
stock, without further stockholder approval, that will have preference over the
Common Stock of Hyperion Solutions with respect to the payment of dividends and
upon liquidation, dissolution or winding-up of the combined company. Arbor has
no current plans to issue shares of Preferred Stock, although Series A Junior
Participating Preferred Stock has been designated for issuance under certain
conditions, pursuant to Arbor's stockholder rights plan. See "Description of
Arbor Capital Stock -- Preferred Stock," "Description of Arbor Capital
Stock -- Stockholder Rights Plan" and "The Merger and Related
Transactions -- Stockholders Rights Plans." Further, Section 203 of the DGCL,
which will be applicable to the combined company, prohibits certain business
combinations with certain stockholders for a period of three years after they
acquire 15% or more of the outstanding voting stock of a corporation. In
addition if the Arbor Merger Proposal is approved, the Restated Certificate of
Incorporation of the combined company will provide that the Board of Directors
of the combined company will be divided into three classes of directors, with
each class serving a staggered three-year term. The classification of the Board
of Directors has the effect generally of requiring at least two annual
stockholder meetings, instead of one, to replace a majority of the Board
members. Any of the foregoing could adversely affect holders of the combined
company's Common Stock or discourage or make difficult any attempt to obtain
control of the combined company. See "Description of Arbor Capital
Stock -- Antitakeover Provisions of the Certificate of Incorporation, Bylaws and
Delaware Law."
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PROPOSALS AND BOARD RECOMMENDATIONS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by Arbor and by Hyperion of proxies to be voted, respectively, at
the Arbor Annual Meeting to be held on , 1998 and the Hyperion
Special Meeting to be held on , 1998. This Joint Proxy
Statement/Prospectus is first being mailed to stockholders of Arbor and
stockholders of Hyperion on or about , 1998.
The purpose of the Arbor Annual Meeting is to consider and vote upon the
following proposals:
1. To adopt the Arbor Merger Proposal, which consists of three separate
sub-proposals: (a) the issuance of shares of Arbor Common Stock in
connection with the Merger; (b) the Arbor Charter Amendment Proposal;
and (c) the election of seven members to the Arbor Board. The
enactment of each of the constituent proposals comprising the Arbor
Merger Proposal is conditioned upon approval by the Arbor
stockholders of all of such constituent proposals.
2. To approve an amendment to the Arbor 1995 Option Plan to increase
the number of shares of Arbor Common Stock reserved for issuance
thereunder by 5,000,000 shares if the Arbor Merger Proposal is
approved, or if the Arbor Merger Proposal is not approved, by
2,000,000 shares.
3. To approve an amendment to Arbor's Employee Stock Purchase Plan to
increase the number of shares of Arbor Common Stock reserved for
issuance thereunder by 1,000,000 shares if the Arbor Merger Proposal
is approved, or if the Arbor Merger Proposal is not approved, by
250,000 shares.
4. If the Arbor Merger Proposal is not approved, to elect four
directors to the Arbor Board.
5. To ratify the appointment of Price Waterhouse LLP as Arbor's
independent accountants for the fiscal year ending March 31, 1999.
6. To transact such other business as may properly come before the
Arbor Annual Meeting or any adjournments or postponements thereof.
The purpose of the Hyperion Special Meeting is to consider and vote upon
the Hyperion Merger Proposal. At the Effective Time, Merger Sub will be merged
with and into Hyperion, the separate existence of Merger Sub will cease, all of
the rights, privileges, powers, franchises, properties, assets, liabilities and
obligations of Merger Sub will be vested in Hyperion and Hyperion will become a
wholly owned subsidiary of Hyperion Solutions. See "The Merger and Related
Transactions."
THE ARBOR BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS
RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE
BEST INTERESTS OF ARBOR AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE
ARBOR BOARD UNANIMOUSLY RECOMMENDS THAT ARBOR STOCKHOLDERS VOTE FOR THE ARBOR
MERGER PROPOSAL (INCLUDING THE ARBOR CHARTER AMENDMENT PROPOSAL). IN ADDITION,
THE ARBOR BOARD UNANIMOUSLY RECOMMENDS THAT ARBOR STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE ARBOR BOARD NOMINEES DESCRIBED HEREIN, A VOTE FOR THE
APPROVAL OF THE AMENDMENTS TO THE ARBOR 1995 OPTION PLAN, A VOTE FOR APPROVAL OF
THE AMENDMENTS TO THE ARBOR EMPLOYEE STOCK PURCHASE PLAN AND A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS ARBOR'S INDEPENDENT
ACCOUNTANTS.
THE HYPERION BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS
RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE
BEST INTERESTS OF HYPERION AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION,
THE HYPERION BOARD UNANIMOUSLY RECOMMENDS THAT HYPERION STOCKHOLDERS VOTE FOR
THE HYPERION MERGER PROPOSAL.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Arbor under the Securities Act for the offering of Arbor Common Stock in
connection with the Merger.
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VOTING AND PROXIES
DATE, TIME AND PLACE OF ARBOR ANNUAL MEETING AND HYPERION SPECIAL MEETING
The Arbor Annual Meeting will be held at , on ,
1998, at , local time. The Hyperion Special Meeting will be held at
Hyperion's offices, located at 900 Long Ridge Road in Stamford, Connecticut, on
, 1998, at , local time.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Arbor Common Stock at the close of business on
, 1998 (the "Arbor Record Date") are entitled to notice of and to
vote at the Arbor Annual Meeting. On the Arbor Record Date, there were
approximately holders of record of Arbor Common Stock, and
shares of Arbor Common Stock were issued and outstanding. Each
share of Arbor Common Stock is entitled to one vote per share.
Stockholders of record of Hyperion Common Stock at the close of business on
, 1998 (the "Hyperion Record Date") are entitled to notice of and
to vote at the Hyperion Special Meeting. On the Hyperion Record Date, there were
approximately holders of record of Hyperion Common Stock, and
shares of Hyperion Common Stock were issued and outstanding. Each
share of Hyperion Common Stock is entitled to one vote per share.
All properly executed proxies given by holders of Arbor Common Stock or
Hyperion Common Stock that are not revoked will be voted at the Arbor Annual
Meeting or the Hyperion Special Meeting, as the case may be, and at any
postponements or adjournments of either such meeting, in accordance with the
instructions contained therein. Proxies containing no instructions regarding a
proposal specified in the proxy will be voted, in the case of the Arbor Annual
Meeting, in favor of the Arbor Merger Proposal and all other Arbor proposals
contained herein and, in the case of the Hyperion Special Meeting, in favor of
the Hyperion Merger Proposal. If any other matters are properly brought before
either the Arbor Annual Meeting or the Hyperion Special Meeting, all proxies
will be voted in accordance with the judgment of the proxies. Either the Arbor
Annual Meeting or Hyperion Special Meeting may be adjourned, and additional
proxies solicited, if the vote necessary to approve a proposal has not been
obtained. Any adjournment of either the Arbor Annual Meeting or Hyperion Special
Meeting will require the affirmative vote of the holders of at least a majority
of the shares represented, whether in person or by proxy, at such meeting
(regardless of whether those shares constitute a quorum).
An Arbor stockholder or a Hyperion stockholder who has executed and
returned a proxy may revoke such proxy at any time before it is voted at the
Arbor Annual Meeting or the Hyperion Special Meeting, as the case may be, by
executing and returning a proxy bearing a later date, by filing written notice
of such revocation with the Secretary of Arbor or the Secretary of Hyperion, as
appropriate, which states that such proxy is revoked, or by attending the Arbor
Annual Meeting or the Hyperion Special Meeting, as the case may be, and voting
in person. Notices to the Secretary of Arbor should be delivered to Arbor
Software Corporation, attention General Counsel, 1344 Crossman Avenue,
Sunnyvale, California 94809. Notices to the Secretary of Hyperion should be
delivered to Hyperion Software Corporation, attention Corporate Secretary, 900
Long Ridge Road, Stamford, Connecticut 06902.
ARBOR STOCKHOLDER VOTE REQUIRED
ARBOR MERGER PROPOSAL
Approval of the issuance of shares of Arbor Common Stock in connection with
the Merger requires the affirmative vote of a majority of those shares present
in person or represented by proxy and entitled to vote at the Arbor Annual
Meeting. The approval of the Arbor Charter Amendment Proposal requires the
affirmative vote of a majority of the shares of Arbor Common Stock outstanding
on the Arbor Record Date. Directors are elected by a plurality of the
affirmative votes cast by those present in person or represented by proxy and
entitled to vote at the Arbor Annual Meeting. The enactment of each of the
constituent proposals comprising
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the Arbor Merger Proposal is conditioned upon approval by the Arbor stockholders
of each of such constituent proposals. In determining whether the issuance of
shares of Arbor Common Stock and the Arbor Charter Amendment Proposal have
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against such proposals. In
connection with the election of directors, abstentions and broker non-votes are
not counted towards a nominee's total.
OTHER ARBOR ANNUAL MEETING PROPOSALS
The election of directors requires a plurality of votes cast, and each of
the approval of the amendments to the Arbor 1995 Option Plan, the approval of
the amendments to the Arbor Employee Stock Purchase Plan and the ratification of
the appointment of Price Waterhouse LLP as Arbor's independent accountants for
the fiscal year ending March 31, 1999 requires the affirmative vote of a
majority of the votes cast in respect of shares of Arbor Common Stock present,
in person or by proxy, and entitled to vote at the Arbor Annual Meeting. An
abstention or broker non-vote will have no effect on any of the other Arbor
Annual Meeting proposals. With regard to the election of directors at the Arbor
Annual Meeting, votes may be cast in favor of or withheld with respect to any or
all nominees; votes that are withheld will be excluded entirely from the vote
and will have no effect.
On the Arbor Record Date, Arbor directors, executive officers and their
affiliates held in the aggregate approximately % of the outstanding Arbor
Common Stock. All directors and executive officers of Arbor have indicated their
intention to vote all shares over which they exercise voting control FOR the
approval of the Arbor Merger Proposal (including the Arbor Charter Amendment
Proposal). The holders of a majority of the outstanding shares of Arbor Common
Stock, present in person or by proxy, will constitute a quorum for the
transaction of business at the Arbor Annual Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Arbor Annual Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote.
HYPERION STOCKHOLDER VOTE REQUIRED
Approval of the Hyperion Merger Proposal requires the affirmative vote of
the holders of a majority of the outstanding shares of Hyperion Common Stock. On
the Hyperion Record Date, Hyperion directors, executive officers and their
affiliates held in the aggregate approximately % of the outstanding shares
of Hyperion Common Stock. All directors and executive officers of Hyperion have
indicated their intention to vote all shares over which they exercise voting
control FOR the approval of the Hyperion Merger Proposal. The holders of a
majority of the outstanding shares of Hyperion Common Stock, present in person
or by proxy, will constitute a quorum for the transaction of business at the
Hyperion Special Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Hyperion Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions and broker non-votes as shares that are present and entitled to vote
for purposes of determining the presence of a quorum since the required vote of
Hyperion stockholders is based upon the number of outstanding shares of Hyperion
Common Stock, and such abstentions and broker nonvotes will have the effect of a
vote against the Hyperion Merger Proposal.
SOLICITATION OF PROXIES; EXPENSES
Arbor and Hyperion will bear their respective costs of solicitation of
proxies from their respective stockholders. Each of Arbor and Hyperion will
share equally the cost of printing and filing this Joint Proxy
Statement/Prospectus and the Registration Statement of which it is a part unless
the Merger is not completed for certain reasons, in which case such expenses
will be paid as described under the caption "The Merger Agreement and Related
Transactions -- Termination; Termination Fees and Expenses." In addition to
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solicitation by mail, the directors, officers and employees of Arbor and
Hyperion and stockholders of Arbor and Hyperion, respectively, may solicit
proxies from the stockholders of Arbor and Hyperion, respectively, by telephone,
telegram or letter or in person for no additional compensation. Brokers,
nominees, fiduciaries and other custodians have been requested by Arbor and
Hyperion to forward proxy solicitation materials to the beneficial owners of
Arbor Common Stock and Hyperion Common Stock held of record by such custodians.
Such custodians will be reimbursed by Arbor and Hyperion for their expenses.
Arbor has retained Morrow & Co., a proxy solicitation firm, for assistance
in connection with the solicitation of proxies for the Arbor Annual Meeting at a
cost of approximately $10,000 plus reimbursement of out-of-pocket expenses.
Hyperion has retained Georgeson & Company Inc., a proxy solicitation firm, for
assistance in connection with the solicitation of proxies for the Hyperion
Special Meeting at a cost of approximately $10,000 plus reimbursement of
out-of-pocket expenses.
APPRAISAL RIGHTS
Holders of Hyperion Common Stock are not entitled to appraisal rights under
Section 262 of the DGCL in connection with the Merger because the Hyperion
Common Stock was listed on the Nasdaq National Market on the record date for the
Hyperion Special Meeting and the shares of Hyperion Solutions Common Stock to be
issued pursuant to the Merger will be listed on the Nasdaq National Market as of
the Effective Time. Holders of Arbor Common Stock are not entitled to appraisal
rights under Section 262 of the DGCL in connection with the Merger because Arbor
is not a constituent corporation in the Merger.
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Plan of Merger provides for the merger of a newly formed, wholly owned
subsidiary of Arbor with and into Hyperion and the change of Arbor's name from
"Arbor Software Corporation" to "Hyperion Solutions Corporation," with Hyperion
to be the surviving corporation of the Merger and thus becoming a wholly owned
subsidiary of Hyperion Solutions. The discussion of the Merger in this Joint
Proxy Statement/ Prospectus and the description of the principal terms of the
Plan of Merger are subject to and qualified in their entirety by reference to
the Plan of Merger, which is attached hereto as Appendix A.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Beginning in October 1997, representatives and advisors of Arbor and
representatives and advisors of Hyperion had conversations from time to time
concerning the possibility of a business combination involving the two
companies. These conversations were exploratory in nature and did not progress
beyond the preliminary stage.
On October 16, 1997, James A. Perakis, the Chairman, President and Chief
Executive Officer of Hyperion, and John M. Dillon, then President and Chief
Operating Officer of Arbor, met to explore the possibility of an alliance
between the companies.
On December 16, 1997, Kirk A. Cruikshank, Senior Vice President of
Marketing of Arbor, and David M. Weinberg, Vice President, Corporate Development
and Strategy of Hyperion, joined Messrs. Perakis and Dillon to explore the
possibility of a business combination. Although the specific terms of a
transaction were not discussed at this particular meeting, Messrs. Perakis,
Dillon, Cruikshank and Weinberg determined and agreed that there were strategic
advantages to a combination of Arbor and Hyperion, if mutually acceptable terms
could be agreed upon.
On December 30, 1997, Hyperion engaged Goldman Sachs to act as its
financial advisor in connection with a proposed strategic transaction between
Hyperion and Arbor.
On January 15, 1998 and January 16, 1998, representatives and advisors of
Arbor and representatives and advisors of Hyperion conducted mutual preliminary
due diligence discussions, explored potential strategic
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benefits of a merger and held preliminary discussions relating to valuation and
structure of a proposed transaction.
On January 19, 1998, Arbor engaged Morgan Stanley to provide certain
financial advisory services in connection with the investigation and negotiation
of a possible business combination with Hyperion.
On January 21, 1998, the Arbor Board at a regularly scheduled meeting
considered possible strategic transactions for Arbor, including a business
combination with Hyperion. No action on any transaction was taken at that time,
as the Arbor Board determined to study the benefits and risks of such possible
transactions further.
On January 23, 1998, Arbor determined to terminate discussions and so
informed Morgan Stanley.
On January 26, 1998, Morgan Stanley informed Goldman Sachs of Arbor's
termination of discussions.
On February 11, 1998, Mr. Perakis met with Mr. Dillon to explore the
possibility of resuming discussions of a potential business combination.
On February 23, 1998, the parties determined that they were again unable to
come to agreement on the material terms, and the parties terminated any further
discussions based upon a number of issues.
On April 16, 1998, Messrs. Perakis and Dillon met to reinitiate discussions
regarding the possibility of a business combination. Specifically, Messrs.
Perakis and Dillon identified issues that would need to be addressed and
resolved in order for the discussion of a proposed merger to continue, including
the material terms of such a transaction and the processes and procedures
required to be followed in order to address the outstanding issues.
On April 28, 1998, the Hyperion Board met in Stamford, Connecticut,
together with representatives of Hyperion management, Goldman Sachs and Hale and
Dorr LLP, outside counsel to Hyperion ("Hale and Dorr"). The Hyperion Board
reviewed the status of discussions with Arbor, discussed the strategic impact of
a combination between the two companies, analyzed management and other
compatibility issues regarding the two companies, reviewed the business and
prospects of the companies and discussed other related issues.
On May 5, 1998, the Arbor Board met in Sunnyvale, California, with the
representatives of Arbor management, Morgan Stanley, Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, outside counsel to Arbor ("Gunderson
Dettmer"), and Price Waterhouse LLP, independent accountants to Arbor ("Price
Waterhouse"), to discuss, among other things, the status of the discussions with
Hyperion. The Arbor Board discussed the strategic rationale of the combination,
the benefits and risks associated with the combination, the proposed financial
terms and conditions of a transaction, a schedule for completing the
transaction, as well as the business and the prospects of the companies and
other related issues. The Arbor Board approved the continued negotiations with
representatives of Hyperion.
From May 6, 1998 through May 25, 1998, Hyperion and Arbor and their
respective advisors proceeded with work on, and held a series of meetings and
discussions regarding, the Plan of Merger, the Arbor Stock Option Agreement, the
Hyperion Stock Option Agreement and related documents, and the financial, legal
and accounting due diligence investigation of the respective companies. During
this period, representatives and advisors of Hyperion and Arbor also held
several meetings to negotiate the principal business terms of the Merger.
From May 11, 1998 through May 25, 1998, management of Arbor and Hyperion,
together with representatives of Gunderson Dettmer, Hale and Dorr, Morgan
Stanley, Goldman Sachs, Price Waterhouse and Ernst & Young LLP, independent
auditors to Hyperion ("Ernst & Young"), conducted due diligence reviews and
continued discussions to review and resolve outstanding legal and financial
issues.
On May 19, 1998, management of Arbor and Hyperion, together with
representatives of Gunderson Dettmer, Hale and Dorr, Morgan Stanley, Goldman
Sachs, Price Waterhouse and Ernst & Young met in Dallas, Texas to continue their
discussions.
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On May 20, 1998, the Arbor Board held a telephonic meeting originating in
Sunnyvale, California at which the Arbor Board received an update from Arbor's
management on the status of negotiations with Hyperion.
On May 22, 1998, there was a meeting of the Arbor Board in Sunnyvale,
California at which there was a presentation by Morgan Stanley reviewing the
principal financial terms and conditions of the Merger. This presentation was
followed by a presentation by members of Gunderson Dettmer regarding the
principal terms and provisions of the Plan of Merger. This presentation was
followed by a presentation by Arbor's management reviewing the principal terms
and provisions of the Merger.
On May 22, 1998, the Hyperion Board held a telephonic meeting originating
from Stamford, Connecticut. Representatives of Hyperion senior management,
Goldman Sachs and Hale and Dorr made presentations to the Hyperion Board
concerning the Merger and the terms and conditions of the Plan of Merger.
Following such presentations, Goldman Sachs informed the Hyperion Board that it
was prepared to deliver its oral opinion that the Exchange Ratio was fair from a
financial point of view to the holders of Hyperion Common Stock subject to final
review of the Plan of Merger. After hearing such reports, the Hyperion Board
determined that the Merger was fair to, and in the best interests of, the
stockholders of Hyperion, unanimously approved the Plan of Merger and exhibits
thereto, including the Arbor Stock Option Agreement and Hyperion Stock Option
Agreement, and the Merger and unanimously resolved to recommend that the
stockholders of Hyperion vote for the Merger and the Plan of Merger.
On May 25, 1998, there was a telephonic meeting of the Arbor Board
originating in Sunnyvale, California to approve the Plan of Merger and the
related transactions. Morgan Stanley informed the Arbor Board of its oral
opinion (subsequently confirmed in writing) that as of such date the Exchange
Ratio was fair from a financial point of view to the holders of Arbor Common
Stock, and responded to various questions raised by members of the Arbor Board
regarding such opinion. This presentation was followed by a presentation by
members of Gunderson Dettmer regarding the final terms of the Plan of Merger.
After considering the terms of the proposed transaction and the opinion of
Morgan Stanley, the Arbor Board determined that the Plan of Merger was fair to
Arbor stockholders and that the proposed Merger was in the best interests of
Arbor and its stockholders. The Arbor Board then unanimously approved the Plan
of Merger and exhibits thereto, including the Arbor Stock Option Agreement and
Hyperion Stock Option Agreement, and the Merger and unanimously resolved to
recommend that the stockholders of Arbor vote for the Arbor Merger Proposal.
Also on May 25, 1998, Goldman Sachs orally advised Hyperion, which oral
advice was subsequently confirmed in a written opinion to the Hyperion Board,
that, as of such date, and based on the procedures followed, factors considered
and assumptions made as set forth therein, the Exchange Ratio pursuant to the
Plan of Merger was fair from a financial point of view to the holders of
Hyperion Common Stock.
During the afternoon and evening of May 25, 1998, following the approval of
the Merger Agreement and related matters by the Arbor Board, Hyperion and Arbor
finalized, executed and delivered the Merger Agreement and related documents.
A joint press release announcing execution of the Plan of Merger and the
terms of the Merger was issued by Arbor and Hyperion on the morning of May 26,
1998.
REASONS FOR THE MERGER
Arbor's Reasons for the Merger. In order to expand its product offerings,
Arbor has examined on occasion various potential alliances, including the
proposed combination with Hyperion. During its discussions with Hyperion, Arbor
has recognized the complementary nature of Hyperion's products, marketing,
distribution channels and technology. In reaching its decision to approve the
Plan of Merger and the Merger, the Arbor Board consulted with (i) its legal
counsel regarding the legal terms of the transaction and the Arbor Board's
obligations in its consideration of the proposed transaction, (ii) its financial
advisors regarding the financial aspects of the proposed transaction and the
opinion of Morgan Stanley that the Exchange Ratio pursuant to the Plan of Merger
was fair from a financial point of view to the holders of Arbor Common Stock and
(iii) management of Arbor.
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The Arbor Board concluded that the Merger represents a unique strategic fit
between two companies with similar business strategies and complementary
software offerings and that the Merger was in the best interests of Arbor and
its stockholders. In reaching this conclusion, the Arbor Board considered the
following information and factors:
- The combination of Arbor with Hyperion will create a combined company
with significantly greater resources, and provide the opportunity to
market a more complete product offering for the enterprise software
market and greater sales and marketing capabilities than those of Arbor
alone, and may enable the combined company to compete more effectively
with competitors having greater resources and broader product offerings
than Arbor.
- The combination of Hyperion's packaged applications software with Arbor's
OLAP software allows Arbor to enhance its competitive position as a
leader in OLAP applications by allowing it to offer a more robust
offering of products and financial applications.
- The Merger will provide Arbor with the opportunity to broaden and
diversify its product offerings with complementary software tools that it
currently does not offer, which may reduce the risk of dependence on
individual products.
- Arbor believes that the management team of the combined company will have
greater depth and experience than that of Arbor alone.
- The financial and other terms and conditions of the Plan of Merger and
the related agreements, which are reciprocal in nature, including the
fact that (i) the Merger is expected to be accounted for as a pooling of
interests in accordance with Accounting Principles Board Opinion No. 16
and that no goodwill is expected to be created as a result of the Merger
and (ii) the Merger is expected to be treated as a tax-free
reorganization to Arbor and its stockholders.
- Arbor believes the combination will give it greater access to product
development resources.
- A larger combined customer base and complementary distribution channels
will provide leverage for expanded sales and marketing opportunities for
the combined company.
- The potential for achieving long-term economies of scale, particularly in
the future growth of Arbor's worldwide operations, that would not have
been readily achievable by either company separately.
- Information concerning the historical financial performance, business
operations, financial condition and prospects of Hyperion, including
Hyperion's periodic reports filed with the SEC and publicly available
financial information regarding Hyperion such as third-party analysts'
reports, analysts' projections and analysts' comments and historical
stock price, volatility and volume data.
- The oral and written presentations of its financial advisor, Morgan
Stanley, including the opinion of Morgan Stanley that the Exchange Ratio
pursuant to the Plan of Merger was fair from a financial point of view to
the holders of Arbor Common Stock.
In the course of its deliberations, the Arbor Board reviewed and considered
the terms and conditions of the Plan of Merger and the presentations by Arbor's
executive officers. The Arbor Board also considered, among other matters, (i)
information concerning Arbor's and Hyperion's respective businesses, prospects,
financial performance and condition, operations, technology, management and
competitive position, (ii) the historical financial condition, results of
operations and businesses of Arbor and Hyperion, (iii) current financial market
conditions and historical market prices, volatility and trading information with
respect to Arbor Common Stock and Hyperion Common Stock, (iv) the consideration
to be received by Hyperion stockholders in the Merger and the relationship
between the market value of Arbor Common Stock to be issued in exchange for each
share of Hyperion Common Stock and Arbor's per share reported earnings, earnings
before interest and taxes and certain other measures, (v) a comparison of
selected recent acquisition and merger transactions involving high-technology
companies, (vi) the belief that the terms of the Plan of Merger, including the
parties' respective representations, warranties and covenants, and the
conditions to their respective obligations, are reasonable, (vii) the ability of
Arbor to devote management time and energy to the
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integration and assimilation of Hyperion's business and organization should the
Merger be consummated, (viii) the fact that the Merger is expected to be
accounted for as a pooling of interests and that no goodwill is expected to be
created on the financial statements of Arbor as a result thereof, (ix) the
impact of the Merger on Arbor's and Hyperion's customers, including the
potential loss of revenue that might result due to uncertainty among customers
caused by the Merger, and (x) reports from management, accounting advisors and
legal advisors as to the results of their due diligence investigation of
Hyperion. The Arbor Board also considered a number of potentially negative
factors in its deliberations concerning the Merger, including, but not limited
to, (i) the adverse effects on the operating results of the combined company due
to the expenses expected to be incurred, primarily in the quarter in which the
Merger is consummated, including costs of integrating the businesses of Hyperion
and Arbor and transaction expenses arising from the Merger, (ii) the risk that
benefits sought to be achieved in the Merger will not be realized, which may
have a material adverse effect on the combined company's business, operating
results and financial condition, (iii) the risk that the operations of Arbor and
Hyperion will not be effectively integrated or that potential synergies expected
to result from the consolidation of the operations of the companies will not
occur, and (iv) the other risks described under "Risk Factors."
In view of the wide variety of factors considered by the Arbor Board, the
Arbor Board did not find it practicable to quantify or otherwise assign relative
weights to the specific factors considered in approving the Plan of Merger and
Merger. However, after taking into account all of the factors set forth above,
the Arbor Board unanimously determined that the Plan of Merger and the Merger
were in the best interests of Arbor and its stockholders and that Arbor should
enter into the Plan of Merger and complete the Merger. Accordingly, the Arbor
Board unanimously recommends that stockholders of Arbor vote for approval and
adoption of the Arbor Merger Proposal (including the Arbor Charter Amendment
Proposal).
Hyperion's Reasons for the Merger. In reaching its decision to approve the
Plan of Merger and the Merger, the Hyperion Board consulted with (i) its legal
counsel regarding the legal terms of the transaction and the Hyperion Board's
obligations in its consideration of the proposed transaction, (ii) its financial
advisors regarding the financial aspects of the proposed transaction and the
fairness of the Exchange Ratio to Hyperion's stockholders from a financial point
of view and (iii) management of Hyperion.
The Hyperion Board concluded that the Merger represents a unique strategic
fit between two companies with similar business strategies and complementary
software offerings and that the Merger was in the best interests of Hyperion and
its stockholders. In reaching this conclusion, the Hyperion Board considered the
following information and factors:
- The potential for Hyperion to provide a broader range of products,
product features and solutions as a result of the Merger, thereby
enhancing Hyperion's competitive strength and increasing its ability
to satisfy the requirements of existing and new customers. Hyperion
and Arbor operate in a rapidly growing and changing marketplace,
providing comprehensive analysis software that enables large
companies to improve their financial performance by maximizing the
value of information. The Merger would improve Hyperion's
competitive position as a leader in OLAP applications by allowing it
to satisfy customer needs through an increasingly comprehensive set
of product offerings, including the combined strength of Hyperion's
application software and Arbor's Essbase technology.
- The potential benefits from a combination of the management
resources of Hyperion and Arbor, including the experience, knowledge
and established customer relationships of senior personnel at both
companies. In addition, the Merger presented Hyperion with an
opportunity to address the previously announced retirement plans of
Hyperion's chief financial officer. See "The Merger and Related
Transactions -- Management of Hyperion Solutions Following the
Merger; Interests of Certain Persons in the Merger."
- The potential for achieving long-term economies of scale,
particularly in the future growth of Hyperion's worldwide
operations, that would not have been readily achievable by either
company separately.
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- The ability of Hyperion to develop products more quickly and to
attract and retain critical and scarce engineering talent as a
result of having access to both companies' financial, development,
personnel and other resources and research and development
facilities in Connecticut, California and Florida.
- Hyperion's belief that the Merger would accelerate its strategic
transformation to multi-engine support by adding Arbor Essbase as an
OLAP technology platform in addition to TM1 and Microsoft OLAP
Server.
- The potential for increased revenues by selling into Arbor's
installed customer base and through its channels.
- The financial and other significant terms and conditions of the Plan
of Merger and the related agreements, which are reciprocal in
nature, including the fact that (i) the Merger is expected to be
accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16 and that no goodwill is
expected to be created as a result of the Merger and (ii) the Merger
is expected to be treated as a tax-free reorganization to Hyperion
and its stockholders.
- Information concerning the historical financial performance,
business operations, financial condition and prospects of Arbor,
including Arbor's periodic reports filed with the SEC and publicly
available financial information regarding Arbor such as third-party
analysts' reports, analysts' projections and analysts' comments and
historical stock price, volatility and volume data.
- The presentations of its financial advisor, Goldman Sachs, including
the opinion of Goldman Sachs that, as of May 25, 1998, the Exchange
Ratio was fair from a financial point of view to the holders of
Hyperion Common Stock.
The Hyperion Board also considered potentially negative factors relating to
the Merger, including (i) the risk that the benefits sought in the Merger would
not be fully achieved, (ii) the risk that the Merger would not be consummated
and the effect of the public announcement of the Merger on Hyperion's sales and
operating results, (iii) the impact of the Merger on key customer relationships,
(iv) the charges expected to be incurred in connection with the Merger,
including costs of integrating the business and transaction expenses arising
from the Merger, (v) the difficulty of and risks associated with integrating the
combined company and managing operations in distant geographic locations, (vi)
the risks of Hyperion suffering employee attrition or of failing to attract key
personnel due to uncertainties associated with the pending Merger and (vii) all
of the other factors listed above under "Risk Factors." The Hyperion Board
concluded that these factors were outweighed by the potential benefits to be
gained by the Merger.
The foregoing discussion of the information and factors considered by the
Hyperion Board is not intended to be exhaustive but is believed to include all
material factors considered by the Hyperion Board. In view of the wide variety
of information and factors, both positive and negative, considered by the
Hyperion Board, the Hyperion Board did not find it practical to, and did not,
quantify or otherwise assign relative or specific weights to the foregoing
factors considered. After taking into consideration all of the factors set forth
above, the Hyperion Board concluded that the Merger was in the best interests of
Hyperion and its stockholders. Accordingly, the Hyperion Board strongly
recommends that Hyperion should proceed with the Merger.
OPINION OF FINANCIAL ADVISOR TO ARBOR
Pursuant to a letter agreement dated as of December 19, 1997 (the "Morgan
Stanley Engagement Letter"), Morgan Stanley provided to Arbor financial advisory
services and a financial fairness opinion in connection with the Merger. Morgan
Stanley was selected by the Arbor Board to act as Arbor's financial advisor
based on Morgan Stanley's qualifications, expertise and reputation and its
knowledge of the business and affairs of Arbor. At the meeting of the Arbor
Board on May 25, 1998, Morgan Stanley rendered its oral opinion, subsequently
confirmed in writing, that as of May 25, 1998, based upon and subject to the
various considerations set forth in the opinion, the Exchange Ratio pursuant to
the Plan of Merger was fair from a financial point of view to the holders of
shares of Arbor Common Stock.
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THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED MAY 25, 1998,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. ARBOR STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE OPINION CAREFULLY AND IN ITS ENTIRETY. Morgan Stanley's opinion is directed
to the Arbor Board and addresses only the fairness of the Exchange Ratio
pursuant to the Plan of Merger from a financial point of view to the holders of
shares of Arbor Common Stock as of the date of the opinion, and does not address
any other aspect of the Merger and does not constitute a recommendation to any
holder of Arbor Common Stock as to how to vote at the Arbor Annual Meeting. The
summary of the opinion of Morgan Stanley set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of Arbor and Hyperion, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning Arbor and
Hyperion prepared by the managements of Arbor and Hyperion, respectively; (iii)
discussed the past and current operations and financial condition and the
prospects of Arbor, including information relating to certain strategic,
financial and operational benefits anticipated from the Merger, with senior
executives of Arbor; (iv) discussed the past and current operations and
financial condition and the prospects of Hyperion, including information
relating to certain strategic, financial and operational benefits anticipated
from the Merger, with senior executives of Hyperion; (v) reviewed the pro forma
impact of the Merger on the earnings per share of Arbor; (vi) reviewed the
reported prices and trading activity for the Arbor Common Stock and the Hyperion
Common Stock; (vii) compared the financial performance of Arbor and Hyperion and
the prices and trading activity of the Arbor Common Stock and the Hyperion
Common Stock with that of certain other publicly-traded companies and their
securities; (viii) reviewed the financial terms, to the extent publicly
available, of certain comparable merger and acquisition transactions; (ix)
reviewed and discussed with the senior managements of Arbor and Hyperion the
strategic rationale for the Merger; (x) participated in discussions and
negotiations among representatives of Arbor and Hyperion and their financial and
legal advisors; (xi) reviewed the Plan of Merger and certain related agreements;
and (xii) performed such other analysis and considered such other factors as we
have deemed appropriate.
In rendering its opinion Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the internal
financial statements and/or other financial and operating data and information
and discussions relating to the strategic, financial and operational benefits
anticipated from the Merger provided by Arbor and Hyperion, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best then
available estimates and judgments of the future financial performance and
prospects of Arbor and Hyperion, respectively. Morgan Stanley relied upon the
assessment by the managements of Arbor and Hyperion of their ability to retain
key employees of both Arbor and Hyperion. Morgan Stanley also relied upon,
without independent verification, the assessment by the managements of Arbor and
Hyperion of the strategic and other benefits expected to result from the Merger.
Morgan Stanley also relied upon, without independent verification, the
assessment by the managements of Arbor and Hyperion of Arbor's and Hyperion's
technologies and products, the timing and risks associated with the integration
of Arbor with Hyperion, and the validity of, and risks associated with, Arbor's
and Hyperion's existing and future products and technologies. Morgan Stanley did
not make any independent valuation or appraisal of the assets, liabilities or
technology of Arbor or Hyperion, respectively, nor was it furnished with any
such appraisals. Morgan Stanley assumed that the Merger would be accounted for
as a "pooling-of-interests" business combination in accordance with United
States generally accepted accounting principles, would be treated as a tax-free
reorganization and/or exchange pursuant to the Code and would be consummated in
accordance with the terms set forth in the Plan of Merger. Morgan Stanley's
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion.
The following is a brief summary of the material analyses performed by
Morgan Stanley in preparation of its opinion letter dated May 25, 1998.
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Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of Arbor and Hyperion and compared such performance with
that of a group of enterprise resource planning software vendors (the "ERP
Vendors"), a group of manufacturing software companies (the "Manufacturing
Software Companies"), a group of customer care software companies (the "Customer
Care Software Companies") and an on-line analytical processing software company
(the "OLAP Company"). Morgan Stanley observed that over the period from January
1, 1997 to May 21, 1998, the market price of Arbor Common Stock appreciated
approximately 79% compared with appreciation of approximately 79% for the
Hyperion Common Stock, depreciation of approximately 3% for an index of the ERP
Vendors, appreciation of approximately 118% for an index of the Manufacturing
Software Companies, appreciation of approximately 142% for an index of the
Customer Care Software Companies and depreciation of approximately 15% for the
OLAP Company.
Peer Group Comparison. Morgan Stanley compared certain financial
information of Arbor and Hyperion with that of the ERP Vendors, Manufacturing
Software Companies, Customer Care Software Companies and the OLAP Company. Such
information included, among other things, market valuation and stock price as a
multiple of earnings per share. Such analysis showed that as of May 21, 1998,
based on earnings per share projections from securities research analysts and
the Institutional Broker Estimate Service ("IBES"), Arbor traded at 27.7 times
calendar year 1999 projected earnings per share, compared to a multiple of 19.4
times for Hyperion and median multiples of 48.8 times for the ERP Vendors, 49.4
times for the Manufacturing Software Companies, 29.4 times for the Customer Care
Software Companies and 17.9 times for the OLAP Company.
Morgan Stanley also compared the projected calendar year 1999 stock price
of Arbor and Hyperion to earnings per share multiples to long-term growth rate
ratios. Such analysis showed that as of May 21, 1998, based on earnings per
share and long-term growth rate ratios from securities research analysts and
IBES, Arbor traded at 0.55 times, compared to a multiple of 0.65 times for
Hyperion and median multiples of 1.08 times for the ERP Vendors, 1.01 times for
the Manufacturing Software Companies, 0.70 for the Customer Care Software
Companies and 0.60 for the OLAP Company.
No company utilized as a comparison in the comparable companies analysis is
identical to Arbor or Hyperion. In evaluating the comparable companies, Morgan
Stanley made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Arbor and Hyperion, such as the impact
of competition on Arbor or Hyperion and the industry generally, industry growth
and the absence of any adverse material change in the financial condition and
prospects of Arbor or Hyperion or the industry or in the financial markets in
general.
Historical Exchange Ratio Analysis. Morgan Stanley reviewed and analyzed
the average historical ratios of the closing prices per share of Hyperion Common
Stock divided by the corresponding prices for the Arbor Common Stock during the
last 10 days, 20 days, 30 days, 60 days, 90 days, 120 days and last twelve
months prior to May 21, 1998. The average exchange ratios over these periods
were 0.911, 0.915, 0.924, 0.920, 0.940, 0.958 and 0.846, respectively, which
corresponded to premiums/(discounts) relative to the Exchange Ratio of 4.3%,
3.8%, 2.8%, 3.3%, 1.1%, (0.1)%, and 12.3%, respectively.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed 22
transactions (collectively, the "Software Transactions") and compared certain
statistics for the Software Transactions to the relevant financial statistics
for Hyperion based on the value of Hyperion implied by the Exchange Ratio and
the closing price for the Arbor Common Stock as of May 21, 1998. Analysis of the
Software Transactions showed a median multiple of next twelve months' earnings
of 31.4 times and median premiums over target closing prices of 29.9% based on
one day prior to announcement and 48.1% based on one month prior to
announcement. These statistics compared to a multiple of 27.4 times next twelve
months' earnings (June 1998 - March 1999 quarters) and premium of 8.6% and
discount of (2.4)% over the closing prices of the Hyperion Common Stock as of
May 21, 1998 and 30 trading days prior to that date, respectively, based on the
value of Hyperion implied by the Merger.
No transaction utilized as a comparison in the comparable transaction
analysis is identical to the business combination. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with
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regard to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Arbor and
Hyperion, such as the impact of competition on Arbor or Hyperion and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of Arbor or Hyperion or the
industry or in the financial markets in general. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable transaction data.
Relative Contribution Analysis. Morgan Stanley analyzed the pro forma
contribution of each of Arbor and Hyperion to the combined company assuming
consummation of the Merger and based on securities research analyst forecasts
for both companies. The analysis showed, among other things, that in terms of
calendar year 1998 projected revenue, gross profit, operating income and
earnings and calendar year 1999 projected earnings, Arbor would contribute
26.1%, 31.1%, 30.9%, 30.8% and 33.0%, respectively, to the combined company.
These figures, adjusted to reflect each company's respective capital structure,
were compared to the pro forma fully-diluted ownership of the combined company
by Arbor shareholders of 38.6% implied by the Merger.
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact of
the Merger on Arbor's projected earnings per share for the calendar years 1998
and 1999. Such analysis was based on earnings projections by securities research
analysts for both companies. Morgan Stanley observed that, assuming that the
Merger was treated as a pooling transaction, the Merger would result in earnings
per share accretion for Arbor shareholders of 27.6% and 19.0% for calendar years
1998 and 1999, respectively, before taking into account one-time charges or
synergies.
Discounted Equity Value. Morgan Stanley performed an analysis of the
present value per share of the implied value of Arbor based on Arbor's future
trading price assuming consummation of the Merger and based on securities
research analyst earnings per share projections for both companies for calendar
years 2000 and 2001 (including minimum expected synergies anticipated from the
Merger), with illustrative multiples of earnings per share ranging from 22.0
times to 26.0 times and an illustrative discount rate of 15.0%. Based on this
analysis, Morgan Stanley estimated a present value per equivalent share of Arbor
Common Stock ranging from $59.49 to $79.41. Morgan Stanley compared this range
to the stand-alone discounted equity value of the Arbor Common Stock. Morgan
Stanley observed that, based on securities research analyst earnings per share
projections for calendar years 2000 and 2001, illustrative multiples of earnings
per share ranging from 24.0 times to 28.0 times and an illustrative discount
rate of 17.5%, the present value per share of the Arbor Common Stock on a
stand-alone basis ranged from $47.61 to $70.91.
In connection with the review of the Merger by the Arbor Board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. The summary set forth above does
not purport to be a complete description of the analysis performed by Morgan
Stanley in connection with the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have been deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuation resulting
from any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Arbor or Hyperion. In performing its
analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Arbor and Hyperion. Any estimates contained in
Morgan Stanley's analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable than those
suggested by such estimates. The analyses performed were prepared solely as part
of Morgan Stanley's analysis of the fairness of the Exchange Ratio from a
financial point of view, pursuant to the Plan of Merger, to Arbor stockholders
and were conducted in connection with the delivery of
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Morgan Stanley's written opinion to the Arbor Board. The analyses do not purport
to be appraisals or to reflect the prices at which the Arbor Common Stock or the
Hyperion Common Stock might actually trade. The terms of the Merger were
determined through arm's-length negotiations between Arbor and Hyperion and were
approved by the Arbor Board. Morgan Stanley provided advice to Arbor during the
course of such negotiations; however, Morgan Stanley did not recommend any
specific exchange ratio to Arbor or that any specific exchange ratio constituted
the only appropriate exchange ratio for the Merger.
Morgan Stanley was not authorized to solicit, and did not solicit, interest
from any party with respect to an acquisition, business combination or other
extraordinary transaction involving Arbor. In addition, as described above,
Morgan Stanley's opinion and presentation to Arbor's Board was one of the many
factors taken into consideration by Arbor's Board in making its determination to
approve the Merger. Consequently, the Morgan Stanley analysis above should not
be viewed as determinative of the opinion of the Arbor Board with respect to the
value of Arbor or of whether the Arbor Board would have been willing to agree to
a different consideration.
The Arbor Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of its
investment banking and financial advisory business, is continuously engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In addition, Morgan Stanley is a
full-service securities firm engaged in securities trading, brokerage and
financing activities. Morgan Stanley makes a market in the Arbor Common Stock.
In the ordinary course of Morgan Stanley's trading and brokerage activities,
Morgan Stanley or its affiliates may at any time hold long or short positions,
and may trade or otherwise effect transactions, for its own account or the
accounts of customers, in debt or equity securities or senior loans of Arbor or
Hyperion. In the past, Morgan Stanley and its affiliates have provided financial
advisory and financing services for Arbor and have received fees for the
rendering of these services.
Pursuant to the Morgan Stanley Engagement Letter, Morgan Stanley provided
financial advisory services and a financial opinion in connection with the
Merger, and Arbor agreed to pay a transaction fee of 1.0% of the aggregate value
of Arbor payable upon consummation of the transaction. Arbor has also agreed to
reimburse Morgan Stanley for reasonable expenses as incurred. In addition, Arbor
has also agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws
arising out of Morgan Stanley's engagement and the transaction in connection
therewith.
OPINION OF FINANCIAL ADVISOR TO HYPERION
Goldman Sachs has delivered its opinion to the Hyperion Board that, as of
May 25, 1998, the Exchange Ratio pursuant to the Plan of Merger was fair from a
financial point of view to the holders of Hyperion Common Stock. THE FULL TEXT
OF THE OPINION OF GOLDMAN SACHS, DATED MAY 25, 1998, WHICH SETS FORTH
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS ARE
URGED TO READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Plan of Merger; (ii) Annual Reports to Stockholders and Annual Reports
on Form 10-K of Hyperion for the five fiscal years ended June 30, 1997; (iii)
Annual Reports to Stockholders and Annual Reports on Form 10-K of Arbor for the
two fiscal years ended March 31, 1997; (iv) the Registration Statement on Form
S-1, dated November 6, 1995, relating to the initial public offering of Arbor
Common Stock, which included audited financial statements for the three fiscal
years ended March 31, 1995; (v) certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of Hyperion and Arbor; (vi) certain other
communications from Hyperion and Arbor to their respective stockholders; and
(vii) certain internal financial analyses and forecasts for Hyperion and Arbor
prepared by the management of Hyperion. Goldman Sachs also held discussions with
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members of the senior managements of Hyperion and Arbor regarding the strategic
rationale for, and the potential benefits of, the transaction contemplated by
the Plan of Merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs reviewed the reported price and trading activity for the Hyperion
Common Stock and the Arbor Common Stock, compared certain financial and stock
market information for Hyperion and Arbor with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent transactions in the computer software industry
and performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. In
addition, Goldman Sachs did not make an independent evaluation or appraisal of
the assets and liabilities of Hyperion or Arbor or any of their subsidiaries and
Goldman Sachs has not been furnished with any such evaluation or appraisal.
Goldman Sachs assumed, with Hyperion's consent, that the transactions
contemplated by the Plan of Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. Goldman Sachs'
advisory services and its opinion have been provided for the information and
assistance of the Hyperion Board in connection with its consideration of the
transaction contemplated by the Plan of Merger and such opinion does not
constitute a recommendation as to how any holder of Hyperion Common Stock should
vote with respect to such transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Hyperion
Board that, as of May 25, 1998, the Exchange Ratio was fair from a financial
point of view to the holders of Hyperion Common Stock.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading prices and volumes for Hyperion Common Stock. This consisted of an
historical analysis of daily closing prices over a one-year period from May 19,
1997 to May 19, 1998 and of weekly closing prices for a three-year period from
May 19, 1995 to May 19, 1998. Goldman Sachs also reviewed the weighted average
trading price for Hyperion Common Stock for one month, six months and one year
before May 19, 1998. The weighted average trading prices for Hyperion Common
Stock for such periods were $43.17, $40.00 and $34.54, respectively.
In addition, Goldman Sachs reviewed the historical trading prices and
volumes for Arbor Common Stock. This consisted of an historical analysis of
daily closing prices over a one-year period from May 19, 1997 to May 19, 1998
and of daily closing prices from November 7, 1995 (the date of Arbor's initial
public offering) to May 19, 1998. Goldman Sachs also reviewed the weighted
average trading price for Arbor Common Stock for one month, six months, and one
year before May 19, 1998. The weighted average trading prices for Arbor Common
Stock for such periods were $45.82, $40.93 and $40.49, respectively.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Hyperion and Arbor to corresponding financial
information, ratios and public market multiples for 29 publicly traded
corporations (collectively, the "Selected Companies"). The multiples of Hyperion
and Arbor were calculated using a price of $38.56 per share of Hyperion Common
Stock and $43.78 per share of Arbor Common Stock, the closing prices for such
shares on May 19, 1998, and the multiples of the Selected Companies were
calculated using closing market prices for such companies' shares on May 19,
1998 and, for Hyperion, Arbor and the Selected Companies, Institutional Broker
Estimate Service ("IBES") estimates of future earnings growth rates as of May
19, 1998 (estimates for companies with non-calendar fiscal year ends were
calendarized). IBES is a data service which monitors and publishes a compilation
of earnings estimates produced by selected research analysts on companies of
interest to investors. Except as set forth below, the multiples and ratios for
Hyperion, Arbor and each of the Selected Companies were based on the most recent
publicly available information.
Goldman Sachs considered estimated calendar year 1998 and 1999
price/earnings ("P/E") ratios. The Selected Companies were divided by industries
into six categories; (i) Client/Server ERP/Supply Chain Management Software;
(ii) Other Client/Server Software; (iii) Internet Software/Commerce; (iv) Data
Warehousing Vendors; (v) Other Database Vendors; and (vi) Customer Management
Software. The mean and median P/E ratios for estimated calendar year 1998 for
the (a) Client/Server ERP/Supply Chain
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Management Software Selected Companies were 73.1x and 74.9x, respectively; (b)
Other Client/Server Software Selected Companies were 55.1x and 57.6x,
respectively; (c) Internet Software/Commerce Selected Companies were 30.5x for
both; (d) Data Warehousing Vendors Selected Companies were 38.9x for both; (e)
Other Database Vendors Selected Companies were 60.3x for both; and (f) Customer
Management Software Selected Companies were 41.8x and 37.8x, respectively. This
was compared to a 1998 P/E ratio of 24.6x for Hyperion and 39.8x for Arbor. The
mean and median P/E ratios for estimated calendar year 1999 for the (1)
Client/Server ERP/Supply Chain Management Software Selected Companies were 51.5x
and 56.2x, respectively; (2) Other Client/Server Software Selected Companies
were 37.9x and 39.9x, respectively; (3) Internet Software/Commerce Selected
Companies were 22.0x for both; (4) Data Warehousing Vendors Selected Companies
were 32.5x and 25.6x, respectively; (5) Other Database Vendors Selected
Companies were 49.7x for both; and (6) Customer Management Software Selected
Companies were 29.7x and 27.2x, respectively. This was compared to a 1999 P/E
ratio of 18.9x for Hyperion and 26.5x for Arbor.
Goldman Sachs also compared 1998 P/E multiples to long-term growth rate
ratios based on IBES estimated five-year growth rates for the Selected
Companies. The mean and median for the (i) Client/Server ERP/Supply Chain
Management Software Selected Companies were 1.8x for both; (ii) Other
Client/Server Software Selected Companies were 0.8x for both; (iii) Internet
Software/Commerce Selected Companies were 0.6x for both; (iv) Data Warehousing
Vendors Selected Companies were 1.3x for both; (v) Other Database Vendors
Selected Companies were not meaningful; and (vi) Customer Management Software
Selected Companies were 1.1x and 0.9x, respectively. This was compared to a
ratio of 0.8x for both Hyperion and Arbor.
Exchange Ratio Analysis. Goldman Sachs calculated the average of the
quotients of the closing prices per share of Hyperion Common Stock and Arbor
Common Stock for the one year, 180-day, 90-day, 30-day and five-day periods
ended May 19, 1998 (the "Average Exchange Ratios"). The Average Exchange Ratio
was determined by dividing Hyperion's average closing price per share by Arbor's
average closing price per share for such periods. This analysis indicated that
for such periods the Average Exchange Ratios were 0.8460, 0.9783, 0.9242, 0.9243
and 0.9073, respectively, as compared to the Exchange Ratio of 0.95 for the
Merger.
Contribution Analysis. Goldman Sachs analyzed the respective contributions
of Hyperion and Arbor to the estimated revenue, earnings before interest and
taxes ("EBIT") and net income to the combined company on a pro forma basis. This
analysis indicated that on a pro forma basis giving effect to the Merger: (i) in
calendar year 1997, Hyperion and Arbor would contribute 78.7% and 21.3%,
respectively, to revenues, 69.9% and 30.1%, respectively, to EBIT and 69.0% and
31.0%, respectively, to net income; (ii) in estimated June fiscal year 1998,
Hyperion and Arbor would contribute 76.0% and 24.0%, respectively, to revenues,
71.4% and 28.6%, respectively, to EBIT and 71.3% and 28.7%, respectively, to net
income; and (iii) in estimated June fiscal year 1999, Hyperion and Arbor would
contribute 72.5% and 27.5%, respectively, to revenues, 69.0% and 31.0%,
respectively, to EBIT, and 69.5% and 30.5%, respectively, to net income. In
addition, Goldman Sachs analyzed the respective contribution of Hyperion and
Arbor to the balance sheet of the combined company, consisting of: cash and
short term investments, total debt, stockholders' equity and total assets.
Hyperion and Arbor would contribute (a) 40.5% and 59.5%, respectively, to the
cash and short term investments; (b) 7.4% and 92.6%, respectively, to the total
debt; (c) 71.1% and 28.9%, respectively, to the stockholders' equity; and (d)
57.8% and 42.2%, respectively, to total assets.
Pro Forma Merger Analysis. Goldman Sachs analyzed the accretive/dilutive
impact of the Merger on a pro forma basis, both excluding and including annual
after-tax synergies estimated by Hyperion management, with respect to estimated
fiscal year ending June 30, 1999 and 2000 earnings per share ("EPS"). The
analysis indicated that, after giving effect to the Merger, (i) projected EPS
for estimated fiscal year 1999 would be $1.70 per share assuming no after-tax
synergies and $1.81 per share assuming after-tax synergies, and (ii) projected
EPS for estimated fiscal year 2000 would be $2.21 per share assuming no
after-tax synergies, and $2.43, after giving effect to the Merger assuming
after-tax synergies. Using these numbers, Goldman Sachs analyzed the implied
incremental value per share that would be created if the combined company's
stock were valued at a range of fiscal 1999 P/E multiples. Using a range of
fiscal 1999 P/E multiples from 24.0x to 34.0x, the implied incremental value
created per Hyperion share ranged from $0.83 to $16.96, assuming no synergies,
and ranged from $3.36 to $20.54 assuming after-tax synergies.
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Present Value of Potential Future Share Price Analysis. Goldman Sachs
performed a present value of potential future share price analysis on Hyperion
as a standalone entity by calculating the net present value of a range of
potential share prices, based on estimates of the management of Hyperion. Future
share price was calculated by applying various P/E multiples to estimated fiscal
year 2000 EPS of $2.38. The future share price, determined by using a range of
P/E multiples of 17.0x to 27.0x, was then discounted back one year using a range
of discount rates from 15.0% to 35.0%. Such analysis indicated a range of
present value of potential future share price of $29.93 to $55.80.
Selected Transactions Analysis. Goldman Sachs reviewed certain information
relating to 94 selected transactions in the computer software industry ranging
from July of 1991 through March of 1998 (the "Selected Transactions"), including
15 pending transactions. Such analysis indicated that for the Selected
Transactions levered consideration as a multiple of (i) latest 12 months ("LTM")
sales ranged from 0.6x to 29.8x, with a mean of 6.6x and a median of 4.6x; (ii)
LTM EBIT ranged from 13.9x to 237.8x, with a mean of 53.9x and a median of
42.2x; (iii) LTM net income ranged from 9.5x to 193.5x, with a mean of 66.4x and
a median of 58.2x; and (iv) LTM projected net income ranged from 11.5x to
103.3x, with a mean of 38.9x and a median of 31.6x.
Certain Other Matters. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the summary set forth
above, without considering the analyses as a whole, could create an incomplete
view of the processes underlying Goldman Sachs' opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of all such
analyses. No company or transaction used in the above analyses as a comparison
is directly comparable to Hyperion or Arbor or the Merger. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
Hyperion Board as to the fairness from a financial point of view of the Exchange
Ratio pursuant to the Plan of Merger to the holders of Hyperion Common Stock and
do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties of their respective
advisors, none of Hyperion, Arbor, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Hyperion Board was one of
many factors taken into consideration by the Hyperion Board in making its
determination to approve the Plan of Merger. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Appendix C to this Joint Proxy Statement/Prospectus.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Hyperion selected
Goldman Sachs as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs is familiar with Hyperion,
having provided certain investment banking services to Hyperion from time to
time, including having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Plan of
Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services, and, in the course of its normal trading activities, may from time to
time effect transactions and hold positions in the securities or options on
securities of Arbor for its own account and for the account of customers.
Pursuant to a letter agreement, dated December 30, 1997 (the "Goldman Sachs
Engagement Letter"), Hyperion engaged Goldman Sachs to act as its financial
advisor in connection with a possible merger or other strategic transaction
between Hyperion and Arbor. Pursuant to the terms of Goldman Sachs Engagement
Letter, Hyperion has agreed to pay Goldman Sachs a transaction fee of $3,750,000
to be paid in cash upon consummation of the Merger. Hyperion has agreed to
reimburse Goldman Sachs for reasonable out-of-pocket
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expenses, including fees and disbursements for Goldman Sachs' counsel, plus any
sales, use or similar taxes (including additions to such taxes, if any) arising
in connection with such matters referred to in the Goldman Sachs Engagement
Letter. Hyperion has also agreed to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
Hyperion also engaged BT Alex. Brown Incorporated ("BT Alex. Brown") in
January 1998 to provide financial advisory services with respect to a possible
business combination with Arbor. Hyperion agreed to indemnify BT Alex. Brown for
certain liabilities relating to or arising out of services provided by BT Alex.
Brown as a financial advisor to Hyperion. BT Alex. Brown has provided financial
advisory and investment banking services to Hyperion since 1987. BT Alex. Brown
acted as the lead managing underwriter for Hyperion's initial public offering in
1991 and was compensated for such services in the form of customary underwriting
discounts and commissions. BT Alex. Brown also makes a market in the Hyperion
Common Stock. In the course of its market-making and other activities, BT Alex.
Brown may from time to time have a long or short position in, and sell
securities of, Hyperion.
CONVERSION OF HYPERION SHARES
Upon consummation of the Merger, pursuant to the Plan of Merger, each
issued and outstanding share of Hyperion Common Stock (other than shares owned
by Hyperion as treasury stock or by Arbor, Merger Sub or any other wholly-owned
subsidiary of Arbor, all of which will be cancelled) will be converted into the
right to receive 0.95 of a share of Arbor Common Stock. Based upon the number of
outstanding shares of Arbor Common Stock and Hyperion Common Stock as of
, 1998, the stockholders of Hyperion immediately prior to the consummation of
the Merger will own approximately % of the outstanding shares of Arbor Common
Stock immediately following consummation of the Merger. If any holder of shares
of Hyperion Common Stock would be entitled to receive a number of shares of
Arbor Common Stock that includes a fraction, then, in lieu of a fractional
share, such holder will be entitled to receive cash in an amount equal to such
fractional share of Arbor Common Stock multiplied by the average of the last
reported sales price of Arbor Common Stock, as reported on the Nasdaq National
Market, on each of the ten trading days immediately preceding the Closing Date.
Each share of Merger Sub Common Stock issued and outstanding immediately prior
to the Effective Time will be converted into one share of common stock of
Hyperion Solutions.
As soon as reasonably practicable after the Effective Time, Boston
EquiServe, L.P. (the "Exchange Agent") will mail transmittal forms and exchange
instructions to each holder of record of Hyperion Common Stock to be used to
surrender and exchange certificates formerly evidencing shares of Hyperion
Common Stock for certificates evidencing the shares of Arbor Common Stock to
which such holder has become entitled. After receipt of such transmittal forms,
each holder of certificates formerly representing Hyperion Common Stock will be
able to surrender such certificates to the Exchange Agent, and each such holder
will receive in exchange therefor certificates evidencing the number of whole
shares of Arbor Common Stock to which such holder is entitled and any cash which
may be payable in lieu of a fractional share of Arbor Common Stock.
After the Effective Time, each certificate formerly representing Hyperion
Common Stock, until so surrendered and exchanged, shall be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
the Arbor Common Stock that the holder of such certificate is entitled to
receive in the Merger and any cash payment in lieu of a fractional share of the
Arbor Common Stock. The holder of such unexchanged certificate will not be
entitled to receive any dividends or other distributions payable by the combined
company until the certificate has been exchanged. Subject to applicable laws,
following surrender of such certificates, such dividends and distributions,
together with any cash payment in lieu of a fractional share of the Arbor Common
Stock, will be paid without interest. HYPERION STOCKHOLDERS SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Time, holders of Arbor Common Stock may, if they
desire, exchange their certificates evidencing shares of Arbor Common Stock for
certificates in the name of Hyperion Solutions.
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REPRESENTATIONS AND WARRANTIES
The Plan of Merger contains various customary representations and
warranties relating to, among other things, (a) due organization, valid
existence and good standing of each of Arbor, Hyperion and each of their
respective subsidiaries and certain similar corporate matters; (b) the capital
structure of each of Arbor and Hyperion; (c) the authorization, execution,
delivery and enforceability of the Plan of Merger, the consummation of the
transactions contemplated by the Plan of Merger and related matters; (d)
conflicts under charters or by-laws, required consents or approvals and
violations of any instruments or law; (e) documents and financial statements
filed by each of Arbor and Hyperion with the SEC and the accuracy of information
contained therein; (f) undisclosed liabilities; (g) the absence of certain
material adverse events, changes or effects; (h) taxes and tax returns; (i)
properties; (j) intellectual property; (k) agreements, contracts and
commitments; (l) litigation; (m) environmental matters and hazardous materials;
(n) employee benefits and plans; (o) compliance with laws; (p) accounting and
tax matters relating to the Merger; (q) the accuracy of information supplied by
each of Arbor and Hyperion in connection with the Registration Statement and
this Joint Proxy Statement/Prospectus; (r) labor matters; (s) insurance; (t) the
absence of existing discussions with other parties; (u) opinions of financial
advisors; (v) inapplicability to the Merger of certain provisions of the DGCL;
(w) insider trading policies and practices; (x) the Hyperion Rights Plan (as
defined below); and (y) the interim operations of Merger Sub.
CERTAIN COVENANTS
Pursuant to the Plan of Merger, each of Arbor and Hyperion has agreed that,
during the period from the date of the Plan of Merger until the Effective Time,
except as otherwise consented to in writing by the other party or as
contemplated by the Plan of Merger, it and each of its respective subsidiaries
will: (a) carry on its business in the ordinary course in substantially the same
manner as previously conducted; (b) pay its debts and taxes when due subject to
good faith disputes over such debts or taxes, and pay or perform other
obligations when due; (c) use reasonable efforts to preserve intact its present
business organization, management team and business relationships; (d) not
accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan or authorize cash
payments in exchange for any options granted under any employee stock plan,
except as required pursuant to the plan or any related agreement; (e) not
declare or pay any dividends on or make other distributions in respect of any of
its capital stock, not effect certain other changes in its capitalization, and
not purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with the termination of service; (f) not issue or sell, or authorize or propose
the issuance or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or any subscriptions, rights,
warrants or options to acquire or other agreements obligating it to issue any
such shares or other convertible securities, subject to certain exceptions
(including the grant of options to new employees consistent with past practices,
the issuance of shares upon the exercise of outstanding stock options, and the
issuance of shares pursuant to Arbor's and Hyperion's respective employee stock
purchase plans); (g) not make any material acquisitions; (h) not sell, lease,
license or otherwise dispose of material properties or assets outside the
ordinary course of business; (i) not increase the compensation payable to its
officers or employees (except for increases to non-officer employees consistent
with past practices), grant additional severance or termination pay or enter
into employment or severance agreements, enter into any collective bargaining
agreement (other than as required by law) or establish, adopt, enter into or
amend any plan for the benefit of its directors, officers, or employees; (j) not
amend its Certificate of Incorporation or Bylaws, except as contemplated by the
Plan of Merger; (k) not incur indebtedness for money borrowed other than
pursuant to credit agreements in effect as of the date of the Plan of Merger;
(l) not initiate, compromise or settle any material litigation or arbitration
proceeding (other than as a result of breach of the Plan of Merger); (m) not
modify, amend or terminate any material contract or waive, release or assign any
material claim except in the ordinary course of business; (n) not change in any
material respect its accounting methods, principles or practices (except as may
be required by generally accepted accounting principles); and (o) confer on a
regular basis with the other party on the status of ongoing operations. In
addition, Arbor must notify Hyperion promptly following the execution by Arbor
or any of its subsidiaries of any agreement providing for the receipt or payment
of in excess of
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$1,000,000, and Hyperion must notify Arbor promptly following the execution by
Hyperion or any of its subsidiaries of any agreement providing for the receipt
or payment of in excess of $3,000,000.
Pursuant to the Plan of Merger, Arbor and Hyperion each agree to use best
efforts to (i) take all appropriate action to consummate the transactions
contemplated by the Plan of Merger as promptly as practical, (ii) obtain any
consents, licenses, permits, waivers, approvals, authorizations or orders from
Governmental Entities (as defined in the Plan of Merger) or other third parties
required in connection with the transactions contemplated by the Plan of Merger
and (iii) make all necessary filings and submissions with respect to the
transactions contemplated by the Plan of Merger under federal, state and foreign
securities laws, antitrust laws and other applicable laws. Arbor and Hyperion
also agree to use their best efforts to obtain any governmental clearances or
approvals under anti-trust law required for the closing of the Merger, including
contesting and resisting governmental action and having vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order that
would prohibit the Merger or any transactions contemplated by the Plan of
Merger. Notwithstanding the foregoing, neither Arbor nor Hyperion is required to
take any action that would reasonably be expected to have a material adverse
effect on Arbor or Hyperion or to impair substantially the overall benefits
expected, as of the date of the Plan of Merger, to be realized from the
consummation of the Merger.
NO SOLICITATION
The Plan of Merger provides that Arbor and Hyperion will not, directly or
indirectly, through any officer, director, employee, financial advisor,
representative or agent, (i) take any action to solicit, initiate or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its subsidiaries, other than the transactions contemplated by the Plan
of Merger (any of the foregoing inquiries or proposals being referred to as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Plan of Merger shall prevent
Arbor or Hyperion or their respective Boards of Directors, who determine in good
faith based upon and consistent with advice received in consultation with
outside legal counsel that fiduciary duties to stockholders under applicable law
so require, from (a) furnishing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
stockholders of such party, if and only to the extent that (1) the Board of
Directors of such party believes in its good faith reasonable judgment (based
upon and consistent with advice received in consultation with independent
financial and legal advisors) that such Acquisition Proposal is reasonably
capable of being completed on the terms proposed and, after taking into account
the strategic benefits anticipated to be derived from the Merger and the
long-term prospects of Hyperion and Arbor as a combined company, would, if
consummated, result in a transaction more favorable over the long term from a
financial point of view than the transaction contemplated by the Plan of Merger
(any such more favorable Acquisition Proposal being referred to as a "Superior
Proposal") and the Board of Directors of such party determines in good faith
after consultation with and based upon and consistent with advice received from
outside legal counsel that such action is necessary for such Board of Directors
to comply with its fiduciary duties to stockholders under applicable law and (2)
prior to furnishing such non-public information to, or entering into discussions
or negotiations with, such person or entity, such Board of Directors receives
from such person or entity an executed confidentiality agreement with terms no
less favorable to such party than those contained in the agreement dated January
14, 1998 between Arbor and Hyperion; or (b) complying with Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Arbor and Hyperion are each required to promptly notify the other party
(orally and in writing) upon receipt of any Acquisition Proposal or request for
non-public information or access to its properties, books or records in
connection with an Acquisition Proposal.
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RESALE OF ARBOR COMMON STOCK; AGREEMENTS WITH AFFILIATES
The shares of Arbor Common Stock to be issued in the Merger have been
registered under the Securities Act and will be freely transferable, subject to
certain limitations on resale described in this Joint Proxy
Statement/Prospectus. As a condition to the obligations of the parties under the
Plan of Merger, Arbor and Hyperion have each received agreements from each
person or entity who may be deemed an affiliate (as defined in the Securities
Act and the rules and regulations thereunder) of Arbor or Hyperion, as
appropriate pursuant to which such persons have agreed not to sell, transfer or
otherwise dispose of shares of Hyperion Common Stock or Arbor Common Stock until
such time after the Effective Time as Arbor has publicly released a report
including the combined financial results of Arbor and Hyperion for a period of
at least 30 days of combined operations of Arbor and Hyperion. Furthermore,
pursuant to such agreements, the affiliates of Hyperion have agreed to refrain
from the sale or transfer of any Arbor Common Stock received in connection with
the Merger, except in accordance with the provisions of the Securities Act and
the general rules and regulations thereunder. Such agreements also limit the
ability of the affiliates of Arbor to sell, transfer or otherwise dispose of
shares of Arbor Common Stock during a period preceding and following the Merger.
MANAGEMENT OF HYPERION SOLUTIONS FOLLOWING THE MERGER; INTERESTS OF CERTAIN
PERSONS IN THE MERGER
The Plan of Merger provides that, upon the closing of the Merger, James A.
Perakis, who is currently Chairman, President and Chief Executive Officer of
Hyperion, will become Chairman of Hyperion Solutions; John M. Dillon, who is
currently Chief Executive Officer, President and Chairman of the Board of Arbor,
will become Chief Executive Officer and President of Hyperion Solutions; and
Stephen V. Imbler, who is currently Senior Vice President and Chief Financial
Officer of Arbor, will become Chief Financial Officer of Hyperion Solutions.
Following the Effective Time, the Plan of Merger provides that the Board of
Directors of Hyperion Solutions will be a classified Board, initially consisting
of two Class I Directors, whose terms will expire at the 1999 Annual Meeting of
Stockholders of Hyperion Solutions, three Class II Directors, whose terms will
expire at the 2000 Annual Meeting of Stockholders of Hyperion Solutions, and two
Class III Directors, whose terms will expire at the 2001 Annual Meeting of
Stockholders of Hyperion Solutions. The initial Board of Directors of Hyperion
Solutions will consist of the following seven persons: John M. Dillon, Mark W.
Perry and Jeffrey R. Rodek (all of whom are currently directors of Arbor), and
James A. Perakis, Gary G. Greenfield, Harry S. Gruner and Aldo Papone (all of
whom are currently directors of Hyperion). The Class I Directors will be Messrs.
Greenfield and Perry, the Class II Directors will be Messrs. Gruner, Papone and
Rodek, and the Class III Directors will be Messrs. Dillon and Perakis.
In considering the recommendation of the Arbor Board and Hyperion Board
with respect to the Merger and Plan of Merger, Arbor and Hyperion stockholders
should be aware that certain members of Arbor's and Hyperion's management and
Boards of Directors have interests in connection with the Merger and the
agreements and transactions contemplated thereby that are in addition to those
of Arbor and Hyperion stockholders generally. For example, after the Merger,
each outstanding option and unvested stock issuance held by Arbor employees,
including Arbor officers, will be subject to full and immediate vesting if the
holder's employment by Hyperion Solutions is actually or constructively
terminated without cause within 18 months after the Closing Date. The Employment
Agreement, dated as of November 1, 1997, by and between Hyperion and James A.
Perakis, currently the President and Chief Executive Officer of Hyperion,
contains provisions that accelerate the vesting of options held by Mr. Perakis
upon the termination of Mr. Perakis' employment without cause (as defined in
such agreement) or without proper notice by Hyperion and/or any of its
successors or upon certain relocation events. In addition, Arbor has entered
into agreements with John M. Dillon, currently the Chief Executive Officer,
President and Chairman of the Board of Arbor, Stephen V. Imbler, currently the
Senior Vice President and Chief Financial Officer of Arbor, and Kirk A.
Cruikshank, the Senior Vice President of Marketing of Arbor, pursuant to which
Arbor has agreed to accelerate the vesting of up to 25% of the unvested stock
options then held by each such officer following the occurrence of certain
changes in control, including the transactions contemplated by the Plan of
Merger. In addition, should such affected officer's employment be involuntarily
or constructively terminated with the 24 month period following
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such a change in control, then all of such officer's option shares will become
fully vested. See "-- Director and Officer Indemnification."
NEW COMPANY NAME; RELATED MATTERS AFTER THE MERGER
At the Effective Time, (i) Merger Sub will be merged with and into Hyperion
and Hyperion will be the surviving corporation, (ii) the name of Arbor will be
changed to "Hyperion Solutions Corporation," and (iii) Hyperion will become a
wholly-owned subsidiary of Hyperion Solutions. The Certificate of Incorporation
of Hyperion, as in effect immediately prior to the Effective Time and as the
capitalization provisions are amended in accordance with the provisions of the
Plan of Merger, shall become the Certificate of Incorporation of Hyperion at the
Effective Time. The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall become the Bylaws of Hyperion at the Effective Time.
After the Effective Time, all shares of Hyperion Common Stock will cease to
be listed on the Nasdaq National Market, and Hyperion will terminate the
registration of Hyperion Common Stock under the Exchange Act.
STOCK OPTIONS
At the Effective Time, each outstanding option to purchase shares of
Hyperion Common Stock (a "Hyperion Stock Option") shall be deemed to constitute
an option to acquire, on the same terms and conditions as were applicable under
such Hyperion Stock Option, the number of shares of Arbor Common Stock (rounded
down to the nearest whole number) as the holder of such Hyperion Stock Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time. The
exercise price per share of each such option, as so converted, will be equal to
(x) the aggregate exercise price for the shares of Hyperion Common Stock
otherwise purchasable pursuant to such Hyperion Stock Option immediately prior
to the Effective Time divided by (y) the number of whole shares of Arbor Common
Stock deemed purchasable pursuant to such Hyperion Stock Option as determined
above (rounded up to the nearest whole cent). As of June 15, 1998, options to
acquire 2,831,709 shares of Hyperion Common Stock were outstanding.
At the Effective Time, the combined company will assume (i) the Hyperion
Stock Options and (ii) Hyperion's stock option and employee stock purchase plans
as in effect as of the date of the Plan of Merger and all obligations under such
plans. Under the Plan of Merger, Arbor agreed to reserve for issuance a
sufficient number of shares of Arbor Common Stock for delivery under such
Hyperion stock plans assumed as described above. As soon as practicable and in
no event more than five business days after the Effective Time, Arbor shall file
a registration statement on Form S-8 with respect to the shares of Arbor Common
Stock subject to such options and shall use its best efforts to maintain the
effectiveness of such registration statement for so long as such options remain
outstanding.
STOCKHOLDER RIGHTS PLANS
Hyperion entered into a Rights Agreement dated as of November 17, 1995 and
Amendment No. 1 to the Rights Agreement, dated as of May 25, 1998, with American
Stock Transfer & Trust Co. (the "Hyperion Rights Plan"). The Hyperion Rights
Plan provides that the transactions contemplated by the Plan of Merger and Arbor
Stock Option Agreement are exempt from the provisions of the Hyperion Rights
Plan.
On June 15, 1998, Arbor entered into the Rights Agreement, dated as of June
15, 1998 with BankBoston, N.A. Arbor will not redeem the rights issued under
such rights agreement or amend or terminate such rights agreement prior to the
Effective Time unless required to do so by order of a court of competent
jurisdiction or in connection with the exercise by directors of Arbor of their
fiduciary duties. See "Description of Arbor Capital Stock -- Stockholder Rights
Plan."
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DIRECTOR AND OFFICER INDEMNIFICATION
The Plan of Merger provides that, from and after the Effective Time, Arbor
and Hyperion shall indemnify and hold harmless each present and former director
and officer of Hyperion against all costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any matter existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, or at
or after the Effective Time, to the fullest extent that Hyperion would have been
permitted under Delaware law and its Certificate of Incorporation or Bylaws in
effect on the date of the Plan of Merger to indemnify such person. Arbor and
Hyperion shall also be obligated to advance expenses as incurred to the fullest
extent permitted under applicable law, provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification.
For a period of three years after the Effective Time, Hyperion Solutions
shall cause Hyperion to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are covered as of the date of the Plan of Merger by Hyperion's
directors' and officers' liability insurance policy, with coverage in an amount
and scope at least as favorable as Hyperion's existing coverage; provided that
neither Arbor nor Hyperion shall be required to expend in excess of 150% of the
annual premium paid by Hyperion as of the date of the Plan of Merger for such
coverage. Arbor currently has entered into an indemnification agreement with
each of its executive officers and directors, and it is anticipated that
Hyperion Solutions will enter into similar agreements with its directors and
executive officers following consummation of the Merger.
CONDITIONS
The respective obligations of Arbor and Hyperion to effect the Merger are
subject to the satisfaction (or waiver) of the following conditions: (a) the
Arbor Merger Proposal shall have been approved by the stockholders of Arbor and
the Plan of Merger and the Merger shall have been approved and adopted by the
stockholders of Hyperion; (b) the waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated; (c) all
material governmental authorizations, consents, orders or approvals shall have
been obtained; (d) the Registration Statement shall have become effective and
shall not be the subject of a stop order or proceedings seeking a stop order;
(e) no order, stay, decree, injunction or judgment, or statute, rule or
regulation, shall be in effect that makes the Merger illegal, otherwise
prohibits the consummation of the Merger, or otherwise limits or restricts
Arbor's conduct or operation of the business of Hyperion and its subsidiaries
following the Merger in a manner that would reasonably be expected to have a
material adverse effect on the combination of Arbor and Hyperion after the
Effective Time; (f) Arbor shall have received a letter from Price Waterhouse
concurring with Arbor management's conclusion that the Merger will qualify for
pooling of interests accounting treatment if consummated in accordance with the
Plan of Merger, and Hyperion shall have received a letter from Ernst & Young
concurring with Hyperion management's conclusion that, as of the date of such
letter, no conditions exist related to Hyperion that would preclude accounting
for the Merger, if closed and consummated in accordance with the Plan of Merger,
as a pooling of interests under Accounting Principles Board Opinion No. 16 (see
"The Merger and Related Transactions -- Accounting Treatment"); and (g) the
shares of Arbor Common Stock to be issued in the Merger shall have been approved
for quotation on the Nasdaq National Market.
In addition, the obligations of Arbor and Merger Sub to effect the Merger
are subject to the satisfaction of the following conditions: (i) the
representations and warranties of Hyperion in the Plan of Merger shall be true
and correct as of the date of the Plan of Merger and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by the Plan of Merger and breaches which, individually or in the
aggregate, have not had and are not reasonably likely to have a material adverse
effect upon either Hyperion or the consummation of the transactions contemplated
by the Plan of Merger; (ii) Hyperion shall have performed in all material
respects all obligations required to be performed by it under the Plan of Merger
at or prior to the Closing Date and Arbor, and Arbor shall have received a
certificate signed on behalf of Hyperion by
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Hyperion's chief executive officer and chief financial officer to such effect
(conditions (i) and (ii) being the "Hyperion Representation Bringdown
Conditions"); (iii) each affiliate within the meaning of Section 145 of the
Securities Act (an "Affiliate") of Hyperion shall have entered into an Affiliate
Agreement with Hyperion and Arbor pursuant to the Plan of Merger; and (iv) Arbor
shall have received a written legal opinion to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Code (see "-- Certain Federal Income Tax
Considerations").
In addition, the obligations of Hyperion to effect the Merger are subject
to the satisfaction of the following conditions: (i) the representations and
warranties of Arbor in the Plan of Merger shall be true and correct as of the
date of the Plan of Merger and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for changes contemplated by the Plan of
Merger and breaches which, individually or in the aggregate, have not had and
are not reasonably likely to have a material adverse effect upon either Arbor or
the consummation of the transactions contemplated by the Plan of Merger; (ii)
Arbor shall have performed in all material respects all obligations required to
be performed by it under the Plan of Merger at or prior to the Closing Date, and
Hyperion shall have received a certificate signed on behalf of Arbor by Arbor's
chief executive officer and chief financial officer to such effect (conditions
(i) and (ii) being the "Arbor Representation Bringdown Conditions"); (iii) each
Affiliate of Arbor shall have entered into an Affiliate Agreement with Hyperion
and Arbor pursuant to the Plan of Merger; and (iv) Hyperion shall have received
a written legal opinion to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code (see "-- Certain Federal Income Tax Considerations").
TERMINATION; TERMINATION FEES AND EXPENSES
The Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Arbor and Hyperion:
(a) by mutual written consent of Arbor and Hyperion; or
(b) by either Arbor or Hyperion if the Merger shall not have been
consummated by October 30, 1998 (provided that the right to terminate the
Plan of Merger under this clause shall not be available to any party whose
failure to fulfill any obligation under the Plan of Merger has been the
cause of or resulted in the failure of the Merger to occur on or before
such date); or
(c) by either Arbor or Hyperion if a court of competent jurisdiction
or other Governmental Entity (as defined in the Plan of Merger) shall have
issued a nonappealable final order, decree or ruling or taken any other
nonappealable final action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by Arbor if, at the Hyperion Special Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Hyperion in favor of the Plan of Merger and the Merger shall not have been
obtained; or by Hyperion if, at the Arbor Annual Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Arbor in favor of the Arbor Merger Proposal shall not have been obtained;
or
(e) by Arbor, if (i) the Board of Directors of Hyperion shall have
withdrawn or modified its recommendation of the Plan of Merger or the
Merger; (ii) the Board of Directors of Hyperion shall have recommended to
the stockholders of Hyperion an Alternative Transaction (as defined in the
Plan of Merger); (iii) a tender offer or exchange offer for 15% or more of
the outstanding shares of Hyperion Common Stock is commenced (other than by
Arbor or an Affiliate of Arbor) and the Board of Directors of Hyperion
recommends that the stockholders of Hyperion tender their shares in such
tender or exchange offer; or (iv) for any reason Hyperion fails to call and
hold the Hyperion Special Meeting by October 30, 1998 (the "Outside Date")
(provided that Arbor's right to terminate the Plan of Merger under such
clause (iv) shall not be available if at such time Hyperion would be
entitled to terminate the Plan of Merger by reason of a breach by Arbor);
or
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(f) by Hyperion, if (i) the Board of Directors of Arbor shall have
withdrawn or modified its recommendation of the Plan of Merger or the
Merger; (ii) the Board of Directors of Arbor shall have recommended to the
stockholders of Arbor an Alternative Transaction (as defined in the Plan of
Merger); (iii) a tender offer or exchange offer for 15% or more of the
outstanding shares of Arbor Common Stock is commenced (other than by
Hyperion or an Affiliate of Hyperion) and the Board of Directors of Arbor
recommends that the stockholders of Arbor tender their shares in such
tender or exchange offer; or (iv) for any reason Arbor fails to call and
hold the Arbor Annual Meeting by the Outside Date (provided that Hyperion's
right to terminate the Plan of Merger under such clause (iv) shall not be
available if at such time Arbor would be entitled to terminate the Plan of
Merger by reason of a breach by Hyperion); or
(g) by Arbor or Hyperion, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Plan of Merger, which breach (i) causes the Hyperion
Representation Bringdown Conditions (in the case of a termination by Arbor)
or the Arbor Representation Bringdown Conditions (in the case of a
termination by Hyperion) not to be satisfied and (ii) shall not have been
cured within 20 business days following receipt by the breaching party of
written notice of such breach from the other party (such a breach shall be
referred to herein as a "Section 8.01(a) Breach").
In the event of any termination of the Plan of Merger by either Arbor or
Hyperion as provided above, the Plan of Merger will become void and there will
be no liability or obligation (with limited exceptions) on the part of Arbor,
Hyperion, Merger Sub or their respective officers, directors, stockholders or
Affiliates, except as provided below with respect to expense reimbursements and
termination fees.
Except as set forth below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Plan of Merger and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, provided, however, that Arbor and Hyperion shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to printing
and filing of this Joint Proxy Statement/ Prospectus (including any related
preliminary materials) and the related Registration Statement (including
financial statements and exhibits) and any amendments or supplements.
Hyperion shall pay Arbor up to $2,500,000 as reimbursement for expenses of
Arbor actually incurred relating to the transactions contemplated by the Plan of
Merger prior to termination (including fees and expenses of Arbor' counsel,
accountants and financial advisors, but excluding any discretionary fees paid to
such financial advisors), upon the termination of the Plan of Merger by Arbor
under the circumstances described in paragraph (d) above (other than in the
circumstances set forth in clause (iii) of the following paragraph).
Hyperion shall pay Arbor a termination fee of $20,000,000 (the "Arbor
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Plan of Merger by Arbor under the circumstances described in
paragraph (e) above; (ii) the termination of the Plan of Merger by Arbor under
the circumstances described in paragraph (g) above after a breach by Hyperion of
a covenant or agreement in the Plan of Merger; or (iii) the termination of the
Plan of Merger by Arbor under the circumstances described in paragraph (d)
above, if a proposal for an Alternative Transaction (as defined in the Plan of
Merger) involving Hyperion shall have been made and not withdrawn or abandoned
prior to the Arbor Annual Meeting.
Arbor shall pay Hyperion up to $2,500,000 as reimbursement for expenses of
Hyperion actually incurred relating to the transactions contemplated by the Plan
of Merger prior to termination (including fees and expenses of Hyperion's
counsel, accountants and financial advisors, but excluding any discretionary
fees paid to such financial advisors), upon the termination of the Plan of
Merger by Hyperion under the circumstances described in paragraph (d) above
(other than in the circumstances set forth in clause (iii) of the following
paragraph).
Arbor shall pay Hyperion a termination fee of $20,000,000 (the "Hyperion
Termination Fee") upon the earliest to occur of the following events: (i) the
termination of the Plan of Merger by Hyperion under the
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circumstances described in paragraph (f) above; (ii) the termination of the Plan
of Merger by Hyperion under the circumstances described in paragraph (g) above
after a breach by Arbor of a covenant or agreement in the Plan of Merger; or
(iii) the termination of the Plan of Merger by Hyperion under the circumstances
described in paragraph (d) above, if a proposal for an Alternative Transaction
involving Arbor shall have been made and not withdrawn or abandoned prior to the
Arbor Annual Meeting.
If applicable, any expenses and fees payable as described above shall be
paid within one business day after the first to occur of the relevant
termination events.
CLOSING
The Merger will be completed on the date that the Certificate of Merger is
filed with the Office of the Secretary of State of the State of Delaware. The
Effective Time is expected to occur as soon as practicable after the receipt of
the necessary approvals at the Arbor Annual Meeting and the Hyperion Special
Meeting and satisfaction or waiver of the other conditions precedent to the
Merger, as set forth in the Plan of Merger (the "Closing"). It is anticipated
that the Closing will occur no later than two business days of the obtaining of
the necessary approvals at the Arbor Annual Meeting and the Hyperion Special
Meeting.
AMENDMENT AND WAIVER
The Plan of Merger may be amended at any time by action taken or authorized
by the respective Boards of Directors of Arbor and Hyperion, but after approval
by the stockholders of Arbor or Hyperion of the Merger, no amendment shall be
made which by law requires further approval by such stockholders, without such
further approval. Arbor and Hyperion, by action taken or authorized by their
respective Boards of Directors, may extend the time for performance of the
obligations or other acts of the other parties to the Plan of Merger, may waive
inaccuracies in the representations or warranties contained in the Plan of
Merger and may waive compliance with any agreements or conditions contained in
the Plan of Merger.
STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Arbor and Hyperion
Stock Option Agreements, copies of which are filed as exhibits to Arbor's
Current Report on Form 8-K dated May 29, 1998, which is incorporated herein by
reference. Such summaries are qualified in their entirety by reference to the
Stock Option Agreements.
Arbor Option
Pursuant to the Arbor Stock Option Agreement, Arbor has the right (the
"Arbor Option"), under the circumstances described below, to acquire up to
3,789,000 shares of authorized but unissued Hyperion Common Stock (the "Arbor
Option Shares") (or approximately 19.9% of the outstanding Hyperion Common Stock
as of the date of execution of the Arbor Stock Option Agreement prior to giving
effect to the exercise of such option), including the associated rights under
the Hyperion Rights Plan, at a price equal to the lowest of (i) $38.125 per
share, (ii) the average closing price of the Hyperion Common Stock on the Nasdaq
National Market for the five consecutive trading days beginning on and including
the day that the Merger is publicly announced, or (iii) the average closing
price of the Hyperion Common Stock on the Nasdaq National Market for the five
consecutive trading days immediately preceding the public announcement of an
Alternative Transaction involving Hyperion which gives rise to the right to
exercise the option (the "Arbor Option Price"). The Arbor Stock Option Agreement
could have the effect of making an acquisition of Hyperion by a third party more
costly because of the need to acquire in any such transaction the Arbor Option
Shares issued under the Arbor Stock Option Agreement, and could also jeopardize
the ability of a third party to acquire Hyperion in a transaction accounted for
as a pooling of interests.
The Arbor Option may be exercised by Arbor, in whole or in part, at any
time or from time to time after the occurrence of an event (other than a Section
8.01(g) Breach) which would entitle Arbor, upon termination of the Plan of
Merger, to payment of the Arbor Termination Fee (as described in "--
Termination; Termination Fees and Expenses" above). Arbor may exercise the Arbor
Option by either
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(a) paying the Arbor Option Price in cash and receiving the Arbor Option Shares
or (b) electing, in lieu of the payment of the Arbor Option Price and the
receipt of the Arbor Option Shares, to receive a cash payment (the "Cash
Exercise Payment") from Hyperion in the amount of the excess of (i) the higher
of the price paid for the Hyperion Common Stock in an Alternative Transaction or
the then current market price of the Hyperion Common Stock over (ii) the Arbor
Option Price.
Upon exercise by Arbor of the Arbor Option for at least 1,900,000 shares of
Hyperion Common Stock (which represented approximately 10% of the outstanding
Hyperion Common Stock as of the date of execution of the Arbor Stock Option
Agreement), Arbor shall be entitled to designate one person to be appointed to
the Board of Directors of Hyperion, and Hyperion shall (subject to certain
limitations) cause such designee to be appointed to its Board of Directors.
In the event Arbor exercises the Arbor Option in whole or in part, Hyperion
shall have a right of first refusal with respect to certain sales by Arbor of
the Arbor Option Shares prior to the earlier of the first anniversary of the
termination of the Plan of Merger or the occurrence of a change in control event
(as defined in the Arbor Stock Option Agreement) with respect to Hyperion. At
any time prior to the first anniversary of the termination of the Plan of
Merger, Arbor shall have the right to sell to Hyperion all (but not less than
all) of the Arbor Option Shares at a price equal to the greater of (i) the Arbor
Option Price or (ii) the average of the closing prices for Hyperion Common Stock
on the five trading days ending five days prior to the date Arbor gives notice
of its exercise of such right. In addition, if a change in control event with
respect to Hyperion has not occurred prior to the first anniversary of the
termination of the Plan of Merger, Hyperion shall have the right, during the
30-day period beginning on such anniversary, to purchase all (but not less than
all) of the Arbor Option Shares at a purchase price equal to the greater of (i)
the Arbor Option Price or (ii) the average of the closing prices for Hyperion
Common Stock on the five trading days ending five days prior to the date
Hyperion gives notice of its exercise of such right.
The Arbor Stock Option Agreement further provides that if Arbor desires to
sell any of the Arbor Option Shares within two years after the purchase of such
shares and such sale requires the registration of such shares under the
Securities Act, Hyperion shall be required to prepare and file (subject to
certain limitations) a registration statement under the Securities Act for the
purpose of permitting such sale of shares by Arbor. Hyperion shall not be
required to have declared effective more than two such registration statements.
Notwithstanding any other provisions of the Arbor Stock Option Agreement,
(i) in no event shall the Arbor Total Profit (as defined below) exceed
$30,000,000 and (ii) the Arbor Option may not be exercised for a number of Arbor
Option Shares that would result in an Arbor Notional Total Profit (as defined
below) of more than $30,000,000. "Arbor Total Profit" means the aggregate amount
(before taxes) of (i) the Arbor Termination Fee received by Arbor, (ii) the Cash
Exercise Payment received by Arbor, (iii) the amount received by Arbor for the
repurchase of the Arbor Option Shares by Hyperion pursuant to the second
preceding paragraph, less the purchase price paid by Arbor for such shares and
(iv) the net cash amounts received by Arbor pursuant to the sale of Arbor Option
Shares to an unaffiliated party, less the purchase price paid by Arbor for such
shares. "Arbor Notional Total Profit" means, with respect to such number of
Arbor Option Shares as to which Arbor proposes to exercise the Arbor Option, the
Arbor Total Profit determined as of the date on which Arbor gives its option
exercise notice, assuming that the Arbor Option were exercised on such date for
the designated number of Arbor Option Shares and assuming that such shares,
together with all other Arbor Option Shares held by Arbor and its affiliates as
of such date, were sold for cash at the closing market price for the Hyperion
Common Stock as of the close of business on the preceding trading day (less
customary brokerage commissions).
The Arbor Option shall terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Arbor realizes an Arbor Total Profit of $30,000,000
and (iii) 90 days after the termination of the Plan of Merger; provided that (a)
if the Arbor Option cannot be exercised because of a preliminary or permanent
injunction or other court order or because the applicable waiting period under
the HSR Act shall not have expired or been terminated, the date referred to in
clause (iii) above shall be extended until 30 days after such impediment to
exercise has been removed and (b) if Arbor seeks to exercise the Arbor Option
but is unable to do so with respect to all of the Arbor Option Shares subject to
the Arbor Option because of the limitation on
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Arbor Notional Total Profit described above, the date referred to in clause
(iii) above shall be extended for an additional 180 days (but in no event more
than 270 days after the termination of the Plan of Merger).
Hyperion Option
Pursuant to the Hyperion Stock Option Agreement, Hyperion has the right
(the "Hyperion Option"), under the circumstances described below, to acquire up
to 2,274,000 shares of authorized but unissued Arbor Common Stock (the "Hyperion
Option Shares") (or approximately 19.9% of the outstanding Arbor Common Stock as
of the date of execution of the Hyperion Stock Option Agreement prior to giving
effect to the exercise of such option), at a price equal to the lowest of (i)
$42.125 per share, (ii) the average closing price of the Arbor Common Stock on
the Nasdaq National Market for the five consecutive trading days beginning on
and including the day that the Merger is publicly announced, or (iii) the
average closing price of the Arbor Common Stock on the Nasdaq National Market
for the five consecutive trading days immediately preceding the public
announcement of an Alternative Transaction involving Arbor which gives rise to
the right to exercise the option (the "Hyperion Option Price"). The Hyperion
Stock Option Agreement could have the effect of making an acquisition of Arbor
by a third party more costly because of the need to acquire in any such
transaction the Hyperion Option Shares issued under the Hyperion Stock Option
Agreement, and could also jeopardize the ability of a third party to acquire
Arbor in a transaction accounted for as a pooling of interests.
The Hyperion Option may be exercised by Hyperion, in whole or in part, at
any time or from time to time after the occurrence of an event (other than a
Section 8.01(g) Breach) which would entitle Hyperion, upon termination of the
Plan of Merger, to payment of the Hyperion Termination Fee (as described in
"-- Termination; Termination Fees and Expenses" above). Hyperion may exercise
the Hyperion Option by either (a) paying the Hyperion Option Price in cash and
receiving the Hyperion Option Shares or (b) electing, in lieu of the payment of
the Hyperion Option Price and the receipt of the Hyperion Option Shares, to
receive a Cash Exercise Payment from Arbor in the amount of the excess of (i)
the higher of the price paid for the Arbor Common Stock in an Alternative
Transaction or the then current market price of the Arbor Common Stock over (ii)
the Hyperion Option Price.
Upon exercise by Hyperion of the Hyperion Option for at least 1,143,000
shares of Arbor Common Stock (which represented approximately 10% of the
outstanding Arbor Common Stock as of the date of execution of the Hyperion Stock
Option Agreement), Hyperion shall be entitled to designate one person to be
appointed to the Board of Directors of Arbor, and Arbor shall (subject to
certain limitations) cause such designee to be appointed to its Board of
Directors.
In the event Hyperion exercises the Hyperion Option in whole or in part,
Arbor shall have a right of first refusal with respect to certain sales by
Hyperion of the Hyperion Option Shares prior to the earlier of the first
anniversary of the termination of the Plan of Merger or the occurrence of a
change in control event (as defined in the Hyperion Stock Option Agreement) with
respect to Arbor. At any time prior to the first anniversary of the termination
of the Plan of Merger, Hyperion shall have the right to sell to Arbor all (but
not less than all) of the Hyperion Option Shares at a price equal to the greater
of (i) the Hyperion Option Price or (ii) the average of the closing prices for
Arbor Common Stock on the five trading days ending five days prior to the date
Hyperion gives notice of its exercise of such right. In addition, if a change in
control event with respect to Arbor has not occurred prior to the first
anniversary of the termination of the Plan of Merger, Arbor shall have the
right, during the 30-day period beginning on such anniversary, to purchase all
(but not less than all) of the Hyperion Option Shares at a purchase price equal
to the greater of (i) the Hyperion Option Price or (ii) the average of the
closing prices for Arbor Common Stock on the five trading days ending five days
prior to the date Arbor gives notice of its exercise of such right.
The Hyperion Stock Option Agreement further provides that if Hyperion
desires to sell any of the Hyperion Option Shares within two years after the
purchase of such shares and such sale requires the registration of such shares
under the Securities Act, Arbor shall be required to prepare and file (subject
to certain limitations) a registration statement under the Securities Act for
the purpose of permitting such sale of
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shares by Hyperion. Arbor shall not be required to have declared effective more
than two such registration statements.
Notwithstanding any other provisions of the Hyperion Stock Option
Agreement, (i) in no event shall the Hyperion Total Profit (as defined below)
exceed $30,000,000 and (ii) the Hyperion Option may not be exercised for a
number of Hyperion Option Shares that would result in a Hyperion Notional Total
Profit (as defined below) of more than $30,000,000. "Hyperion Total Profit"
means the aggregate amount (before taxes) of (i) the Hyperion Termination Fee
received by Hyperion, (ii) the Cash Exercise Payment received by Hyperion, (iii)
the amount received by Hyperion for the repurchase of the Hyperion Option Shares
by Arbor pursuant to the second preceding paragraph, less the purchase price
paid by Hyperion for such shares and (iv) the net cash amounts received by
Hyperion pursuant to the sale of Hyperion Option Shares to an unaffiliated
party, less the purchase price paid by Hyperion for such shares. "Hyperion
Notional Total Profit" means, with respect to such number of Hyperion Option
Shares as to which Hyperion proposes to exercise the Hyperion Option, the
Hyperion Total Profit determined as of the date on which Hyperion gives its
option exercise notice, assuming that the Hyperion Option were exercised on such
date for the designated number of Hyperion Option Shares and assuming that such
shares, together with all other Hyperion Option Shares held by Hyperion and its
affiliates as of such date, were sold for cash at the closing market price for
the Arbor Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
The Hyperion Option shall terminate upon the earlier of (i) the Effective
Time, (ii) the date on which Hyperion realizes a Hyperion Total Profit of
$30,000,000 and (iii) 90 days after the termination of the Plan of Merger;
provided that (a) if the Hyperion Option cannot be exercised because of a
preliminary or permanent injunction or other court order or because the
applicable waiting period under the HSR Act shall not have expired or been
terminated, the date referred to in clause (iii) above shall be extended until
30 days after such impediment to exercise has been removed and (b) if Hyperion
seeks to exercise the Hyperion Option but is unable to do so with respect to all
of the Hyperion Option Shares subject to the Hyperion Option because of the
limitation on Hyperion Notional Total Profit described above, the date referred
to in clause (iii) above shall be extended for an additional 180 days (but in no
event more than 270 days after the termination of the Plan of Merger).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are applicable to holders of Hyperion
Common Stock. This discussion is based on currently existing provisions of the
Code, existing Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
Arbor, Hyperion or Hyperion's stockholders as described herein.
Hyperion stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
Hyperion stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are insurance companies or financial
institutions, who are foreign persons or entities, who do not hold their
Hyperion Common Stock as capital assets, who acquired their shares in connection
with stock option or stock purchase plans or in other compensatory transactions,
who hold Hyperion Common Stock as part of an integrated investment (including a
"straddle") comprised of shares of Hyperion Common Stock and one or more other
positions, or who have previously entered into a transaction deemed to result in
a constructive sale of Hyperion Common Stock under the Code. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the Merger (whether or
not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which shares of Hyperion Common
Stock are acquired or shares of Arbor Common Stock are disposed of, or the tax
consequences of the assumption by Arbor of outstanding options and subscriptions
to acquire Hyperion Common Stock. ACCORDINGLY, HYPERION STOCKHOLDERS ARE URGED
TO
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CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
Arbor and Hyperion have received opinions (the "Exhibit Tax Opinions") from
Gunderson Dettmer and Hale and Dorr, respectively, that the Merger will be
treated as a "reorganization" within the meaning of Section 368(a) of the Code
(a "Reorganization"). The Exhibit Tax Opinions are subject to certain
assumptions, limitations and qualifications, are based upon certain factual
representations of Arbor, Merger Sub and Hyperion and have been filed as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. In addition, the consummation of the Merger is
conditioned upon Gunderson Dettmer and Hale and Dorr delivering opinions (the
"Final Tax Opinions") at the Closing to Arbor and Hyperion, respectively,
similar to the Exhibit Tax Opinions but based upon facts and factual
representations of Arbor, Merger Sub and Hyperion as of the Closing Date.
Assuming the Merger is a Reorganization, then, subject to the assumptions,
limitations and qualifications referred to herein and in the Exhibit Tax
Opinions, the Merger should result in the following federal income tax
consequences:
(a) No gain or loss will be recognized by holders of Hyperion Common
Stock solely upon their receipt in the Merger of Arbor Common Stock in
exchange therefor (except to the extent of cash received in lieu of a
fractional share of Arbor Common Stock).
(b) The aggregate tax basis of the Arbor Common Stock received by
Hyperion stockholders in the Merger (including any fractional share of
Arbor Common Stock not actually received) will be the same as the aggregate
tax basis of the Hyperion Common Stock surrendered in exchange therefor.
(c) The holding period of the Arbor Common Stock received by each
Hyperion stockholder in the Merger will include the period for which the
Hyperion Common Stock surrendered in exchange therefor was considered to be
held, provided that the Hyperion Common Stock so surrendered is held as a
capital asset at the time of the Merger.
(d) Cash payments received by holders of Hyperion Common Stock in lieu
of a fractional share will be treated as if such fractional share of Arbor
Common Stock had been issued in the Merger and then redeemed by the
combined company. A Hyperion stockholder receiving such cash will recognize
gain or loss, upon such payment, measured by the difference (if any)
between the amount of cash received and the basis in such fractional share.
(e) Each of Arbor, Merger Sub and Hyperion will be a party to the
Reorganization, and as such will not recognize gain or loss directly as a
result of the Merger.
Although Arbor and Hyperion have received the Exhibit Tax Opinions and will
receive the Final Tax Opinions from their respective counsel that the Merger
will be treated as a Reorganization, a recipient of shares of Arbor Common Stock
could recognize gain to the extent that such shares were considered to be
received in exchange for services or property (other than solely Hyperion Common
Stock). All or a portion of such gain may be taxable as ordinary income. Gain
could also have to be recognized to the extent that a Hyperion stockholder was
treated as receiving (directly or indirectly) consideration other than Arbor
Common Stock in exchange for such stockholder's Hyperion Common Stock.
The parties will not request a ruling from the Internal Revenue Service
(the "IRS") in connection with the Merger. Hyperion stockholders should be aware
that neither the Exhibit Tax Opinions nor the Final Tax Opinions bind the IRS
and the IRS is therefore not precluded from successfully asserting a contrary
opinion. In addition, the Exhibit Tax Opinions and the Final Tax Opinions are
subject to certain assumptions, limitations and qualifications, including but
not limited to the truth and accuracy of certain representations made by Arbor,
Hyperion and Merger Sub, including representations in certain certificates to be
delivered to counsel by the respective managements of Arbor, Hyperion and Merger
Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in Hyperion stockholders recognizing taxable gain or loss with respect to
each share of Hyperion Common Stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time, of the Arbor Common Stock received in exchange therefor. In such
event, a
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<PAGE> 74
stockholder's aggregate basis in the Arbor Common Stock so received would equal
its fair market value as of the Effective Time, and the stockholder's holding
period for such stock would begin the day after the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. Under this method of accounting, the recorded assets and liabilities
of Arbor and Hyperion will be carried forward to the combined company at their
recorded amounts, the operating results of the combined company will include the
operating results of Arbor and Hyperion for the entire fiscal year in which the
combination occurs, and the reported operating results of the separate companies
for prior periods will be combined and restated as the operating results of the
combined company. Each of the affiliates of Arbor and Hyperion has executed a
written agreement to the effect that such person will not transfer shares of
common stock of either Arbor or Hyperion during the period beginning 30 days
prior to the Effective Time and ending on the date that Hyperion Solutions
publishes financial statements, which reflect 30 days of operations of the
combined company (which agreements relate to the ability of the combined company
to account for the Merger as a pooling of interests). See "-- Resale of Arbor
Common Stock; Agreements with Affiliates."
It is a condition to Arbor's obligations to consummate the Merger that,
among other things, it receive a letter from Price Waterhouse, the independent
accountants for Arbor, expressing its concurrence with Arbor's management's
conclusion as to the appropriateness of the pooling of interests accounting for
the Merger if closed and consummated in accordance with the Plan of Merger. It
is a condition to Hyperion's obligations to consummate the Merger that, among
other things, it receive a letter from Ernst & Young, the independent auditors
for Hyperion, concurring with Hyperion management's conclusion that, as of the
date of such letter, no conditions exist related to Hyperion that would preclude
accounting for the Merger, if closed and consummated in accordance with the Plan
of Merger as a pooling of interests under Accounting Principles Board Opinion
No. 16.
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<PAGE> 75
ARBOR AND HYPERION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
have been prepared to give effect to the Merger, using the pooling-of-interests
method of accounting. Arbor's fiscal year ends on March 31 and Hyperion's fiscal
year ends on June 30.
The unaudited pro forma condensed combined balance sheet gives effect to
the Merger as if it had occurred on March 31, 1998 and combines the audited
consolidated balance sheet of Arbor and the unaudited condensed consolidated
balance sheet of Hyperion as of March 31, 1998.
The unaudited pro forma condensed combined statements of income give effect
to the Merger as if it occurred as of the beginning of the earliest year
presented. The unaudited pro forma condensed combined statements of income for
the fiscal years ended March 31, 1996 and 1997 combine Arbor's historical
statements of operations for the fiscal years ended March 31, 1996 and 1997 with
Hyperion's historical statements of income for the fiscal years ended June 30,
1996 and 1997. The unaudited pro forma condensed combined statement of income
for the fiscal year ended March 31, 1998 combines Arbor's historical statement
of operations for the fiscal year ended March 31, 1998 with Hyperion's
historical statements of income for the nine month period ended March 31, 1998
and the three month period ended June 30, 1997. Accordingly, Hyperion's
historical statement of income for the three month period ended June 30, 1997
has been included in the accompanying unaudited pro forma condensed combined
statements of income for both the fiscal year ended March 31, 1997 and the
fiscal year ended March 31, 1998.
Arbor and Hyperion estimate that they will incur transaction costs of
approximately $20 million associated with the Merger, which will be charged to
operations when incurred. There can be no assurance that the combined company
will not incur additional charges to reflect costs associated with the Merger or
that management will be successful in its efforts to integrate the operations of
the two companies. See "Risk Factors -- Cost of Integration; Transaction
Expenses."
The following unaudited pro forma condensed combined financial information
is presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma condensed combined financial statements
are based upon the respective historical consolidated financial statements of
Arbor and Hyperion and should be read in conjunction with the respective
historical consolidated financial statements and notes thereto incorporated by
reference in this Joint Proxy Statement/Prospectus, and do not incorporate, nor
do they assume, any benefits from cost savings or synergies of operations of the
combined company.
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<PAGE> 76
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------------------------------
PRO FORMA PRO FORMA
ARBOR HYPERION ADJUSTMENTS COMBINED
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $102,307 $ 93,817 $196,124
Short-term investments................... 35,479 -- 35,479
Accounts receivable, net................. 20,193 71,263 91,456
Deferred income taxes.................... 4,207 5,800 10,007
Prepaid expenses and other current
assets................................ 3,991 4,375 8,366
-------- ----------- --------
Total current assets............. 166,177 175,255 341,432
-------- ----------- --------
Property and equipment, net................ 12,975 59,740 72,715
Product development costs, net............. -- 7,888 7,888
Product distribution rights, goodwill and
other intangible assets, net............. 2,812 8,928 11,740
Other assets............................... 4,269 3,373 7,642
-------- ----------- --------
$186,233 $ 255,184 $441,417
======== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 1,518 $ 13,088 $ 14,606
Accrued expenses and other current
liabilities........................... 15,791 45,526 $ 17,950 79,267
Deferred revenue......................... 12,840 51,250 -- 64,090
-------- ----------- -------- --------
Total current liabilities........ 30,149 109,864 17,950 157,963
-------- ----------- -------- --------
Long-term debt............................. 100,000 7,454 107,454
Stockholders' equity
Preferred stock.......................... -- -- -- --
Common stock............................. 45,842 100,105 -- 145,947
Retained earnings........................ 10,223 53,448 (17,950) 45,721
Cumulative translation adjustments....... 19 (2,174) -- (2,155)
Treasury stock, at cost.................. -- (13,513) -- (13,513)
-------- ----------- -------- --------
Total stockholders' equity....... 56,084 137,866 (17,950) 176,000
-------- ----------- -------- --------
$186,233 $ 255,184 $ -- $441,417
======== =========== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 77
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software licenses........................................ $111,842 $151,202 $201,890
Maintenance and services................................. 86,116 119,011 151,492
-------- -------- --------
Total revenues................................... 197,958 270,213 353,382
-------- -------- --------
Cost of revenues:
Software licenses........................................ 5,486 7,866 9,806
Maintenance and services................................. 54,167 72,929 90,266
-------- -------- --------
Total cost of revenues........................... 59,653 80,795 100,072
-------- -------- --------
Gross profit............................................... 138,305 189,418 253,310
-------- -------- --------
Operating expenses:
Sales and marketing...................................... 69,544 96,009 128,669
Research and development................................. 30,524 40,000 46,987
General and administration............................... 19,091 23,807 33,946
Acquired in-process technology........................... 2,000 -- 3,000
Asset valuation and restructuring........................ -- 4,400 4,400
-------- -------- --------
Total operating expenses......................... 121,159 164,216 217,002
-------- -------- --------
Income from operations..................................... 17,146 25,202 36,308
-------- -------- --------
Interest and other income.................................. 2,252 3,430 4,536
Interest expense........................................... (547) (591) (655)
-------- -------- --------
Income before income taxes................................. 18,851 28,041 40,189
Provision for income taxes................................. (6,516) (10,337) (15,949)
-------- -------- --------
Net income................................................. $ 12,335 $ 17,704 $ 24,240
======== ======== ========
Earnings per share
Basic.................................................... $ 0.57 $ 0.64 $ 0.84
Diluted.................................................. $ 0.45 $ 0.61 $ 0.80
Shares used to compute earnings per share
Basic.................................................... 21,728 27,537 28,831
Diluted.................................................. 27,544 29,261 30,470
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 78
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. PERIODS PRESENTED
Arbor's fiscal year ends on March 31. Hyperion's fiscal year ends on June
30. The unaudited pro forma condensed combined statements of income give effect
to the Merger as if it occurred as of the beginning of the earliest year
presented. The unaudited pro forma condensed combined statements of income for
the fiscal years ended March 31, 1996 and 1997 combine Arbor's historical
statements of operations for the fiscal years ended March 31, 1996 and 1997 with
Hyperion's historical statements of income for the fiscal years ended June 30,
1996 and 1997. The unaudited pro forma condensed combined statement of income
for the fiscal year ended March 31, 1998 combines Arbor's historical statement
of operations for the year ended March 31, 1998 with Hyperion's historical
statements of income for the nine month period ended March 31, 1998 and the
three month period ended June 30, 1997. Accordingly, Hyperion's historical
statement of income for the three month period ended June 30, 1997, which
includes revenues of $73,624,000 and net income of $5,886,000, has been included
in the accompanying unaudited pro forma condensed combined statements of income
for both the fiscal year ended March 31, 1997 and the fiscal year ended March
31, 1998. The unaudited pro forma condensed combined balance sheet gives effect
to the Merger as if it had occurred on March 31, 1998, and is based upon the
historical balance sheet data of Arbor and Hyperion as of March 31, 1998.
2. PRO FORMA EARNINGS PER SHARE
The unaudited pro forma combined earnings per share data is based upon the
weighted average number of common and potential common shares outstanding of
Arbor and Hyperion for each period using an exchange ratio of 0.95 of a share of
Arbor common stock for each share of Hyperion common stock.
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting
policies of Arbor and Hyperion. Certain amounts have been reclassified to
conform to the pro forma presentation. There are no material intercompany
transactions included in the unaudited pro forma condensed combined financial
statements.
4. TRANSACTION COSTS
It is estimated that the combined company will incur charges to operations
related to the Merger currently estimated to be $20 million principally in the
quarter in which the Merger is consummated. These charges include direct
transaction costs, primarily for financial advisory services and legal fees, and
costs associated with combining the operations of the two companies. The
estimated charge, less estimated income tax benefits of $2.1 million, is
reflected in the pro forma balance sheet but is not reflected in the unaudited
pro forma condensed combined statements of income. This charge is a preliminary
estimate only, and is, therefore, subject to change. See "Risk Factors -- Cost
of Integration; Transaction Expenses."
5. ISSUANCE OF ARBOR COMMON STOCK
The unaudited pro forma condensed combined financial statements reflect the
issuance of 0.95 of a share of Arbor common stock for each share of Hyperion
common stock outstanding. The following table sets forth the pro forma share
issuances in connection with the Merger (shares in thousands):
<TABLE>
<S> <C>
Hyperion common stock outstanding as of March 31, 1998...... 19,041
Exchange Ratio.............................................. 0.95 : 1.00
Number of shares of Arbor common stock to be exchanged...... 18,089
Number of shares of Arbor common stock outstanding as of
March 31, 1998............................................ 11,400
Number of shares of Arbor common stock outstanding after
completion of the Merger.................................. 29,489
</TABLE>
Additionally at the Effective Time, all outstanding options to purchase
Hyperion common stock will be exchanged for options to purchase Arbor common
stock, based upon the exchange ratio of 0.95. As of March 31, 1998, options to
purchase 2,833,135 shares of Hyperion common stock were outstanding.
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<PAGE> 79
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. CHANGE IN FISCAL YEAR-END
It is anticipated upon consummation of the Merger that Arbor will change
its fiscal year-end from March 31 to June 30. Accordingly, the following
selected supplemental unaudited pro forma condensed combined statements of
income data for the nine months ended March 31, 1997 and 1998 combine the
unaudited historical consolidated statement of income data of Arbor for the nine
months ended December 31, 1996 and 1997 with the unaudited historical
consolidated statement of income data of Hyperion for the nine months ended
March 31, 1997 and 1998. The following selected supplemental unaudited pro forma
condensed combined financial information is presented for illustrative purposes
and is not necessarily indicative of the results of operations that would have
actually been reported had the Merger occurred at the beginning of the periods
presented, nor is it necessarily indicative of the future results of operations.
Amounts for the fiscal years ended June 30, 1997 and June 30, 1996 will not
differ from the amounts reflected in the Unaudited Pro Forma Condensed Combined
Statements of Income for the fiscal years ended March 31, 1997 and March 31,
1996 respectively.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Revenues:
Software licenses.................................... $ 97,230 $138,346
Maintenance and services............................. 84,515 114,671
-------- --------
Total revenues............................... 181,745 253,017
Income from operations................................. 13,912 22,512
Net income............................................. 10,106 15,090
Earnings per share
Basic................................................ $ 0.37 $ 0.52
Diluted.............................................. $ 0.35 $ 0.49
Shares used to compute earnings per share
Basic................................................ 27,357 28,995
Diluted.............................................. 29,161 30,641
</TABLE>
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<PAGE> 80
ARBOR BUSINESS
OVERVIEW
Arbor develops and markets enterprise on-line analytical processing
("OLAP") software for management reporting, analysis and planning applications.
Arbor'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.
Arbor Essbase is marketed and sold in the United States, Canada and Europe
through Arbor's direct sales force, and worldwide through original equipment
manufacturers, value-added resellers and distributors, including Comshare,
Fujitsu, IBM, i2 Technologies, Lawson Software, Mitsubishi, PeopleSoft and
Walker Interactive Systems. Arbor Essbase has been adopted for planning and
analysis functions by customers in a wide variety of industries, such as
banking, consumer products, financial services, health care/pharmaceuticals,
insurance, manufacturing, retail, technology, telecommunications, transportation
and utilities.
See "Risk Factors -- Uncertainty Relating to Integration of Multiple
Operations and Product Lines; Management of Growth," and "-- Cost of
Integration; Transaction Expenses."
PENDING AND POTENTIAL LITIGATION
On April 16, 1996, Gentia Software filed an action against Arbor in the
United States District Court for the District of Massachusetts (the
"Massachusetts action") seeking a declaratory judgment that U.S. Patent No.
5,359,724 (the " '724 patent"), owned by Arbor, is invalid and not infringed by
Gentia Software's products. On April 18, 1996, Arbor filed an action against
Gentia Software in the United States District Court for the Northern District of
California (the "California action") alleging that Gentia Software infringes the
'724 patent, and seeking a permanent injunction and monetary damages, including
treble damages. On May 8, 1996, Gentia Software filed its answer in the
California action, including a counterclaim seeking to declare the '724 patent
invalid. Gentia Software also filed a motion to dismiss, stay or transfer the
action to Massachusetts, which the California court denied on December 12, 1996.
On May 13, 1996, Arbor filed a motion to transfer the Massachusetts action to
California, which was granted on November 18, 1996. Arbor filed its answer and a
counterclaim for patent infringement in the transferred case on December 12,
1996. On April 7, 1997, the Court consolidated both actions into a single case
pending in the United States District Court for the Northern District of
California.
On July 11, 1997, Gentia Software filed a request for reexamination of the
'724 patent with the United States Patent and Trademark Office (the "PTO"). On
September 11, 1997, the PTO granted the request for reexamination. The
reexamination proceedings are currently pending. On December 11, 1997, the Court
ordered that the litigation will not be set for trial until after completion of
the reexamination, but denied Gentia Software's request to stay the entire
litigation. The parties are presently engaged in discovery. On February 27,
1998, Gentia Software filed a request for a second reexamination of the '724
patent with the PTO. On May 22, 1998, the PTO granted the request for
reexamination. The reexamination proceedings are currently pending.
Arbor believes that it has meritorious claims against Gentia Software and
meritorious defenses against Gentia Software's claims that the '724 patent is
invalid, and intends to pursue vigorously its claims and defend against Gentia
Software's claims. The outcomes of the Gentia Software litigation and the patent
reexamina-
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<PAGE> 81
tion proceedings are uncertain at this time and no assurance can be given that
the outcome of the litigation will be in Arbor's favor, or that the PTO will not
declare the '724 patent invalid or narrow the scope of its claims. Arbor
management believes that the outcome of the Gentia Software litigation or the
reexamination will not have a material adverse effect on Arbor's business,
operating results or financial condition. However, should the '724 patent be
declared invalid or narrowed in scope, 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 Arbor's
future business.
The preceding current litigation and any future litigation against Arbor or
its employees, regardless of the outcome, is expected to result in substantial
costs and expenses to Arbor and significant diversion of attention by Arbor's
management personnel. See "Risk Factors -- Risks Associated with Litigation and
Related Costs."
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HYPERION BUSINESS
Founded in 1981, Hyperion develops, markets and supports comprehensive
analytic solutions that enable large, multinational companies to improve
financial performance by maximizing the value of information. The company's
internet/intranet-enabled applications support and enhance enterprise-wide
financial processes, including planning, budgeting, forecasting, accounting,
consolidation and performance analysis.
Hyperion's products provide executives, managers, analysts and accountants
with the capability to collect, process, report and analyze business
information. Hyperion Enterprise products consolidate and report financial and
other business data; Hyperion Pillar is used for corporate budgeting and
financial planning; Hyperion MBA provides multidimensional analysis and
reporting capabilities regarding complex, high-volume business data; and
Hyperion's Spider-Man web delivery application is a web-based business
information access solution for the global user community of an organization.
Hyperion also offers installation, training, consulting and support services.
Hyperion derives revenues from licensing its software products and
providing related product installation, support, training and consulting
services. Customers are billed an initial fee for the software upon delivery. A
license renewal fee entitling customers to routine support and product updates
is billed annually. Hyperion licenses its products throughout the world
primarily through a direct sales force. Products are also licensed through
independent distributors and sales agents, including major accounting firms.
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DIRECTORS OF HYPERION SOLUTIONS FOLLOWING THE MERGER
DIRECTORS
If the Arbor Merger Proposal is approved by the stockholders of Arbor at
the Arbor Annual Meeting and the Merger and Plan of Merger is approved by the
stockholders of Hyperion at the Hyperion Special Meeting, the following
directors will have been elected by the stockholders of Arbor to the Board of
Directors of the combined company. If Merger is not consummated, the
stockholders of Arbor will vote for the nominees set forth below in "Other
Information for Arbor Annual Meeting -- Proposal Four -- Election of Directors."
The nominees who will have been elected to the Board of Directors of
Hyperion Solutions (the "Nominees") if the Merger is consummated, their ages as
of May 31, 1998, their positions and offices held with Arbor or Hyperion and
certain biographical information are set forth below. The Arbor proxy holders
intend to vote all proxies received by them in the accompanying form FOR the
Nominees listed below unless otherwise instructed. In the event any Nominee is
unable or declines to serve as a director at the time of the Arbor Annual
Meeting, the proxies will be voted for any nominee who may be designated by in
accordance with the Plan of Merger to fill the vacancy. As of the date of this
Joint Proxy Statement/Prospectus, the Arbor Board is not aware of any Nominee
who is unable or will decline to serve as a director. The seven Nominees will
have been elected directors of Hyperion Solutions to serve until the next Annual
Meeting or until their successors have been duly elected and qualified.
<TABLE>
<CAPTION>
NOMINEES AGE CURRENT POSITIONS AND OFFICES HELD
-------- ---- ----------------------------------
<S> <C> <C>
John M. Dillon....................... 48 President, Chief Executive Officer and
Chairman of the Board of Directors of Arbor
Gary G. Greenfield................... 43 Director of Hyperion
Harry S. Gruner...................... 39 Director of Hyperion
Aldo Papone.......................... 66 Director of Hyperion
James A. Perakis..................... 54 Chief Executive Officer and Chairman of the
Board of Directors of Hyperion
Mark W. Perry........................ 55 Director of Arbor
Jeffrey R. Rodek..................... 44 Director of Arbor
</TABLE>
John M. Dillon, age 48, will be appointed President and Chief Executive
Officer and will be elected a director of Hyperion Solutions if the Merger is
consummated. Mr. Dillon joined Arbor in December 1993 as Vice President of
Sales. Presently, Mr. Dillon is Arbor's President, Chief Executive Officer and
Chairman of the Board of Directors and is responsible for worldwide field
operations (sales, support, consulting and education), marketing, product
development, finance and administration. In addition, Mr. Dillon has been a
director of Arbor since December 1996. Mr. Dillon previously served as Senior
Vice President of Arbor's worldwide field operations organization, which
included Customer Advocacy (Customer Support and Education), North American
Sales, EMEA (Europe, Middle East & Africa) Sales, Channel Sales and Field
Marketing. Mr. Dillon also served three years as Vice President of Worldwide
Sales. Before joining Arbor, Mr. Dillon was a field Vice President for
Interleaf, a major document management software company. He spent five years at
Oracle Corporation in various sales management positions and held sales
management positions at GRiD Systems Corporation, a leading developer and
retailer of mobile computer products for government and corporate organizations
worldwide and Tymshare/McDonnell Douglas. Mr. Dillon served in the U.S. Navy for
five years.
Gary G. Greenfield, age 43, will be elected a director of Hyperion
Solutions if the Merger is consummated. Mr. Greenfield was elected to the
Hyperion Board in June 1992, and he is a member of the Audit Committee of the
Hyperion Board. He currently serves as President, Chief Executive Officer and a
director of INTERSOLV Inc., a publicly held company which is a leader in
application enablement software for the client/server, Internet and Intranet
worlds. Mr. Greenfield joined Sage Software (which merged with INDEX Technology
in 1991 to form INTERSOLV Inc.) in 1987 as Vice President of Marketing. Prior to
that he served as President of Frey Associates Inc., a provider of artificial
intelligence software and services.
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Harry S. Gruner, age 39, will be elected a director of Hyperion Solutions
if the Merger is consummated. Mr. Gruner has served as a director of Hyperion
since October 1989, and he is a member of the Compensation and Stock Option
Committees of the Hyperion Board. He has been a general partner of JMI Equity
Fund, L.P., a private equity investment partnership, since November 1992. From
August 1986 to October 1992, Mr. Gruner was a principal of Alex. Brown & Sons
Incorporated, which firm served as the lead manager of Hyperion's initial public
offering in October 1991. Mr. Gruner is also a director of Jackson Hewitt, Inc.,
an income tax processing company; the META Group, Inc., a syndicated information
technology research company; Optika Imaging Systems, Inc., a developer and
marketer of imaging software; V-One Corporation, a developer, marketer and
licensor of a comprehensive suite of network security products; and several
privately held companies.
Aldo Papone, age 66, will be elected a director of Hyperion Solutions if
the Merger is consummated. Mr. Papone has served as a director of Hyperion since
April 1994, and he is a member of the Compensation and Stock Option Committees
of the Hyperion Board. He has been a Senior Advisor to the American Express
Company since 1991. During 1989 and 1990, he was Chairman and Chief Executive
Officer of the American Express Travel Related Services Company. Mr. Papone is
currently a director of Springs Industries, Inc., Guess?, Inc. and The Body Shop
International plc.
James A. Perakis, age 54, will be elected Chairman of the Board of Hyperion
Solutions if the Merger is consummated. Mr. Perakis is currently Chairman of the
Board of Directors (and a member of the Compensation Committee), Chief Executive
Officer and President of Hyperion. Mr. Perakis has served as Chief Executive
Officer and as a director of Hyperion since September 1985. From 1983 to
September 1985, Mr. Perakis served as Senior Vice President and General Manager
of Chase Decision Systems, a division of Interactive Data Corporation, a
developer and marketer of mainframe software for planning and financial
applications. From 1979 to 1983, Mr. Perakis was Chief Financial Officer of
Interactive Data Corporation, a supplier of data and software to financial and
corporate markets. Mr. Perakis is also a director of MapInfo Corporation, a
publicly held company which develops, markets and supports desktop mapping
software, mapping application development tools and geographic and demographic
information products.
Mark W. Perry, age 55, will be elected a director of Hyperion Solutions if
the Merger is consummated. Mr. Perry has served as a director of Arbor since
February 1993. Mr. Perry joined New Enterprise Associates, a venture capital
firm, in October 1995 and became a General Partner in June 1996. Mr. Perry
focuses on the area of information technology venture capital investing. Mr.
Perry's board memberships include Exabyte Corporation and a number of private
companies. From May 1994 to December 1995, Mr. Perry served as President and
Chief Executive Officer and then as Chairman of Viewstar Corporation, a leading
provider of business process automation, client/server software. From 1985 to
1994, he was employed by Silicon Graphics, Inc. where his last position was Vice
Chairman. Mr. Perry is a Certified Public Accountant.
Jeffrey R. Rodek, age 44, will be elected a director of Hyperion Solutions
if the Merger is consummated. Mr. Rodek has been a director of Arbor since
January 1998. Mr. Rodek has served as President and Chief Operating Officer of
Ingram Micro Inc. ("Ingram Micro") since January 1995 and was promoted to
President and Chief Operating Officer Worldwide in May 1996. Prior to joining
Ingram Micro, Mr. Rodek spent 16 years at Federal Express in several key
executive positions, including Senior Vice President, Central Support Services,
and Vice President, Financial Planning, and most recently as Senior Vice
President of Operations, the Americas.
COMMITTEES OF THE BOARD OF DIRECTORS OF HYPERION SOLUTIONS
Each of the Arbor Board and the Hyperion Board has an Audit Committee and a
Compensation Committee. In addition, the Hyperion Board has a Stock Option
Committee. Each company's Audit Committee is responsible for reviewing audit
procedures and supervising the company's relationship with its independent
public accountants. Each company's Compensation Committee is responsible for
approving compensation arrangements with that company's senior management. In
addition, Arbor's Compensation Committee administers Arbor's 1995 Option Plan
and Employee Stock Purchase Plan. Hyperion's Stock Option Committee administers
Hyperion's 1991 Stock Plan and 1991 Employee Stock Purchase Plan.
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Arbor's Audit Committee currently consists of Mr. Perry and Ms. Winblad.
Hyperion's Audit Committee currently consists of Messrs. Arese Lucini and
Greenfield.
Arbor's Compensation Committee currently consists of Mr. Rodek and Ms.
Winblad. Hyperion's Compensation Committee currently consists of Messrs.
Perakis, Gruner and Papone. Hyperion's Stock Option Committee currently consists
of Messrs. Gruner and Papone.
If the Merger is consummated, it is anticipated that the Board of the
combined company will have three standing committees, each of which is expected
to have the same responsibilities as the three committees maintained by the
current Hyperion Board. If the Merger is consummated, the Board of the combined
company will appoint directors to serve on specific committees. See "Other
Information for Arbor Annual Meeting -- Proposal Four -- Election of
Directors -- Arbor Board Meetings and Committees."
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Other than Mr. Perakis, no director or executive officer of Hyperion
Solutions is expected to beneficially own more than 1.0% of the outstanding
shares of combined company after giving effect to the Merger. After giving
effect to the Merger, based on the number of currently outstanding shares of
Arbor Common Stock and Hyperion Common Stock, the directors and executive
officers of Hyperion Solutions ( individuals) are expected to
beneficially own approximately % of the outstanding shares of Common Stock
of combined company.
DESCRIPTION OF ARBOR CAPITAL STOCK
If the Arbor Merger Proposal is approved, the authorized capital stock of
Arbor will consist of 300,000,000 shares of Common Stock, $0.001 par value, and
5,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of May 31, 1998, there were 11,470,079 shares of Arbor Common Stock
outstanding that were held of record by approximately 274 stockholders. The
holders of Arbor 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 Arbor 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.
In the event of the liquidation, dissolution, or winding up of Arbor, the
holders of Arbor 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 Arbor Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Arbor Common Stock. All
outstanding shares of Arbor Common Stock are fully paid and nonassessable, and
the shares of Arbor Common Stock to be issued in connection with the Merger will
be fully paid and nonassessable.
PREFERRED STOCK
Arbor's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock, none of which are currently issued or outstanding. 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
Arbor without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Arbor Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Arbor Common Stock, including the loss of voting
control to others. Arbor has no current plans to issue shares of Preferred
Stock,
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although Series A Junior Participating Preferred Stock has been designated for
issuance under certain conditions, pursuant to Arbor's stockholder rights plan
as described more fully below.
STOCKHOLDER RIGHTS PLAN
On June 15, 1998, the Arbor Board declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Arbor Common
Stock outstanding on July 3, 1998 (the "Record Date") to the stockholders of
record on that date. Each Right entitles the registered holder to purchase from
Arbor one one-thousandth of a share of Series A Junior Participating Preferred
Stock, par value $0.001 per share (the "Preferred Shares"), of Arbor, at a price
of $250 per one one-thousandth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between Arbor and Bank Boston, N.A.,
as rights agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or in the case of (x) a
Grandfathered Stockholder other than a Second Tier Grandfathered Stockholder (as
defined in the Rights Agreement), 25%, or (y) a Second Tier Grandfathered
Stockholder, the greater of 15% or such percentage as is beneficially owned by
each Amerindo Holder (as defined in the Rights Agreement) plus 1%, or more of
the outstanding Common Shares (as defined in the Rights Agreement), or (ii) 10
business days (or such later date as may be determined by action of the Arbor
Board prior to such time as any person or group becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or in the case of (x) a Grandfathered
Stockholder other than a Second Tier Grandfathered Stockholder, 25%, or (y) a
Second Tier Grandfathered Stockholder, such percentage as is beneficially owned
by each Amerindo Holder plus 1%, or more of the outstanding Arbor Common Stock
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Arbor Common Stock certificates
outstanding as of the Record Date, by such Arbor Common Stock certificate with a
summary of the Rights attached thereto.
By its terms, the Rights Agreement exempts the Merger and the Hyperion
Stock Option as transactions that could otherwise trigger the distribution of
Rights under the Rights Agreement. Similarly, neither Hyperion nor any of its
affiliates, by virtue of its ownership or voting of Arbor Common Stock acquired
pursuant to the Plan of Merger or the Hyperion Option Agreement, will be defined
as an Acquiring Person (as defined in the Rights Agreement) under the Rights
Agreement.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Arbor Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new Arbor
Common Stock certificates issued after the Record Date or upon transfer or new
issuance of Arbor Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Arbor Common Stock outstanding as of the Record Date, even without such notation
or a copy of a summary of the Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Arbor Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Arbor Common Stock as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the tenth anniversary of the effective date (the "Final Expiration
Date"), unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed by Arbor, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination, or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred
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Shares at a price, or securities convertible into Preferred Shares with a
conversion price, less than the then current market price of the Preferred
Shares, or (iii) upon the distribution to holders of the Preferred Shares of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in Preferred
Shares) or of subscription rights or warrants (other than those referred to
above).
The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Arbor Common Stock or a stock
dividend on the Arbor Common Stock payable in Arbor Common Stock or
subdivisions, consolidations, or combinations of the Arbor Common Stock
occurring, in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a quarterly dividend
payment of 1,000 times the dividend declared per share of Arbor Common Stock. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to an aggregate payment of 1,000 times the aggregate payment made per share of
Arbor Common Stock. Each Preferred Share will have 1,000 votes, voting together
with the Arbor Common Stock. In the event of any merger, consolidation, or other
transaction in which Arbor Common Stock is exchanged, each Preferred Share will
be entitled to receive 1,000 times the amount received per share of Arbor Common
Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation, and
voting rights, the value of the one one-thousandth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
share of Arbor Common Stock.
From and after the occurrence of an event described in Section 11(a)(ii) of
the Rights Agreement, if the Rights evidenced by the Right Certificate are or
were at any time on or after the earlier of (x) the date of such event and (y)
the Distribution Date acquired or beneficially owned by an Acquiring Person or
an Associate or Affiliate of an Acquiring Person (as such terms are defined in
the Rights Agreement), such Rights shall become void, and any holder of such
Rights shall thereafter have no right to exercise such Rights.
In the event that, at any time after there is an Acquiring Person, Arbor is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold, proper provision will be made
so that each holder of a Right will thereafter have the right to receive, upon
the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right.
In the event that any person or group becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person and its Affiliates and Associates
(which will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Arbor Common Stock having a market value of
two times the exercise price of the Right. If Arbor does not have a sufficient
number of shares of Arbor Common Stock to satisfy such obligation to issue
Common Stock, or if the Arbor Board so elects, Arbor shall deliver upon payment
of the exercise price of a Right an amount of cash or securities equivalent in
value to the Arbor Common Stock issuable upon exercise of a Right; provided
that, if Arbor fails to meet such obligation within 30 days following the later
of (x) the first occurrence of an event triggering the right to purchase Arbor
Common Stock and (y) the date on which Arbor's right to redeem the Rights
expires, Arbor must deliver, upon exercise of a Right but without requiring
payment of the exercise price then in effect, Arbor Common Stock (to the extent
available) and cash equal in value to the difference between the value of the
Arbor Common Stock otherwise issuable upon the exercise of a Right and the
exercise price then in effect. The Arbor Board may extend the 30-day period
described above for up to an additional 60 days to permit the taking of action
that may be necessary to authorize sufficient additional shares of Arbor Common
Stock to permit the issuance of Arbor Common Stock upon the exercise in full of
the Rights.
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At any time after there is an Acquiring Person and prior to the acquisition
by any person or group of a majority of the outstanding shares of Arbor Common
Stock, the Arbor Board may exchange the Rights (other than Rights owned by such
person or group which have become void), in whole or in part, at an exchange
ratio of one share of Arbor Common Stock per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of Arbor, be evidenced by depositary receipts)
and in lieu thereof, an adjustment in cash will be made based on the market
price of the Preferred Shares on the last trading day prior to the date of
exercise.
At any time prior to the time any person or group becomes an Acquiring
Person, the Arbor Board may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price"). The redemption of the Rights
may be made effective at such time, on such basis, and with such conditions as
the Arbor Board in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Arbor Board without the
consent of the holders of the Rights, except that from and after such time as
any person or group becomes an Acquiring Person no such amendment may adversely
affect the interests of the holders of the Rights (other than the Acquiring
Person and its Affiliates and Associates).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Arbor, including, without limitation, the right to
vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Arbor without
conditioning the offer on the Rights being redeemed. However, the Rights should
not interfere with any tender offer or merger approved by Arbor because the
Rights may be redeemed by the Arbor Board at any time prior to such time as
there is an Acquiring Person.
ANTITAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW
If the Arbor Merger Proposal is approved, Arbor's Restated Certificate of
Incorporation will provide that the Arbor Board will be divided into three
classes, with each class serving a staggered three-year term. The classification
of the Arbor Board has the effect of generally requiring at least two annual
stockholder meetings, instead of one, to replace a majority of the members of
the Arbor Board. Arbor's Restated Certificate of Incorporation also provides
that all stockholder actions must be effected at a duly called meeting and not
by a consent in writing. In addition, Arbor'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 Arbor. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Arbor Board and
in the policies formulated by the Arbor Board and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Arbor. These provisions are designed to reduce the vulnerability of Arbor 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 Arbor's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of Arbor'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 Arbor. See "Risk Factors -- Effect of Certain Charter Provisions;
Rights Plan; Certificate of Incorporation, Bylaws, and Delaware Law."
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Delaware Antitakeover Statute
Arbor is, and if the Merger is consummated Hyperion Solutions will be,
subject to Section 203 of the DGCL ("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 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.
DESCRIPTION OF 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2005
The Notes were issued under an indenture, dated as of March 15, 1998 (the
"Indenture"), between Arbor and State Street Bank and Trust Company of
California, N.A., as trustee (the "Trustee"). The following summaries of certain
provisions of the Notes, the Indenture and the Registration Rights Agreement
dated as of March 15, 1998 between Arbor, Morgan Stanley and BancAmerica
Robertson Stephens (the "Registration Rights Agreement") entered into in
connection with the issuance of the Notes 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 Joint Proxy Statement/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 "Arbor" are solely to Arbor Software Corporation, a Delaware
corporation, and not its subsidiaries.
GENERAL
The Notes represent unsecured general obligations of Arbor subordinate in
right of payment to certain other obligations of Arbor as described under
"Subordination of Notes" and convertible into Arbor 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 Arbor 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 Arbor. The Indenture contains no covenants or other provisions to
afford protection
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to holders of the Notes in the event of a highly leveraged transaction or a
change in control of Arbor except to the extent described below under
"Redemption at Option of the Holder."
The Notes bear interest at the annual rate of 4 1/2% 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 Arbor Common Stock 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, Arbor 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 Arbor'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 may be represented by a global Note
(the "Global Note"), except as set forth below under "Certificated Notes." The
Global Note will be deposited 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
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.
The Notes were initially purchased by "qualified institutional buyers" as
defined in Rule 144A under the Securities Act ("QIBs"). QIBs may hold their
interests in the 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 Global Note to such persons may be limited.
QIBs who are not Participants may beneficially own interests in the 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 Global Note, Cede for all purposes will be considered the sole holder of
the Global Note. Except as provided below, owners of beneficial interests in the
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 Global Note will be
made to Cede, the nominee for DTC, as the registered owner of the 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 Arbor, 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 Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
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Arbor has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, the 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 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 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 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 Arbor 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 Arbor 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 Global Note are
credited, and only in respect of the principal amount of the Notes represented
by the Global Note as to which such Participant or Participants has or have
given such direction.
DTC has advised Arbor 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 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 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
Arbor within 90 days, Arbor will cause Notes to be issued in definitive
registered form in exchange for the Global Note.
Certificated Notes. Notes sold to investors that are institutional
"accredited investors" (as defined in Rule 501(A)(1), (2), (3) or (7) under the
Securities Act) will be issued in definitive registered form and may not be
represented by the Global Note. In addition, QIBs may request that certificated
Notes be issued in exchange for Notes represented by the Global Note.
Furthermore, certificated Notes may be issued in exchange for Notes represented
by the Global Note if no successor depositary is appointed by Arbor 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 Arbor Common Stock, at the conversion price of $56.357 per share, 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 Arbor Common Stock. If any Notes not called for
redemption
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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." Arbor is
not required to issue fractional shares of Arbor Common Stock upon conversion of
Notes and, in lieu thereof, will pay a cash adjustment based upon the market
price of Arbor 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 Arbor 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 per share of Arbor Common Stock is
subject to adjustment under formulae as set forth in the Indenture in certain
events, including:
(i) the issuance of Arbor Common Stock as a dividend or distribution
on the Arbor Common Stock;
(ii) the issuance to all holders of Arbor Common Stock of certain
rights or warrants to purchase Arbor Common Stock;
(iii) certain subdivisions and combinations of the Arbor Common Stock;
(iv) the distribution to all holders of Arbor Common Stock of capital
stock (other than Arbor Common Stock) or evidences of indebtedness of Arbor
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 Arbor Common Stock to the extent that the aggregate cash
dividend per share of Arbor Common Stock in any quarter does not exceed the
greater of (x) the amount per share of Arbor Common Stock of the next
preceding quarterly cash dividend on the Arbor 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 Arbor Common Stock), and (y) 3.75
percent of the average of the last reported sale price of the Arbor 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 Arbor. 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 Arbor
or any Subsidiary (as defined) of Arbor for the Arbor Common Stock to the
extent that the cash and value of any other consideration included in such
payment per share of Arbor Common Stock exceeds the Current Market Price
(as defined) per share of Arbor 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 Arbor or any Subsidiary of Arbor in which, as of the
closing date of the offer, the Arbor Board 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 Arbor Common Stock to more than 25% of the total
shares of Arbor Common Stock outstanding, and if the cash and value of any
other consideration included in such payment per share of Arbor Common
Stock exceeds the Current Market Price per share of Arbor 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
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offering documents with respect to such offer disclose a plan or an
intention to cause Arbor to engage in a consolidation or merger of Arbor or
a sale of all or substantially all of Arbor's assets.
The Indenture provides that if Arbor 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 Arbor
Common Stock issuable upon conversion, such rights whether or not such rights
have separated from the Arbor Common Stock at the time of such conversion.
In the case of (i) any reclassification of the Arbor Common Stock, or (ii)
a consolidation, merger or combination involving Arbor or a sale or conveyance
to another person of the property and assets of Arbor as an entirety or
substantially as an entirety, in each case as a result of which holders of Arbor
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Arbor 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 Arbor 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 Arbor 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 Arbor Common Stock.
Arbor 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
Arbor shall give at least 15 days' notice of such reduction, if the Arbor Board
has made a determination that such reduction would be in the best interests of
Arbor, which determination shall be conclusive. Arbor may, at its option, make
such reductions in the conversion price, in addition to those set forth above,
as the Arbor Board deems advisable to avoid or diminish any income tax to
holders of Arbor 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.
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 Arbor Common Stock or any securities convertible into or
exchangeable for Arbor Common Stock or carrying the right to purchase any of the
foregoing.
OPTIONAL REDEMPTION BY ARBOR
The Notes are not entitled to any sinking fund. At any time on or after
March 20, 2001, the Notes will be redeemable at Arbor'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>
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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.
Arbor 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 Arbor to redeem any or all of such holder's Notes on the date (the
"Repurchase Date") that is 30 days after the date of Arbor's notice of such
Fundamental Change. The Notes will be redeemable in multiples of $1,000
principal amount.
Arbor 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 Arbor"
which would be applicable to a redemption at the option of Arbor on the
Repurchase Date; provided that, if the Applicable Price (as defined) is less
than the Reference Market Price (as defined), Arbor 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, Arbor shall also pay accrued interest on the redeemed Notes to, 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.
Arbor 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. Arbor 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 Arbor'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 Arbor (or an agent designated by Arbor 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 Arbor 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 Arbor
Common Stock receive only cash, the amount of cash received by the holder of one
share of Arbor Common Stock and (ii) in the event of any other Fundamental
Change, the average of the last reported sale price for Arbor Common Stock
during the ten trading days prior to the record date for the determination of
the holders of Arbor 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 Arbor Common Stock shall
have the right to receive such cash,
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securities, property or other assets in connection with the Fundamental Change.
The term "Reference Market Price" shall initially mean $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 of $56.357 per share (without regards to any
adjustment thereto).
Arbor 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 Arbor. The Fundamental Change redemption feature, however, is not
the result of management's knowledge of any specific effort to obtain control of
Arbor 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
Arbor, nor would the requirement that Arbor 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 Arbor.
If a Fundamental Change were to occur, there can be no assurance that Arbor
would have sufficient funds to pay the redemption price for all the Notes
tendered by the holders thereof. In addition, the terms of Arbor'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 Arbor becomes
a party may contain similar restrictions and provisions, including restrictions
and provisions that prohibit Arbor from purchasing or redeeming any Notes. In
the event a Fundamental Change occurs at a time when Arbor is prohibited from
purchasing or redeeming the Notes, Arbor could seek the consent of its
then-existing lenders to the purchase of the Notes or could attempt to refinance
the borrowings that contain such prohibition. If Arbor does not obtain such a
consent or repay such borrowings, Arbor would remain prohibited from purchasing
or redeeming the Notes. In such case, Arbor'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 Arbor 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 Arbor. The Notes also are effectively subordinated to all
indebtedness and other liabilities, including trade payables and lease
obligations, if any, of Arbor's subsidiaries. Upon any distribution of assets of
Arbor 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 Arbor promptly notify holders of Senior Indebtedness
if payment of the Notes is accelerated because of an Event of Default.
Arbor 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)
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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 Arbor 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 Arbor 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
Arbor'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 Arbor. Such subordination will not
prevent the occurrence of any Event of Default under the Indenture.
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 Arbor, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by Arbor (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 Arbor to any subsidiary of
Arbor, a majority of the voting stock of which is owned, directly or indirectly,
by Arbor.
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
Arbor 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,
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(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 Arbor's credit facility and
Arbor'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 Arbor is a party)
expressly provides that such Senior Indebtedness shall be "Designated Senior
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, Arbor 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 Arbor 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.
Arbor 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 Arbor 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 Arbor 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.
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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 Arbor, 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 Arbor 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 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 Arbor 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 Arbor 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 Arbor 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 the Registration Rights Agreement, Arbor, at its
expense, has filed with the SEC a shelf registration statement (the "Shelf
Registration Statement") covering resales by holders of the Notes and Arbor
Common Stock issuable upon conversion of the Notes. Arbor 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 Arbor under Rule 144(k)
under the Securities Act, or any
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successor provision, subject to certain permitted exceptions. Arbor is permitted
to suspend the use of the prospectus that is part of the Shelf Registration
Statement under certain circumstances relating to pending corporate
developments, public filings with SEC 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. Arbor 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 Arbor Common Stock, at a rate per annum equal to .5% of the then
applicable Conversion Price, to holders of Notes and holders of Arbor 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 Arbor 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). Arbor
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 Arbor 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.
Arbor 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 the Shelf Registration Statement as Annex A is a form of notice and
questionnaire (the "Questionnaire") to be completed and delivered by a holder to
Arbor 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 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 Arbor, from a holder following the
effectiveness of the Shelf Registration Statement, Arbor 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 Arbor's right to
suspend the use of the prospectus as described above). Arbor has agreed to pay
Liquidated Damages to such holder if Arbor 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.
INFORMATION CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., as Trustee under
the Indenture, has been appointed by Arbor as paying agent, conversion agent,
Note registrar and custodian with regard to the Notes.
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OTHER INFORMATION FOR ARBOR ANNUAL MEETING
PROPOSAL TWO
AMENDMENT OF
ARBOR 1995 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders of Arbor are being asked to vote on a proposal to approve,
if the Arbor Merger Proposal is approved, an amendment to the Arbor 1995 Option
Plan to increase the number of shares of Common Stock available for issuance
under the Arbor 1995 Option Plan by 5,000,000 shares to a total of 8,007,577
shares of Common Stock, or, if the Arbor Merger Proposal is not approved, by
2,000,000 shares to a total of 5,007,577 shares of Common Stock.
The Arbor Board adopted the amendments in June 1998, subject to stockholder
approval at the Arbor Annual Meeting. The following is a description of the
Arbor 1995 Option Plan. Arbor established the Arbor 1995 Option Plan as a
successor to Arbor's 1992 Stock Option Plan (the "Predecessor Plan") to provide
a means whereby employees, officers, directors, consultants, and independent
advisers of Arbor or parent or subsidiary corporations may be given an
opportunity to purchase shares of Arbor Common Stock. The Arbor 1995 Option Plan
was adopted by the Arbor Board on August 31, 1995 and approved by the Arbor
stockholders on September 15, 1995. The Arbor Board adopted an amendment to the
Arbor 1995 Option Plan on June 6, 1996 increasing the number of shares of Arbor
Common Stock available for issuance under the Arbor 1995 Option Plan by
1,000,000 shares to a total of 2,257,577. Such amendment was approved by the
Arbor stockholders at the 1996 Arbor Annual Meeting on July 23, 1996. The Arbor
Board adopted an amendment to the Arbor 1995 Option Plan on June 30, 1997
increasing the number of shares of Arbor Common Stock available for issuance
under the Arbor 1995 Option Plan by 750,000 shares to a total of 3,007,577. Such
amendment was approved by the Arbor stockholders at the 1997 Arbor Annual
Meeting on August 13, 1997. The Arbor Board believes that option grants under
the Arbor 1995 Option Plan play an important role in Arbor's efforts to attract,
employ, and retain employees, directors, and consultants of outstanding ability.
SUMMARY OF THE ARBOR 1995 OPTION PLAN
The principal terms and provisions of the Arbor 1995 Option Plan are
summarized below. The summary, however, is not intended to be a complete
description of all the terms of the Arbor 1995 Option Plan. A copy of the Arbor
1995 Option Plan will be furnished by Arbor to any stockholder upon written
request to the Corporate Secretary at the executive offices of Arbor in
Sunnyvale, California.
Structure. The Arbor 1995 Option Plan contains four separate equity
incentive programs: (i) a Discretionary Option Grant Program under which
employees, consultants and Arbor Board members may be granted stock options to
purchase shares of Arbor Common Stock, (ii) an Automatic Option Grant Program
under which option grants will be made at specified intervals to the
non-employee Arbor Board members, (iii) a Salary Investment Option Grant Program
under which certain employees may elect to have their base salary reduced each
year in return for options to purchase shares of Arbor Common Stock at a
discount from current fair market value equal to the amount of their salary
reduction, and (iv) a Stock Issuance Program under which eligible individuals
may be issued shares of Arbor Common Stock directly, through the immediate
purchase of the shares, or as a bonus tied to the performance of services.
Administration. The Compensation Committee of the Arbor Board, which is
comprised of two or more Arbor Board members ("Committee"), administers the
Arbor 1995 Option Plan. Committee members serve for such period of time as the
Arbor Board may determine. The Arbor 1995 Option Plan may also be administered
by the Arbor Board or a secondary committee comprised of one or more Arbor Board
members with respect to optionees who are not executive officers subject to the
short-swing profit rules of the Federal securities laws.
The Committee (or the Arbor Board or secondary committee to the extent
acting as plan administrator) has full authority (subject to the express
provisions of the Arbor 1995 Option Plan) to determine the eligible individuals
who are to receive grants under the Arbor 1995 Option Plan, the number of shares
to be covered by
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each granted option, the date or dates on which the option is to become
exercisable, the maximum term for which the option is to remain outstanding,
whether the granted option will be an incentive stock option ("Incentive
Option") that satisfies the requirements of Section 422 of the Code or a
non-statutory option not intended to meet such requirements, and the remaining
provisions of the option grant. The Committee also has full authority to
determine the eligible individuals who are to receive stock issuances, the
number of shares to be issued to each participant, the time or times when such
issuances are to be made, and the remaining provisions of the stock issuance.
The Committee has sole and exclusive authority to select the individuals
eligible to participate in the Salary Investment Option Grant Program.
Eligibility. Employees (including officers), consultants and independent
contractors who render services to Arbor or its subsidiary corporations (whether
now existing or subsequently established) are eligible to receive option grants
under the Discretionary Option Grant Program and stock issuances under the Stock
Issuance Program. A non-employee member of the Arbor Board or any parent or
subsidiary corporation is also eligible for option grants under the
Discretionary Option Grant Program and stock issuances under the Stock Issuance
Program. Only Arbor's employees are eligible to participate in the Salary
Investment Option Grant Program, and only non-employee directors of Arbor are
eligible to participate in the Automatic Option Grant Program.
As of May 31, 1998, approximately 459 persons (including five officers and
three non-employee directors) were eligible to participate in the Arbor 1995
Option Plan.
Securities Subject to Arbor 1995 Option Plan. If the Arbor Merger Proposal
is approved, the number of shares of Arbor Common Stock which may be issued over
the term of the Arbor 1995 Option Plan shall not exceed 8,007,577, including the
increase of 5,000,000 shares that is part of this Proposal Two. If the Arbor
Merger Proposal is not approved, the number of shares of Arbor Common Stock
which may be issued over the term of the Arbor 1995 Option Plan shall not exceed
5,007,577, including the increase of 2,000,000 shares that is part of this
Proposal Two. Such share reserve will be subject to further adjustment in the
event of subsequent changes to the capital structure of Arbor. The shares may be
made available either from Arbor's authorized but unissued Arbor Common Stock or
from Arbor Common Stock reacquired by Arbor, including shares purchased on the
open market.
No one person participating in the Arbor 1995 Option Plan may receive
options or direct stock issuances for more than 500,000 shares of Arbor Common
Stock per calendar year.
Should an option expire or terminate for any reason prior to exercise in
full, including options incorporated from the Predecessor Plan, the shares
subject to the portion of the option not so exercised will be available for
subsequent option grants under the Arbor 1995 Option Plan.
DISCRETIONARY OPTION GRANT PROGRAM
Price and Exercisability. The option exercise price per share in the case
of an Incentive Option may not be less than 100% of the fair market value of
Arbor Common Stock on the grant date and, in the case of a non-statutory option,
85% of the fair market value of Arbor Common Stock on the grant date. All
options intended to be exempt from the limitation on compensation deductions set
forth in Section 162(m) of the Code will be granted with an exercise price equal
to or greater than 100% of fair market value. Options granted under the
Discretionary Option Grant Program become exercisable at such time or times, and
during such period, as the Committee may determine and set forth in the
instrument evidencing the option grant. In any event, options granted under the
Arbor 1995 Option Plan may not have a term in excess of 10 years.
The exercise price may be paid in cash or in shares of Arbor Common Stock.
Options may also be exercised through a same-day sale program, pursuant to which
a designated brokerage firm is to effect the immediate sale of the shares
purchased under the option and pay over to Arbor, out of the sale proceeds on
the settlement date, sufficient funds to cover the exercise price for the
purchased shares plus all applicable withholding taxes. The Committee may also
assist any optionee (including an officer or director) in the exercise of his or
her outstanding options by authorizing an Arbor loan to the optionee. The terms
and conditions of any such loan will be established by the Committee in its sole
discretion.
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No optionee is to have any stockholder rights with respect to the option
shares until the optionee has exercised the option and paid the exercise price.
Options are not assignable or transferable other than by will or the laws of
descent and distribution, and during the optionee's lifetime, the option may be
exercised only by the optionee.
Termination of Service. Any option held by the optionee at the time of
cessation of service will not remain exercisable beyond the designated
post-service exercise period. Under no circumstances may any option be exercised
after the specified expiration date of the option term. Each such option will
normally, during such limited period, be exercisable only to the extent of the
number of shares of Arbor Common Stock in which the optionee is vested at the
time of cessation of service. The optionee will be deemed to continue in service
for so long as such individual performs services for Arbor (or any parent or
subsidiary corporation), whether as an employee, independent contractor,
consultant or Board member.
The Committee has complete discretion to extend the period following the
optionee's cessation of service during which his or her outstanding options may
be exercised and/or to accelerate the exercisability of such options in whole or
in part. Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The shares of Arbor Common Stock acquired upon the exercise of one or more
options may be subject to repurchase by Arbor at the original exercise price
paid per share upon the optionee's cessation of service prior to vesting in such
shares. The Committee has complete discretion in establishing the vesting
schedule to be in effect for any such unvested shares and may cancel Arbor's
outstanding repurchase rights with respect to those shares at any time, thereby
accelerating the vesting of the shares subject to the canceled rights.
Incentive Options. Incentive Options may only be granted to individuals who
are employees of Arbor or its parent or subsidiary corporation. During any
calendar year, the aggregate fair market value (determined as of the grant
date(s)) of Arbor Common Stock for which one or more options granted to any
employee under the Arbor 1995 Option Plan (or any other option plan of Arbor or
its parent or subsidiary corporations) may for the first time become exercisable
as incentive stock options under Section 422 of the Code cannot exceed $100,000.
If an employee to whom an Incentive Option is granted is the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of Arbor or any of its parent or subsidiary corporations, then the option
price per share will be at least 110% of the fair market value per share on the
grant date, and the option term will not exceed five years, measured from the
grant date.
Limited Stock Appreciation Rights. One or more officers of Arbor subject to
the short-swing profit restrictions of the Federal securities laws may, at the
discretion of the Committee, be granted limited stock appreciation rights in
connection with their option grants under the Arbor 1995 Option Plan. Any option
with such a limited stock appreciation right in effect for at least six months
may be unconditionally surrendered by the officer, to the extent exercisable for
one or more vested option shares, upon the successful completion of a hostile
tender offer for more than 50% of Arbor's outstanding voting stock. In return,
the officer will be entitled to a cash distribution from Arbor in an amount per
canceled option share equal to the excess of (i) the highest price per share of
Arbor Common Stock paid in the tender offer or, if greater, the fair market
value per share of Arbor Common Stock over (ii) the option exercise price.
Tandem Stock Appreciation Rights. The Committee is authorized to issue
tandem stock appreciation rights in connection with option grants under the
Discretionary Option Grant Program. Tandem stock appreciation rights provide the
holders with the right, subject to the Committee's approval, to surrender their
options for a distribution from Arbor equal in amount to the excess of (a) the
fair market value of the vested shares of Arbor Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for such
shares. Such distribution may, at the discretion of the Committee, be made in
cash or in shares of Arbor Common Stock.
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Automatic Option Grant Program
Under the Automatic Option Grant Program, non-employee Arbor Board members
will receive option grants at specified intervals over their period of Board
service. These special grants may be summarized as follows:
- Each individual who first becomes a non-employee Arbor Board member after
the date of Arbor's initial public offering, whether through election by
the stockholders or appointment by the Arbor Board, will automatically be
granted, at the time of such initial election or appointment, a
nonstatutory stock option to purchase 20,000 shares of Arbor Common
Stock, provided such individual has not previously been in the employ of
Arbor.
- On the date of each Arbor Annual Stockholders Meeting beginning with the
1996 Arbor Annual Meeting, each individual who is to continue as a
non-employee Arbor Board member will receive an additional grant of a
nonstatutory stock option under the Arbor 1995 Option Plan to purchase
5,000 shares of Arbor Common Stock, provided such individual has been a
member of the Arbor Board for at least six months.
Each option grant under the Automatic Option Grant Program will be subject
to the following terms and conditions:
1. The option price per share will be equal to 100% of the fair market
value per share of Arbor Common Stock on the automatic grant date, and each
option is to have a maximum term of ten years measured from the grant date.
2. Each automatic option grant will be immediately exercisable for all
of the option shares, but the shares purchasable under the option will be
subject to repurchase at the original exercise price in the event the
optionee's Arbor Board service should cease prior to full vesting. With
respect to each initial grant, the repurchase right will lapse and the
optionee will vest in two successive equal annual installments, measured
from the grant date, provided the optionee continues service as an Arbor
Board member. Each annual grant will vest upon the optionee's completion of
one year of service as an Arbor Board member, measured from the option
grant date.
3. The option will remain exercisable for a 12-month period following
the optionee's termination of service as an Arbor Board member for any
reason. Should the optionee die while serving as an Arbor Board member or
during the 12-month period following his or her cessation of Arbor Board
service, then the option may be exercised during the 12-month period
following the optionee's cessation of service by the personal
representatives of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance. In no event,
however, may the option be exercised after the expiration date of the
option term. During the applicable exercise period, the option may not be
exercised for more than the number of vested shares (if any) for which it
is exercisable at the time of the optionee's cessation of Arbor Board
service.
4. The option shares will become fully vested in the event of a
Corporate Transaction (as defined below) or a Change in Control (as defined
below). The option shares will become fully vested in the event of the
optionee's cessation of Arbor Board service by reason of death or permanent
disability.
5. Upon the occurrence of a hostile tender offer, the optionee will
have a 30-day period in which to surrender to Arbor each automatic option
which has been in effect for at least six months (whether or not the
optionee is vested in such option) and the optionee will in return be
entitled to a cash distribution from Arbor in an amount per canceled option
share equal to the excess of (i) the highest reported price per share of
Arbor Common Stock paid in the tender offer or, if greater, the fair market
value per share of Arbor Common Stock over (ii) the option exercise price
payable per share.
6. Option grants under the Automatic Option Grant Program will be made
in strict compliance with the express provisions of that program. The
remaining terms and conditions of the options will in general conform to
the terms described above for option grants under the Discretionary Option
Grant Program and will be incorporated into the option agreement evidencing
the automatic grant.
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Stock Issuance Program
Shares of Arbor Common Stock may be sold under the Stock Issuance Program
at a price per share not less than 85% of fair market value, payable in cash or
through a promissory note payable to Arbor. Shares may also be issued solely in
consideration of past services.
The issued shares may either be immediately vested upon issuance or subject
to a vesting schedule tied to the performance of service or the attainment of
performance goals. The Committee will, however, have the discretionary authority
at any time to accelerate the vesting of any or all unvested shares outstanding
under the Arbor 1995 Option Plan.
All outstanding repurchase rights under the Stock Issuance Program will
terminate automatically (and all shares subject to such terminated rights will
fully vest) in the event of a Corporate Transaction (as defined below), unless
such repurchase rights are assigned. If the repurchase rights are assigned
pursuant to a Corporate Transaction, such rights will automatically terminate
and the shares subject to such rights will fully vest, if the participant's
service should subsequently terminate by reason of an involuntary or
constructive termination within 18 months following the effective date of such
Corporate Transaction.
Salary Investment Option Grant Program
The Committee has complete discretion in selecting the individuals who are
to participate in the Salary Investment Option Grant Program. As a condition to
such participation, each selected individual must, prior to the start of the
calendar year of participation, file with the Committee an irrevocable
authorization directing Arbor to reduce, by a designated multiple of 1%, his or
her base salary for the upcoming calendar year. Such salary reduction will be in
an amount not less than 5% of base salary. To the extent the Committee approves
one or more salary reduction authorizations, the affected individuals will be
granted options under the program.
Each option will be subject to substantially the same terms and conditions
applicable to option grants made under the Discretionary Option Grant Program,
except for the following differences:
- The exercise price per share will be equal to one-third of the fair
market value per share of Arbor Common Stock on the grant date.
- The number of option shares will be determined by dividing the total
dollar amount of the approved reduction in the participant's base salary
by two-thirds of the fair market value per share of Arbor Common Stock on
the grant date. As a result, the total spread on the option (the fair
market value of the option shares on the grant date less the aggregate
exercise price payable for those shares) will equal the dollar amount of
the reduction to the optionee's base salary to be in effect for the
calendar year for which the grant is made.
- Provided the optionee continues in service, the option will become
exercisable in a series of 12 equal successive monthly installments in
the calendar year for which the salary reduction is in effect.
- Each option will have a term of ten years measured from the grant date.
General Provisions
Acceleration of Options/Termination of Repurchase Rights. Upon the
occurrence of either of the following transactions (a "Corporate Transaction"):
(i) the sale, transfer, or other disposition of all, or substantially
all, of Arbor's assets in complete liquidation or dissolution of Arbor, or
(ii) a merger or consolidation in which securities possessing more
than 50% of the total combined voting power of Arbor's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction,
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each outstanding option under the Arbor 1995 Option Plan will, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares at the time subject to such option. However, an outstanding
option shall not accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent) or to be replaced with a comparable option to purchase
shares of the capital stock of the successor corporation (or parent), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the
Committee at the time of the option grant. Immediately following the
consummation of the Corporate Transaction, all outstanding options will
terminate and cease to be exercisable, except to the extent assumed by the
successor corporation.
Also upon a Corporate Transaction, Arbor's outstanding repurchase rights
will terminate automatically unless assigned to the successor corporation.
Any options which are assumed or replaced in the Corporate Transaction and
do not otherwise accelerate at that time shall automatically accelerate (and any
of Arbor's outstanding repurchase rights which do not otherwise terminate at the
time of the Corporate Transaction shall automatically terminate and the shares
of Arbor Common Stock subject to those terminated rights shall immediately vest
in full) in the event the optionee's service should subsequently terminate by
reason of an involuntary or constructive termination within 18 months following
the effective date of such Corporate Transaction. Any options so accelerated
shall remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one year period
measured from the effective date of the employment termination.
Upon the occurrence of the following transactions ("Change in Control"):
(i) any person or related group of persons (other than Arbor or a
person that directly or indirectly controls, is controlled by, or is under
common control with, Arbor) acquires beneficial ownership of more than 50%
of Arbor's outstanding voting stock without the Arbor Board's favorable
recommendation, or
(ii) there is a change in the composition of the Arbor Board over a
period of 36 consecutive months or less such that a majority of the Arbor
Board members ceases by reason of a proxy contest to be comprised of
individuals who (a) have been Arbor Board members continuously since the
beginning of such period or (b) have been elected or nominated for
selection as Arbor Board members by a majority of the Arbor Board in (a)
who were still in office at the time such election or nomination was
approved by the Arbor Board,
the Committee has the discretion to accelerate outstanding options and terminate
Arbor's outstanding repurchase rights. The Committee also has the discretion to
accelerate outstanding options and terminate Arbor's outstanding repurchase
rights upon the subsequent termination of the optionee's service within a
specified period following the Change in Control.
The acceleration of options in the event of a Corporate Transaction or
Change in Control may be seen as an anti-takeover provision and may have the
effect of discouraging a merger proposal, a takeover attempt, or other efforts
to gain control of Arbor.
Valuation. For purposes of establishing the option price and for all other
valuation purposes under the Arbor 1995 Option Plan, the fair market value of a
share of Arbor Common Stock on any relevant date will be the closing sale price
per share of Arbor Common Stock on that date, as such price is reported on the
Nasdaq National Market. The closing sale price of Arbor Common Stock on June 16,
1998, was $32 3/8 per share.
Changes in Capitalization. In the event any change is made to Arbor Common
Stock issuable under the Arbor 1995 Option Plan by reason of any stock split,
stock dividend, combination of shares, exchange of shares, or other change
affecting the outstanding Arbor Common Stock as a class without Arbor's receipt
of consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the Arbor 1995 Option Plan, (ii) the
maximum number and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock
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issuances per calendar year, (iii) the number and/or class of securities for
which automatic option grants are to be subsequently made per director under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and the exercise price per share in effect under each outstanding option
(including any option incorporated from the Predecessor Plan) in order to
prevent the dilution or enlargement of benefits thereunder.
Each outstanding option that is assumed in connection with a Corporate
Transaction will be appropriately adjusted to apply to the number and class of
securities that would otherwise have been issued, in consummation of such
Corporate Transaction, to the option holder had the option been exercised
immediately prior to the Corporate Transaction. Appropriate adjustments will
also be made to the option price payable per share and to the class and number
of securities available for future issuance under the Arbor 1995 Option Plan on
both an aggregate and a per-participant basis.
Arbor 1995 Option Plan Amendments. The Arbor Board may amend or modify the
Arbor 1995 Option Plan in any and all respects whatsoever. However, the Arbor
Board may not, without the approval of Arbor's stockholders, (i) materially
increase the maximum number of shares issuable under the Arbor 1995 Option Plan
(except in connection with certain changes in capitalization) or (ii) materially
modify the eligibility requirements for option grants.
Unless sooner terminated by the Arbor Board, the Arbor 1995 Option Plan
will in all events terminate on September 30, 2005. Any options outstanding at
the time of such termination will remain in force in accordance with the
provisions of the instruments evidencing such grants.
As of March 31, 1998, options covering 1,971,023 shares were outstanding
under the Arbor 1995 Option Plan, 583,792 shares remained available for future
option grants, and 356,330 shares have been issued under the Arbor 1995 Option
Plan. The expiration dates for all such options range from June 2000 to March
2008.
New Plan Benefits
Because the Arbor 1995 Option Plan is discretionary, benefits to be
received by individual optionees are not determinable. However, each of Messrs.
Perry and Rodek and, if the Merger is not consummated, Ms. Winblad will receive
an option grant to purchase 5,000 shares under the Automatic Option Grant
Program on the date of the Arbor Annual Meeting with an exercise price per share
equal to the closing price per share of the Arbor Common Stock on the date of
the Arbor Annual Meeting. No options or shares have been granted with respect to
the additional shares for which approval is requested.
FEDERAL INCOME TAX CONSIDERATIONS OF OPTIONS GRANTED UNDER THE ARBOR 1995 OPTION
PLAN
Options granted under the Arbor 1995 Option Plan may be either incentive
stock options that satisfy the requirements of Section 422 of the Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the purchased shares on the exercise date over the exercise price paid for
the shares generally is includable in alternative minimum taxable income. The
optionee will recognize taxable income in the year in which the purchased shares
are sold or otherwise made the subject of disposition.
For Federal income tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased
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shares over (ii) the exercise price paid for such shares. If there is a
disqualifying disposition of the shares, then the excess of (i) the fair market
value of those shares on the date the option was exercised over (ii) the
exercise price paid for the shares will be taxable as ordinary income. Any
additional gain recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Arbor will be entitled to an income tax deduction for the taxable year in
which such disposition occurs equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will Arbor be allowed a deduction with
respect to the optionee's disposition of the purchased shares. Arbor anticipates
that any compensation deemed paid by Arbor upon one or more disqualifying
dispositions of incentive stock option shares by Arbor's executive officers will
remain deductible by Arbor and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of Arbor.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option.
The optionee will in general recognize ordinary income in the year in which
the option is exercised equal to the excess of the fair market value of the
purchased shares on the exercise date over the exercise price paid for the
shares, and the optionee will be required to satisfy the tax withholding
requirements applicable to such income.
Special provisions of the Code apply to the acquisition of Arbor Common
Stock under a non-statutory option if the purchased shares are subject to
repurchase by Arbor. These special provisions may be summarized as follows:
(i) If the shares acquired upon exercise of the non-statutory option
are subject to repurchase by Arbor at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when Arbor's
repurchase right lapses, an amount equal to the excess of (a) the fair
market value of the shares on the date such repurchase right lapses with
respect to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the Code
to include as ordinary income in the year of exercise of the non-statutory
option an amount equal to the excess of (a) the fair market value of the
purchased shares on the exercise date (determined as if the shares were not
subject to Arbor's repurchase right) over (b) the exercise price paid for
such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.
Arbor will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of Arbor in which such ordinary income is recognized by the optionee. Arbor
anticipates that the compensation deemed paid by Arbor upon the exercise of
non-statutory options with exercise prices equal to the fair market value of the
option shares on the grant date will remain deductible by Arbor and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain
executive officers of Arbor.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. Arbor will be entitled to a business expense
deduction equal to the appreciation distribution for the taxable year of Arbor
in which the ordinary income is recognized by the optionee.
Stock Issuances. The tax principles applicable to direct stock issuances
under the Arbor 1995 Option Plan will be substantially the same as those
summarized above for the exercise of nonstatutory option grants.
RECOMMENDATION OF THE ARBOR BOARD
THE ARBOR BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE 1995 STOCK
OPTION/STOCK ISSUANCE PLAN.
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PROPOSAL THREE
AMENDMENT OF ARBOR EMPLOYEE STOCK PURCHASE PLAN
The stockholders of Arbor are being asked to approve, if the Arbor Merger
Proposal is approved, an amendment to the Arbor Software Corporation Employee
Stock Purchase Plan (the "Purchase Plan") to increase the number of shares of
Arbor Common Stock issuable thereunder by 1,000,000 shares to a total of
1,300,000 shares of Arbor Common Stock, or, if the Arbor Merger Proposal is not
approved, by 250,000 shares to a total of 550,000 shares of Arbor Common Stock.
The Purchase Plan was adopted by the Arbor Board on August 31, 1995, and
approved by the Arbor stockholders on September 15, 1995. The Arbor Board
adopted an amendment to the Purchase Plan on June 30, 1997, increasing the
number of shares of Arbor Common Stock available for issuance under the Purchase
Plan by 150,000 shares to a total of 300,000. Such amendment was approved by the
Arbor stockholders at the 1997 Annual Meeting on August 13, 1997. The Purchase
Plan, and the right of participants to make purchases thereunder, is intended to
meet the requirements of an "employee stock purchase plan" as defined in Section
423 of the Code.
SUMMARY OF ARBOR EMPLOYEE STOCK PURCHASE PLAN
The following summary of certain Purchase Plan provisions is qualified, in
its entirety, by reference to the Purchase Plan. Copies of the Purchase Plan
document may be obtained by a stockholder upon written request to the Secretary
of Arbor at the executive offices in Sunnyvale, California.
Purpose. The purpose of the Purchase Plan is to provide employees of Arbor
and designated parent or subsidiary corporations (collectively, "Participating
Companies") an opportunity to participate in the ownership of Arbor by
purchasing Arbor Common Stock through payroll deductions. Arbor currently is the
only Participating Company in the Purchase Plan.
The Purchase Plan is intended to benefit Arbor as well as its stockholders
and employees. The Purchase Plan gives employees an opportunity to purchase
shares of Arbor Common Stock at a favorable price. Arbor believes that the Arbor
stockholders will correspondingly benefit from the increased interest on the
part of participating employees in the profitability of Arbor. Finally, Arbor
will benefit from the periodic investments of equity capital provided by
participants in the Purchase Plan.
Administration. The Purchase Plan is administered by the Committee. All
costs and expenses incurred in plan administration will be paid by Arbor without
charge to participants. All cash proceeds received by Arbor from payroll
deductions under the Purchase Plan will be credited to a non-interest bearing
bank account.
Shares and Terms. The stock issuable under the Purchase Plan is Arbor's
authorized but unissued or reacquired Arbor Common Stock. The maximum number of
shares of Arbor Common Stock that may be issued in the aggregate under the
Purchase Plan is 1,300,000 shares (if the Arbor Merger Proposal and this
Proposal Three is approved) or 550,000 shares (if the Arbor Merger Proposal is
not approved and this Proposal Three is approved), adjusted as described in the
"Adjustments" section of this description. Arbor Common Stock subject to a
terminated purchase right will be available for purchase pursuant to purchase
rights subsequently granted.
Adjustments. If any change in the Arbor Common Stock occurs (through
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, or other change affecting the outstanding Arbor Common Stock as a
class without Arbor's receipt of consideration), appropriate adjustments will be
made by Arbor to the class and maximum number of shares subject to the Purchase
Plan, to the class and maximum number of shares purchasable by each participant
on any one purchase date, and the class and number of shares and purchase price
per share subject to outstanding purchase rights in order to prevent the
dilution or enlargement of benefits thereunder.
Eligibility. Generally, any individual who is customarily employed by a
Participating Company more than 20 hours per week and for more than five months
per calendar year is eligible to participate in the
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Purchase Plan. Approximately 459 employees (including five officers) were
eligible to participate in the Purchase Plan as of May 31, 1998.
Offering Periods. The Purchase Plan is implemented by offering periods that
have a duration of up to 24 months; each offering period is comprised of a
series of successive purchase periods that have a duration of six months. The
first offering period began on November 7, 1995 (the date of execution of the
underwriting agreement in connection with Arbor's initial public offering) and
ended on October 31, 1997; the second offering period commenced on November 1,
1997 and ended on April 30, 1998. The offering periods now generally have a
duration of six months and coincide with the purchase periods, but the Committee
in its discretion may vary the beginning date and ending date of the offering
periods, provided no offering period may exceed 24 months in length.
The participant will have a separate purchase right for each offering
period in which he or she participates. The purchase right will be granted on
the participant's entry date into an offering period and will be automatically
exercised in successive installments on the last day of each purchase period
within the offering period.
Purchase Price. The purchase price per share under the Purchase Plan is 85%
of the lower of (i) the fair market value of a share of Arbor Common Stock on
the first day of the applicable offering period or, if later, the participant's
entry date into the offering period, or (ii) the fair market value of a share of
Arbor Common Stock on the purchase date. If a participant's entry date is on a
day other than the first day of an offering period, the clause (i) amount will
in no event be less than the fair market value of the shares on the first day of
such offering period. Generally, the fair market value of Arbor Common Stock on
a given date is the closing price of Arbor Common Stock, as reported on the
Nasdaq National Market.
Limitations. The plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following:
1. No purchase right will be granted to any person who immediately
thereafter would own, directly or indirectly, stock or hold outstanding
options or rights to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of Arbor or any of
its parent or subsidiary corporations.
2. In no event will a participant be permitted to purchase more than
500 shares on any one purchase date.
3. The right to purchase Arbor Common Stock under the Purchase Plan
(or any other employee stock purchase plan that Arbor or any of its
subsidiaries may establish) in an offering intended to qualify under
Section 423 of the Code may not accrue at a rate that exceeds $25,000 in
fair market value of such Arbor Common Stock (determined at the time such
purchase right is granted) for any calendar year in which such purchase
right is outstanding.
The purchase right will be exercisable only by the participant during the
participant's lifetime and will not be assignable or transferable by the
participant.
Payment of Purchase Price; Payroll Deductions. Payment for shares by
participants shall be by accumulation of after-tax payroll deductions during the
purchase period. The deductions may not exceed 10% of a participant's cash
compensation paid during a purchase period. Cash compensation includes regular
base pay (including any pre-tax contributions made by a participant to any Code
Section 401(k) plan or Section 125 cafeteria benefit program) plus any of the
following amounts to the extent paid in cash: overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments.
However, cash compensation does not include any contributions made on a
participant's behalf by Arbor or any corporate affiliate to any deferred
compensation plan or welfare benefit program (other than a Section 401(k) or 125
plan) now or hereafter maintained by Arbor.
The participant will receive a purchase right for each offering period in
which he or she participates to purchase up to the number of shares of Arbor
Common Stock determined by dividing such participant's payroll deductions
accumulated prior to the purchase date by the applicable purchase price (subject
to the
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"Limitations" section). No fractional shares may be purchased. Any payroll
deductions accumulated in a participant's account that are not sufficient to
purchase a full share will be retained in the participant's account for the
subsequent purchase period.
Termination and Change to Payroll Deductions. A purchase right will
terminate at the end of the offering period or earlier if (i) the participant's
employment terminates, and then any payroll deductions that the participant may
have made with respect to a terminated purchase right will be refunded, or (ii)
the participant elects to withdraw from the Purchase Plan. Any payroll
deductions which the participant may have made with respect to a terminated
purchase right under clause (ii) will be refunded unless the participant elects
to have the funds applied to the purchase of shares on the next purchase date.
Unless a participant has irrevocably elected otherwise, he or she may decrease
his or her deductions once during a purchase period.
Amendment and Termination. The Purchase Plan shall continue in effect until
the earlier of (i) the last business day in October 2005, (ii) the date on which
all shares available for issuance under the Purchase Plan have been issued or
(iii) a Corporate Transaction, unless the Purchase Plan is earlier terminated by
the Board in its discretion.
The Arbor Board may at any time alter, amend, suspend or discontinue the
Purchase Plan, provided that, without the approval of the Arbor stockholders, no
such action may (i) materially increase the number of shares issuable under the
Purchase Plan or (ii) materially modify the eligibility requirements.
In addition, Arbor has specifically reserved the right, exercisable in the
sole discretion of the Arbor Board, to terminate the Purchase Plan immediately
following any six-month purchase period. If such right is exercised by the Arbor
Board, then the Purchase Plan will terminate in its entirety and no further
purchase rights will be granted or exercised, and no further payroll deductions
will thereafter be collected under the Purchase Plan.
Corporate Transaction. In the event of (i) a merger or consolidation in
which securities possessing more than 50% of the total combined voting power of
Arbor's outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such transaction
or (ii) the sale, transfer or other disposition of all or substantially all of
the assets of Arbor in complete liquidation or dissolution of Arbor (a
"Corporate Transaction") the Committee may end the purchase period then in
progress immediately before consummation of the Corporate Transaction or may
continue the Purchase Plan without change.
The grant of purchase rights under the Purchase Plan will in no way affect
the right of Arbor to adjust, reclassify, reorganize, or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
Proration of Purchase Rights. If the total number of shares of Arbor Common
Stock for which purchase rights are to be granted on any date exceeds the number
of shares then remaining available under the Purchase Plan, the Committee shall
make a pro rata allocation of the shares remaining.
New Plan Benefits. Since purchase rights are subject to discretion,
including an employee's decision not to participate in the Purchase Plan, awards
under the Purchase Plan for the current fiscal year are not determinable. No
purchase rights have been granted with respect to the additional shares for
which approval is requested.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general description of certain federal income tax
consequences of the Purchase Plan. This description does not purport to be
complete.
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Code. No income is recognized by a participant at
the time a right to purchase shares is granted. Likewise, no taxable income is
recognized at the time of the purchase, even though the purchase price reflects
a discount from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the Purchase Plan. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of Section 423 have
been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of Section 423, shares acquired under the Purchase Plan cannot be
disposed of within two years after the first day of the offering period during
which the shares were purchased (or within two years after the participant's
entry date, if that date is later than the beginning of the offering period) nor
within one year after the shares were purchased. The U.S. income tax
consequences of a qualifying disposition are as follows:
- The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the
disposition over the purchase price or (b) 15% of the fair market value
of the shares on the first day of the applicable offering period (or on
the participant's entry date, if that date is later than the first day of
the offering period and if the market value is higher on that date).
Arbor will not be entitled to any deduction under these circumstances.
- The excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of
ordinary income recognized (as described above) will be taxed as a
long-term capital gain. If a taxable disposition produces a loss (i.e.,
the fair market value of the shares on the date of the disposition is
less than the purchase price) and the disposition involves certain
unrelated parties, then the loss will be a long-term capital loss.
A participant who disposes of shares acquired under the Purchase Plan
without meeting the holding-period requirements makes a disqualifying
disposition of such shares. The U.S. income tax consequences of a disqualifying
disposition are as follows:
- The entire difference between the purchase price and the market value of
the shares on the date of purchase will be taxed to the participant as
ordinary income in the year of disposition. Arbor will be entitled to a
deduction for the same amount, subject to certain conditions.
- The excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed
as a capital gain (long-term or short-term, depending on how long the
shares have been held). If the value of the shares on the date of
disposition is less than their value on the date of purchase, then the
difference will result in a capital loss (long-term or short-term,
depending upon the holding period), provided the disposition involves
certain unrelated parties. Any such loss will not affect the ordinary
income recognized upon the disposition.
RECOMMENDATION OF THE ARBOR BOARD
THE ARBOR BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE PURCHASE PLAN.
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PROPOSAL FOUR
ELECTION OF DIRECTORS
If the Merger is not consummated, at the Arbor Annual Meeting the
stockholders of Arbor will elect four directors to the Arbor Board to hold
office until the next annual meeting of stockholders of Arbor and their
successors are elected and duly qualified. If the Merger is consummated, this
Proposal Two will not be effectuated regardless of the votes cast by the
stockholders of Arbor, and the directors of Hyperion Solutions will be as
provided pursuant to the Arbor Merger Proposal.
NOMINEES FOR ELECTION AS ARBOR DIRECTORS
The directors who are being nominated for election to the Arbor Board (the
"Arbor Nominees"), their ages as of May 31, 1998, their positions and offices
held with Arbor and certain biographical information are set forth below. The
proxy holders intend to vote all proxies received by them in the accompanying
form FOR the Arbor Nominees listed below unless otherwise instructed. In the
event any Arbor Nominee is unable or declines to serve as a director at the time
of the Arbor Annual Meeting, the proxies will be voted for any nominee who may
be designated by the present Arbor Board to fill the vacancy. As of the date of
this Proxy Statement, the Arbor Board is not aware of any Arbor Nominee who is
unable or will decline to serve as a director. The four Arbor Nominees receiving
the highest number of affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of Arbor to serve until the next Annual
Meeting or until their successors have been duly elected and qualified.
Following the Arbor Annual Meeting there will be one vacancy on the Arbor Board.
This vacancy arises as a result of the resignation of James A. Dorrian, a
director of Arbor since its inception, in May 1998.
<TABLE>
<CAPTION>
NOMINEES AGE POSITIONS AND OFFICES HELD WITH ARBOR
-------- --- -------------------------------------
<S> <C> <C>
John M. Dillon............ 48 President, Chief Executive Officer and
Chairman of the Arbor Board
Mark W. Perry(1).......... 55 Director
Jeffrey R. Rodek(2)....... 44 Director
Ann L. Winblad(1)(2)...... 47 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John M. Dillon joined Arbor in December 1993 as Vice President of Sales.
Presently, Mr. Dillon is Arbor's President, Chief Executive Officer and Chairman
of the Arbor Board and is responsible for worldwide field operations (sales,
support, consulting and education), marketing, product development, finance and
administration. In addition, Mr. Dillon has been a director of Arbor since
December 1996. Mr. Dillon previously served as Senior Vice President of Arbor's
worldwide field operations organization, which included Customer Advocacy
(Customer Support and Education), North American Sales, EMEA (Europe, Middle
East & Africa) Sales, Channel Sales and Field Marketing. Mr. Dillon also served
three years as Vice President of Worldwide Sales. Before joining Arbor, Mr.
Dillon was a field Vice President for Interleaf, a major document management
software company. He spent five years at Oracle Corporation in various sales
management positions and held sales management positions at GRiD Systems
Corporation, a leading developer and retailer of mobile computer products for
government and corporate organizations worldwide and Tymshare/McDonnell Douglas.
Mr. Dillon served in the U.S. Navy for five years.
Mark W. Perry has been a director of Arbor since February 1993. Mr. Perry
joined New Enterprise Associates, a venture capital firm, in October 1995 and
became a General Partner in June 1996. Mr. Perry focuses on the area of
information technology venture capital investing. Mr. Perry's board memberships
include Exabyte Corporation and a number of private companies. From May 1994 to
December 1995, Mr. Perry served as President and Chief Executive Officer and
then as Chairman of Viewstar Corporation, a leading provider of business process
automation, client/server software. From 1985 to 1994, he was employed by
Silicon Graphics, Inc. where his last position was Vice Chairman. Mr. Perry is a
Certified Public Accountant.
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Jeffrey R. Rodek has been a director of Arbor since January 1998. Mr. Rodek
has served as President and Chief Operating Officer of Ingram Micro Inc.
("Ingram Micro") since January 1995 and was promoted to President and Chief
Operating Officer Worldwide in May 1996. Prior to joining Ingram Micro, Mr.
Rodek spent 16 years at Federal Express in several key executive positions,
including Senior Vice President, Central Support Services, and Vice President,
Financial Planning, and most recently as Senior Vice President of Operations,
the Americas.
Ann L. Winblad has been a director of Arbor since June 1991. Ms. Winblad
has been a General Partner of Hummer Winblad Venture Partners, a venture capital
investment firm, since 1989.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1998, the Arbor Board held five
meetings and acted by written consent on four occasions. For the fiscal year,
each of the current directors attended at least 75% of the aggregate of (i) the
total number of meetings of the Arbor Board and (ii) the total number of
meetings held by all Committees of the Arbor Board on which each such director
served. The Arbor Board has two standing committees: the Audit Committee and the
Compensation Committee.
During the fiscal year ended March 31, 1998, the Audit Committee of the
Arbor Board met four times. The Audit Committee reviews, acts on and reports to
the Arbor Board with respect to various auditing and accounting matters,
including the selection of Arbor's independent accountants, the scope of the
annual audits, fees to be paid to Arbor's independent accountants, the
performance of Arbor's auditors and the accounting practices of Arbor. The
current members of the Audit Committee are Mr. Perry and Ms. Winblad.
During the fiscal year ended March 31, 1998, the Compensation Committee of
the Arbor Board held seven meetings. The Compensation Committee reviews the
performance and sets the compensation of the Chief Executive Officer of Arbor,
approves the compensation of the executive officers of Arbor and reviews the
compensation programs for other key employees, including salary and cash bonus
levels, as set by the Chief Executive Officer. The Compensation Committee also
administers the Arbor 1995 Option Plan with respect to Arbor's executive
officers. The current members of the Compensation Committee are Mr. Rodek and
Ms. Winblad.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of Arbor generally do not
receive compensation for services provided as a director. Arbor also does not
pay compensation for committee participation or special assignments of the Arbor
Board.
Non-employee Board members are eligible for option grants pursuant to the
provisions of the Automatic Option Grant Program under the Arbor 1995 Option
Plan. Under the Automatic Option Grant Program, each individual who becomes a
non-employee Board member will be granted an option to purchase 20,000 shares on
the date such individual joins the Board, provided such individual has not been
in the prior employ of Arbor. On January 21, 1998, Mr. Rodek was granted options
to purchase 20,000 shares of Common Stock at an exercise price of $37.125 per
share, which was the fair market value of Arbor's Common Stock on that date. In
addition, at each Annual Stockholders Meeting each individual who continues to
serve, and has served as a non-employee Board member for at least six months
prior to such Annual Meeting, receives an additional option grant to purchase
5,000 shares of Common Stock, whether or not such individual has been in the
prior employ of Arbor. On August 13, 1997, Mr. Perry and Ms. Winblad were
granted options to purchase 5,000 shares each at an exercise price of $39.50 per
share, which was the fair market value of Arbor's Common Stock on that date. For
further information concerning the terms of these automatic grants, please see
the summary of the Automatic Option Grant Program below under the heading,
"Other Information for Arbor Annual Meeting -- Proposal Two -- Amendment of the
1995 Stock Option/Stock Issuance Plan."
RECOMMENDATION OF THE ARBOR BOARD
THE ARBOR BOARD RECOMMENDS A VOTE FOR THE ARBOR NOMINEES LISTED HEREIN.
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PROPOSAL FIVE
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Arbor is asking the stockholders to ratify the appointment of Price
Waterhouse LLP as Arbor's independent accountants for the fiscal year ending
March 31, 1999. In the event the stockholders fail to ratify the appointment,
the Arbor Board will reconsider its selection. Even if the appointment is
ratified, the Arbor Board, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Arbor
Board feels that such a change would be in Arbor's and its stockholders' best
interests. Representatives of Price Waterhouse LLP are expected to be present at
the Arbor Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
RECOMMENDATION OF THE ARBOR BOARD
THE ARBOR BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF
PRICE WATERHOUSE LLP TO SERVE AS THE ARBOR'S INDEPENDENT ACCOUNTANTS FOR THE
FISCAL YEAR ENDING MARCH 31, 1999.
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SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Arbor Board, the executive officers of Arbor and persons
who hold more than 10% of the outstanding Arbor Common Stock are subject to the
reporting requirements of Section 16(a) of the Exchange Act, which require them
to file reports with respect to their ownership of Arbor's Common Stock and
their transactions in such Arbor Common Stock. Based upon (i) the copies of
Section 16(a) reports that Arbor received from such persons for their fiscal
year 1998 transactions in the Arbor Common Stock and their Arbor Common Stock
holdings and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for
fiscal year 1998, Arbor believes that all reporting requirements under Section
16(a) for such fiscal year were met in a timely manner by its executive
officers, Arbor Board members and greater than 10% stockholders.
FORM 10-K
ARBOR WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ARBOR'S
FORM 10-K REPORT FOR FISCAL 1998, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES
AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO ARBOR SOFTWARE CORPORATION,
1344 CROSSMAN AVENUE, SUNNYVALE, CALIFORNIA 94089, ATTN: INVESTOR RELATIONS.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1999 Annual
Meeting that are eligible for inclusion in Arbor's, or if the Merger is
consummated, Hyperion Solutions' proxy statement and related proxy materials for
that meeting under the applicable rules of the SEC must be received by Arbor or,
if the Merger is consummated, Hyperion Solutions not later than March 11, 1999
in order to be included. Such stockholder proposals should be addressed to Arbor
Software Corporation, 1344 Crossman Avenue, Sunnyvale, California 94089, Attn:
Investor Relations, or if the Merger is consummated, Hyperion Solutions
Corporation, 1344 Crossman Avenue, Sunnyvale, California 94089, Attn: Investor
Relations.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Arbor has entered into agreements with Messrs. Dillon, Imbler and
Cruikshank pursuant to which Arbor has agreed to accelerate the vesting of up to
25% of the securities subject to vesting then held by each such officer
following the occurrence of certain changes in control, including by merger,
sale of assets or change in the composition of the Arbor Board. In addition,
should the affected officer resign following a reduction in responsibility or
compensation or an involuntary relocation or should the affected officer's
employment be involuntarily terminated without cause within the 24-month period
following such a change in control, then all of such officer's option shares
shall become fully vested.
The Compensation Committee as administrator of the Arbor 1995 Option Plan
has the authority to provide for the accelerated vesting of the shares of Arbor
Common Stock subject to outstanding options held by the Chief Executive Officer
and any other executive officer or the shares of Arbor Common Stock subject to
direct issuances held by such individual, in connection with certain changes in
control of Arbor or the subsequent termination of the officer's employment
following the change in control event.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Arbor Board (the "Committee") has the
authority to establish the level of base salary payable to Arbor's Chief
Executive Officer ("CEO") and to administer the Arbor 1995 Option Plan and
Employee Stock Purchase Plan. In addition, the Committee has the responsibility
for approving the individual bonus program to be in effect for the CEO. The CEO
has the authority to establish the level of base salary payable to all other
employees of Arbor, including all executive officers, subject to the approval of
the Committee. In addition, the CEO has the responsibility for approving the
bonus programs to
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be in effect for all other executive officers and other key employees each
fiscal year, subject to the approval of the Committee.
For fiscal year 1998, the process utilized by the CEO in determining
executive officer compensation levels took into account both qualitative and
quantitative factors. Among the factors considered by the CEO were informal
surveys conducted by Arbor personnel among local companies. However, the CEO
made the compensation decisions concerning such officers, subject to Committee
review.
General Compensation Policy. The CEO's fundamental policy is to offer
Arbor's executive officers competitive compensation opportunities based upon
overall Arbor performance, their individual contribution to the financial
success of Arbor and their personal performance. It is the CEO's objective to
have a substantial portion of each officer's compensation contingent upon
Arbor's performance, as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package consists of: (i) base
salary, (ii) cash bonus awards and (iii) long-term stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the basis
of personal performance and the salary level in effect for comparable positions
at companies that compete with Arbor for executive talent on the basis of
informal surveys conducted by Arbor.
Annual Cash Bonuses. Each executive officer has an established bonus target
each fiscal year. The annual pool of bonuses for executive officers is
determined on the basis of Arbor's achievement of the financial performance
targets established at the start of the fiscal year, a range for the executive's
contribution and a measure of customer satisfaction. Actual bonuses paid reflect
an individual's accomplishment of both corporate and functional objectives, with
greater weight being given to achievement of corporate rather than functional
objectives.
Long-Term Incentive Compensation. During fiscal year 1998, the Committee
made option grants to William B. Binch, John M. Dillon, Stephen V. Imbler, David
A. Spicer and Kirk A. Cruikshank under the 1995 Option Plan. Generally, a
significant grant is made in the year that an officer commences employment and
no grant is made in the second year, and the size of each grant is set at a
level that the Committee deems appropriate to create a meaningful opportunity
for stock ownership based upon the individual's position with Arbor, the
individual's potential for future responsibility and promotion, the individual's
performance in the recent period and the number of unvested options held by the
individual at the time of the new grant. The relative weight given to each of
these factors will vary from individual to individual at the Committee's
discretion.
Each grant allows the officer to acquire shares of Arbor's Common Stock at
a fixed price per share (the market price on the grant date) over a specified
period of time. The option vests in periodic installments over a four-year
period, contingent upon the executive officer's continued employment with Arbor.
Accordingly, the option will provide a return to the executive officer only if
he or she remains in Arbor's employ, and then only if the market price of
Arbor's Common Stock appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Dillon, Arbor's CEO, was
established by the Committee in July 1997. The Committee's decision was made
primarily on the basis of Mr. Dillon's performance of his duties. The Arbor
Board appointed Mr. Dillon as CEO of Arbor effective as of January 20, 1998. His
base salary was not changed in connection with his promotion.
The remaining components of the CEO's fiscal year 1998 incentive
compensation were entirely dependent upon Arbor's financial performance and
provided no dollar guarantees. The bonus paid to the CEO for fiscal year 1998
was based on the same incentive plan as for all other officers who receive
bonuses. Specifically, a target incentive was established at the beginning of
the fiscal year using an agreed-upon formula based on Arbor revenue and profit
before interest and taxes. Each fiscal year, the annual incentive plan is
reevaluated with a new achievement threshold and new targets for revenue and
profit before interest.
Tax Limitation. As a result of Federal tax legislation enacted in 1993, a
publicly held company such as Arbor will not be allowed a Federal income tax
deduction for compensation paid to certain executive officers to the extent that
compensation exceeds $1 million per officer in any year. The stockholders
approved the
102
<PAGE> 117
Arbor 1995 Option Plan, which includes a provision that limits the maximum
number of shares of Common Stock for which any one participant may be granted
stock options per calendar year. Accordingly, any compensation deemed paid to an
executive officer when he or she exercises an option under the 1995 Stock
Option/Stock Issuance Plan with an exercise price equal to the fair market value
of the option shares on the grant date will generally qualify as
performance-based compensation that will not be subject to the $1 million
limitation. Since it is not expected that the cash compensation to be paid to
Arbor's executive officers for fiscal year 1999 will exceed the $1 million limit
per officer, the Committee will defer any decision on whether to limit the
dollar amount of the cash compensation payable to Arbor's executive officers to
the $1 million cap.
Compensation Committee
Jeffrey R. Rodek
Ann L. Winblad
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Arbor Board was formed in June 1992, and
the members of the Compensation Committee are Mr. Rodek and Ms. Winblad. Neither
of these individuals was at any time during fiscal year 1998, or at any other
time, an officer or employee of Arbor. No executive officer of Arbor serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Arbor Board or
Compensation Committee.
103
<PAGE> 118
ARBOR COMMON STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return
on Arbor's Common Stock between November 7, 1995 (the date Arbor's Common Stock
commenced public trading) and March 31, 1998 with the cumulative total return of
(i) The Nasdaq Stock Market Total Return Index (U.S. Companies) (the "Nasdaq
Stock Market-U.S. Index") and (ii) the Hambrecht & Quist Growth Index (the "H&Q
Growth Index"), over the same period. This graph assumes the investment of
$100.00 on November 7, 1995 in the Arbor Common Stock, The Nasdaq Stock
Market-U.S. Index and the H&Q Growth Index, and assumes the reinvestment of
dividends, if any.
The comparisons shown in the graph below are based upon historical data and
Arbor cautions that the stock price performance shown in the graph below is not
indicative of, nor intended to forecast, the potential future performance of
Arbor Common Stock. Information used in the graph was obtained from Hambrecht &
Quist LLC ("H&Q"), a source believed to be reliable, but H&Q is not responsible
for any errors or omissions in such information.
ARBOR SOFTWARE
H&Q GROWTH INDEX
NASDAQ STOCK MARKET - U.S. INDEX
<TABLE>
<S> <C> <C> <C>
DATES ARBOR SOFTWARE H&Q GROWTH NASDAQ STOCK MARKET -U.S.
11/6/95 100.00 100.00 100.00
NOV-95 109.55 100.97 99.63
DEC-95 120.38 102.18 99.10
JAN-96 104.46 101.87 99.58
FEB-96 109.55 105.79 103.37
MAR-96 110.19 105.42 103.72
APR-96 196.18 122.19 112.32
MAY-96 154.78 129.04 117.48
JUN-96 152.23 115.44 112.18
JUL-96 96.82 96.11 102.19
AUG-96 107.01 104.00 107.92
SEP-96 108.92 115.38 116.17
OCT-96 92.36 106.98 114.89
NOV-96 73.89 105.45 121.99
DEC-96 61.78 106.95 121.88
JAN-97 75.80 112.49 130.55
FEB-97 83.76 100.37 123.33
MAR-97 63.69 86.30 115.28
APR-97 63.38 81.59 118.88
MAY-97 75.80 98.78 132.36
JUN-97 89.81 100.79 136.41
JUL-97 109.55 107.32 150.81
AUG-97 100.96 109.94 150.58
SEP-97 117.99 121.49 159.49
OCT-97 93.15 114.17 151.23
NOV-97 77.07 109.30 151.98
DEC-97 103.18 109.84 149.60
JAN-98 96.50 108.77 154.30
FEB-98 114.65 122.01 168.75
MAR-98 117.52 130.64 174.97
</TABLE>
104
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG ARBOR SOFTWARE CORPORATION,
THE NASDAQ STOCK MARKET-U.S. INDEX AND THE H&Q GROWTH INDEX
Arbor effected its initial public offering on November 6, 1995 at a per
share price of $17.00. The graph above, however, commences with the closing
price of $39.25 per share on November 7, 1995, the date Arbor's Common Stock
commenced public trading.
Notwithstanding anything to the contrary set forth in any of Arbor's
previous or future filings under the Securities Act, or the Exchange Act, that
might incorporate this Proxy Statement or future filings made by Arbor under
those statutes, the Compensation Committee Report and Stock Performance Graph
are not deemed filed with the SEC and shall not be deemed incorporated by
reference into any of those prior filings or into any future filings made by
Arbor under those statutes.
105
<PAGE> 119
OTHER MATTERS
The Arbor Board knows of no other matters to be presented for stockholder
action at the Arbor Annual Meeting. However, if other matters do properly come
before the Arbor Annual Meeting or any adjournments or postponements thereof,
the Arbor Board intends that the persons named in the proxies will vote upon
such matters in accordance with their best judgment.
LEGAL MATTERS
Certain legal matters in connection with the Arbor Common Stock to be
issued in connection with the Merger and certain tax consequences of the Merger
will be passed upon for Arbor by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, Menlo Park, California. Certain tax consequences of the Merger
will be passed upon for Hyperion by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/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 Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Hyperion Software Corporation
appearing in Hyperion Software Corporation's Annual Report (Form 10-K) for the
year ended June 30, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
106
<PAGE> 120
APPENDIX A
AGREEMENT AND PLAN OF MERGER AMONG HYPERION SOFTWARE CORPORATION,
ARBOR SOFTWARE CORPORATION AND HSC MERGER CORP. AND EXHIBITS THERETO
<PAGE> 121
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I -- THE MERGER................................................... A-1
SECTION Effective Time of the Merger................................
1.01 A-1
SECTION Closing.....................................................
1.02 A-2
SECTION Effects of the Merger.......................................
1.03 A-2
SECTION Directors and Officers of Newco.............................
1.04 A-2
SECTION Charter and Bylaws of Newco.................................
1.05 A-2
ARTICLE II -- CONVERSION OF SECURITIES.................................... A-3
SECTION Conversion of Capital Stock.................................
2.01 A-3
SECTION Exchange of Certificates....................................
2.02 A-3
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF ARBOR AND SUB............ A-5
SECTION Organization of Arbor and Sub...............................
3.01 A-5
SECTION Arbor Capital Structure.....................................
3.02 A-6
SECTION Authority; No Conflict; Required Filings and Consents.......
3.03 A-7
SECTION SEC Filings; Financial Statements...........................
3.04 A-8
SECTION No Undisclosed Liabilities..................................
3.05 A-8
SECTION Absence of Certain Changes or Events........................
3.06 A-8
SECTION Taxes.......................................................
3.07 A-9
SECTION Properties..................................................
3.08 A-10
SECTION Intellectual Property.......................................
3.09 A-10
SECTION Agreements, Contracts and Commitments.......................
3.10 A-10
SECTION Litigation..................................................
3.11 A-10
SECTION Environmental Matters.......................................
3.12 A-11
SECTION Employee Benefit Plans......................................
3.13 A-11
SECTION Compliance With Laws........................................
3.14 A-12
SECTION Accounting and Tax Matters..................................
3.15 A-12
SECTION Registration Statement; Proxy Statement/Prospectus..........
3.16 A-12
SECTION Labor Matters...............................................
3.17 A-12
SECTION Insurance; Risk Management..................................
3.18 A-13
SECTION No Existing Discussions.....................................
3.19 A-13
SECTION Opinion of Financial Advisor................................
3.20 A-13
SECTION Section 203 of the DGCL Not Applicable......................
3.21 A-13
SECTION Insider Trading Policies and Practices......................
3.22 A-13
SECTION Interim Operations of Sub...................................
3.23 A-13
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF HYPERION.................. A-13
SECTION Organization of Hyperion....................................
4.01 A-13
SECTION Hyperion Capital Structure..................................
4.02 A-14
SECTION Authority; No Conflict; Required Filings and Consents.......
4.03 A-15
SECTION SEC Filings; Financial Statements...........................
4.04 A-15
SECTION No Undisclosed Liabilities..................................
4.05 A-16
SECTION Absence of Certain Changes or Events........................
4.06 A-16
SECTION Taxes.......................................................
4.07 A-16
SECTION Properties..................................................
4.08 A-17
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION Intellectual Property.......................................
4.09 A-18
SECTION Agreements, Contracts and Commitments.......................
4.10 A-18
SECTION Litigation..................................................
4.11 A-18
SECTION Environmental Matters.......................................
4.12 A-18
SECTION Employee Benefit Plans......................................
4.13 A-19
SECTION Compliance With Laws........................................
4.14 A-19
SECTION Accounting and Tax Matters..................................
4.15 A-19
SECTION Registration Statement;Proxy Statement/Prospectus...........
4.16 A-20
SECTION Labor Matters...............................................
4.17 A-20
SECTION Insurance; Risk Management..................................
4.18 A-20
SECTION No Existing Discussions.....................................
4.19 A-20
SECTION Opinion of Financial Advisor................................
4.20 A-20
SECTION Section 203 of the DGCL Not Applicable......................
4.21 A-20
SECTION Insider Trading Policies and Practices......................
4.22 A-20
SECTION Rights Agreement............................................
4.23 A-21
ARTICLE V -- CONDUCT OF BUSINESS.......................................... A-21
SECTION Covenants of Arbor and Hyperion.............................
5.01 A-21
SECTION Cooperation.................................................
5.02 A-22
SECTION Arbor Rights Plan...........................................
5.03 A-22
ARTICLE VI -- ADDITIONAL AGREEMENTS....................................... A-23
SECTION No Solicitation.............................................
6.01 A-23
SECTION Proxy Statement/Prospectus; Registration Statement..........
6.02 A-23
SECTION Nasdaq Quotation............................................
6.03 A-24
SECTION Access to Information.......................................
6.04 A-24
SECTION Stockholders' Meetings......................................
6.05 A-24
SECTION Legal Conditions to Merger..................................
6.06 A-25
SECTION Public Disclosure...........................................
6.07 A-26
SECTION Tax-Free Reorganization.....................................
6.08 A-26
SECTION Pooling Accounting..........................................
6.09 A-26
SECTION Affiliate Agreements........................................
6.10 A-26
SECTION Nasdaq Quotation............................................
6.11 A-26
SECTION Stock Plans.................................................
6.12 A-26
SECTION Brokers or Finders..........................................
6.13 A-27
SECTION Indemnification.............................................
6.14 A-27
SECTION Letter of Hyperion's Accountants............................
6.15 A-28
SECTION Letter of Arbor's Accountants...............................
6.16 A-28
SECTION Schedules...................................................
6.17 A-28
ARTICLE VII -- CONDITIONS TO MERGER....................................... A-28
SECTION Conditions to Each Party's Obligation To Effect the
7.01 Merger...................................................... A-28
SECTION Additional Conditions to Obligations of Hyperion............
7.02 A-29
SECTION Additional Conditions to Obligations of Arbor and Sub.......
7.03 A-30
ARTICLE VIII -- TERMINATION AND AMENDMENT................................. A-30
SECTION Termination.................................................
8.01 A-30
SECTION Effect of Termination.......................................
8.02 A-31
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION Fees and Expenses...........................................
8.03 A-31
SECTION Amendment...................................................
8.04 A-32
SECTION Extension; Waiver...........................................
8.05 A-33
ARTICLE IX -- MISCELLANEOUS............................................... A-33
SECTION Nonsurvival of Representations, Warranties and Agreements...
9.01 A-33
SECTION Notices.....................................................
9.02 A-33
SECTION Interpretation..............................................
9.03 A-34
SECTION Counterparts................................................
9.04 A-34
SECTION Entire Agreement; No Third Party Beneficiaries..............
9.05 A-34
SECTION Governing Law...............................................
9.06 A-34
SECTION Assignment..................................................
9.07 A-34
</TABLE>
Exhibit A -- Hyperion Stock Option Agreement
Exhibit B -- Arbor Stock Option Agreement
Exhibit C -- Director and Officer Designees
Exhibit D -- Affiliate Agreements
TABLE OF DEFINED TERMS
<TABLE>
<S> <C>
Acquisition Proposal........................................ Section 6.01(a)
Affiliate................................................... Section 6.10
Affiliate Agreement......................................... Section 6.10
Agreement................................................... Preamble
Alternative Transaction..................................... Section 8.03(g)
Antitrust Laws.............................................. Section 6.06(b)
Arbor....................................................... Preamble
Arbor Affiliated Group...................................... Section 3.07(b)
Arbor Affiliated Period..................................... Section 3.07(b)
Arbor Balance Sheet......................................... Section 3.04(b)
Arbor Charter Amendment..................................... Section 6.05(a)
Arbor Common Stock.......................................... Section 2.01(b)
Arbor Designees............................................. Section 1.04(a)
Arbor Disclosure Schedule................................... Article III
Arbor Employee Plans........................................ Section 3.13(a)
Arbor Intellectual Property Rights.......................... Section 3.09(a)
Arbor Material Contracts.................................... Section 3.10
Arbor Material Adverse Effect............................... Section 3.01
Arbor Notes................................................. Section 3.02(a)
Arbor Preferred Stock....................................... Section 3.02(a)
Arbor SEC Reports........................................... Section 3.04(a)
Arbor Stock Option Agreement................................ Preamble
Arbor Stock Plans........................................... Section 3.02(a)
Arbor Stockholders' Meeting................................. Section 3.16
Arbor Third Party Intellectual Property..................... Section 3.09(b)
Arbor Voting Proposals...................................... Section 6.05(a)
Bankruptcy and Equity Exception............................. Section 3.03(a)
</TABLE>
iii
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<TABLE>
<S> <C>
Certificate of Merger....................................... Section 1.01
Certificates................................................ Section 2.02(b)
Closing..................................................... Section 1.02
Closing Date................................................ Section 1.02
Code........................................................ Preamble
Confidentiality Agreement................................... Section 6.01(a)
Constituent Corporations.................................... Section 1.03
Costs....................................................... Section 6.14(a)
DGCL........................................................ Section 1.01
Effective Time.............................................. Section 1.01
Environmental Law........................................... Section 3.12(b)
ERISA....................................................... Section 3.13(a)
ERISA Affiliate............................................. Section 3.13(a)
Exchange Act................................................ Section 3.03(c)
Exchange Agent.............................................. Section 2.02(a)
Exchange Fund............................................... Section 2.02(a)
Exchange Ratio.............................................. Section 2.01(c)
GAAP........................................................ Section 3.04(b)
Governmental Entity......................................... Section 3.03(c)
Hazardous Substance......................................... Section 3.12(c)
HSR Act..................................................... Section 3.03(c)
Hyperion.................................................... Preamble
Hyperion Affiliated Group................................... Section 4.07(a)
Hyperion Affiliated Period.................................. Section 4.07(a)
Hyperion Balance Sheet...................................... Section 4.04(b)
Hyperion Common Stock....................................... Section 2.01(b)
Hyperion Designees.......................................... Section 1.04(a)
Hyperion Disclosure Schedule................................ Article IV
Hyperion Employee Plans..................................... Section 4.13(a)
Hyperion Intellectual Property Rights....................... Section 4.09(a)
Hyperion Third Party Intellectual Property Rights........... Section 4.09(b)
Hyperion Material Adverse Effect............................ Section 4.01
Hyperion Material Contracts................................. Section 4.10
Hyperion Preferred Stock.................................... Section 4.02(a)
Hyperion Rights............................................. Section 4.02(b)
Hyperion Rights Plan........................................ Section 4.02(b)
Hyperion SEC Reports........................................ Section 4.04(a)
Hyperion Stock Option....................................... Section 6.12(a)
Hyperion Stock Option Agreement............................. Preamble
Hyperion Stock Plans........................................ Section 4.02(a)
Hyperion Stockholders' Meeting.............................. Section 3.16
Hyperion Balance Sheet...................................... Section 4.04(b)
Indemnified Parties......................................... Section 6.14(a)
IRS......................................................... Section 3.07(b)
Joint Proxy Statement....................................... Section 3.16
Merger...................................................... Preamble
Newco....................................................... Preamble
Newco Board................................................. Section 1.04(a)
Order....................................................... Section 6.06(b)
</TABLE>
iv
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<TABLE>
<S> <C>
Outside Date................................................ Section 8.01(b)
Registration Statement...................................... Section 3.16
Rule 145.................................................... Section 6.10
SEC......................................................... Section 3.03(c)
Second Request.............................................. Section 6.06(b)
Securities Act.............................................. Section 3.04(a)
Stock Option Agreements..................................... Preamble
Sub......................................................... Preamble
Subsidiary.................................................. Section 3.01
Superior Proposal........................................... Section 6.01(a)
Surviving Corporation....................................... Section 1.03
Tax......................................................... Section 3.07(a)
Taxes....................................................... Section 3.07(a)
Tax Returns................................................. Section 3.07(a)
Third Party................................................. Section 8.03(g)
</TABLE>
v
<PAGE> 126
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 25, 1998,
by and among Hyperion Software Corporation, a Delaware corporation ("Hyperion"),
Arbor Software Corporation, a Delaware corporation ("Arbor"), and HSC Merger
Corp., a Delaware corporation and a direct, wholly-owned subsidiary of Arbor
("Sub").
WHEREAS, the Boards of Directors of Hyperion and Arbor deem it advisable
and in the best interests of each corporation and its respective stockholders
that Hyperion and Arbor combine in order to advance the long-term business
interests of Hyperion and Arbor;
WHEREAS, the combination of Hyperion and Arbor shall be effected by the
terms of this Agreement through a merger in which the stockholders of Hyperion
will become stockholders of Arbor (the "Merger");
WHEREAS, upon the closing of the Merger, the name of Arbor shall be changed
to "Hyperion Solutions Corporation" (Arbor, from and after the Merger, being
sometimes hereinafter referred to as "Newco");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of Hyperion's and Arbor's willingness to
enter into this Agreement, Hyperion and Arbor have entered into (a) a Stock
Option Agreement dated as of the date of this Agreement and attached hereto as
EXHIBIT A (the "Hyperion Stock Option Agreement"), pursuant to which Arbor
granted Hyperion an option to purchase shares of common stock of Arbor under
certain circumstances, and (b) a Stock Option Agreement dated as of the date of
this Agreement and attached hereto as EXHIBIT B (the "Arbor Stock Option
Agreement" and, together with the Hyperion Stock Option Agreement, the "Stock
Option Agreements"), pursuant to which Hyperion granted Arbor an option to
purchase shares of common stock of Hyperion under certain circumstances;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 Effective Time of the Merger. Subject to the provisions of
this Agreement, a certificate of merger in such form as is required by the
relevant provisions of the Delaware General Corporation Law ("DGCL") (the
"Certificate of Merger") shall be duly prepared, executed and acknowledged by
the Surviving Corporation (as defined in Section 1.03) and thereafter delivered
to the Secretary of State of the State of Delaware, for filing, as provided in
the DGCL, as soon as practicable on or after the Closing Date (as defined in
Section 1.02). The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
SECTION 1.02 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., California Time, on a date to be specified by Hyperion and
Arbor, which shall be no later than the second business day after satisfaction
of the latest to occur of the conditions set forth in Sections 7.01, 7.02 and
7.03 (the "Closing Date"), at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California,
unless another date, place or time is agreed to in writing by Hyperion and
Arbor.
A-1
<PAGE> 127
SECTION 1.03 Effects of the Merger. At the Effective Time (i) the separate
existence of Sub shall cease and Sub shall be merged with and into Hyperion (Sub
and Hyperion are sometimes referred to below as the "Constituent Corporations"
and Hyperion is sometimes referred to below as the "Surviving Corporation"),
(ii) the Certificate of Incorporation of Hyperion shall be amended so that
Article IV of such Certificate of Incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000, all of which shall consist
of Common Stock, par value $.01 per share," and, as so amended, such Certificate
of Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation, (iii) the Bylaws of the Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, (iv) all the
property, rights, privileges, powers and franchises and duties of Sub and
Hyperion shall vest in the Surviving Corporation, and (v) all debts, liabilities
and duties of Hyperion and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 1.04 Directors and Officers of NEWCO.
(a) Arbor shall take all actions necessary to cause the directors
comprising the full Board of Directors of Arbor at the Effective Time (the
"Newco Board") to be comprised of seven directors. Initially, four of such
directors shall be designated by Hyperion (the "Hyperion Designees") and three
of such directors shall be designated by Arbor (the "Arbor Designees"). Hyperion
hereby designates the persons listed as such on EXHIBIT C-1 hereto as the
initial Hyperion Designees. Arbor hereby designates the persons listed as such
on EXHIBIT C-2 hereto as the initial Arbor Designees. Each class of directors of
Newco shall consist, at the Effective Time, of the Hyperion Designees and the
Arbor Designees as set forth on EXHIBIT C-3. If, prior to the Effective Time,
any of the Hyperion Designees or Arbor Designees shall decline or be unable to
serve as a Hyperion Designee or an Arbor Designee, Hyperion (if such person was
so designated by Hyperion) or Arbor (if such person was so designated by Arbor)
shall designate another person to serve in such person's stead, which person
shall be reasonably acceptable to the other party.
(b) At the Effective Time, Arbor shall cause the persons listed on EXHIBIT
C-4 to be named as officers of Newco, holding the positions therein indicated;
provided, that if any such persons are unwilling or unable to serve in such
capacities, their replacements shall be selected by the Newco Board as
constituted at the Effective Time. Newco shall also have such other officers as
may be elected by the Newco Board.
(c) The foregoing officers and directors of Newco shall hold their
positions until their resignation or removal or the election or appointment of
their successors in the manner provided by Newco's charter documents and
applicable law.
SECTION 1.05 Charter and Bylaws of NEWCO.
(a) At the Arbor Stockholders' Meeting (as defined in Section 3.16), Arbor
shall, in accordance with Section 6.05, propose, among other things, that its
Certificate of Incorporation be amended to: (i) change the name of Arbor to
"Hyperion Solutions Corporation," (ii) increase the authorized number of shares
of Arbor Common Stock to 300,000,000 shares, (iii) create a staggered Board of
Directors, and (iv) incorporate into its Certificate of Incorporation
indemnification provisions in substantially the form set forth in Arbor's
current Bylaws.
(b) Arbor shall amend its Bylaws so that the Bylaws of Newco, upon the
Effective Time, shall be as set forth as an Exhibit to Section 1.05 to the Arbor
Disclosure Schedule (as defined in Article III below).
A-2
<PAGE> 128
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Hyperion Common Stock or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Arbor-Owned Stock. All shares
of Common Stock of Hyperion ("Hyperion Common Stock") that are owned by
Hyperion as treasury stock and any shares of Hyperion Common Stock owned by
Arbor, Sub or any other wholly-owned Subsidiary (as defined in Section
3.01) of Arbor shall be canceled and retired and shall cease to exist and
no stock of Arbor or other consideration shall be delivered in exchange
therefor. All shares of Common Stock, par value $.001 per share, of Arbor
("Arbor Common Stock") owned by Hyperion shall be unaffected by the Merger.
(c) Exchange Ratio for Hyperion Common Stock. Subject to Section 2.02,
each issued and outstanding share of Hyperion Common Stock (other than
shares to be canceled in accordance with Section 2.01(b)) shall be
converted into the right to receive .95 shares (the "Exchange Ratio") of
Arbor Common Stock. All such shares of Hyperion Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Arbor
Common Stock and any cash in lieu of fractional shares of Arbor Common
Stock to be issued or paid in consideration therefor upon the surrender of
such certificate in accordance with Section 2.02, without interest.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Arbor Common Stock or Hyperion Common Stock),
reorganization, recapitalization or other like change with respect to Arbor
Common Stock or Hyperion Common Stock occurring after the date hereof and
prior to the Effective Time.
SECTION 2.02 Exchange of Certificates. The procedures for exchanging
outstanding shares of Hyperion Common Stock for Arbor Common Stock pursuant to
the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Arbor shall deposit with
a bank or trust company designated by Hyperion and Arbor (the "Exchange
Agent"), for the benefit of the holders of shares of Hyperion Common Stock,
for exchange in accordance with this Section 2.02, through the Exchange
Agent, (i) certificates representing the shares of Arbor Common Stock (such
shares of Arbor Common Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.01 in exchange for outstanding shares of
Hyperion Common Stock, and (ii) cash in an amount sufficient to permit
payment of cash in lieu of fractional shares pursuant to Section 2.02(e).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, but not later than ten business days thereafter, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Hyperion Common Stock (the "Certificates") whose
shares were converted pursuant to Section 2.01 into the right to receive
shares of Arbor Common Stock (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Hyperion and Arbor may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
representing shares of Arbor Common Stock (plus cash in lieu of fractional
shares, if any, of Arbor Common Stock as provided below). Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Hyperion
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and Arbor, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of Arbor
Common Stock which such holder has the right to receive pursuant to the
provisions of this Article II and payment in lieu of fractional shares
which the holder of such Certificate has the right to receive pursuant to
Section 2.02(e), and the Certificate so surrendered shall immediately be
canceled. In the event of a transfer of ownership of Hyperion Common Stock
which is not registered in the transfer records of Hyperion, a certificate
representing the proper number of shares of Arbor Common Stock may be
issued to a transferee if the Certificate representing such Hyperion Common
Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer or other applicable taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of Arbor
Common Stock and cash in lieu of any fractional shares of Arbor Common
Stock as contemplated by this Section 2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Arbor Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Arbor Common Stock represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
subsection (e) below until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Arbor Common
Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional
share of Arbor Common Stock to which such holder is entitled pursuant to
subsection (e) below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to
such whole shares of Arbor Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Arbor
Common Stock.
(d) No Further Ownership Rights in Hyperion Common Stock. All shares
of Arbor Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to subsection (c) or (e) of this Section 2.02) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such
shares of Hyperion Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by Hyperion on such shares of Hyperion Common Stock
in accordance with the terms of this Agreement (to the extent permitted
under Section 5.01) prior to the date hereof and which remain unpaid at the
Effective Time, and from and after the Effective Time there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Hyperion Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this
Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Arbor Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of Arbor. Notwithstanding any other provision of this Agreement, each
holder of shares of Hyperion Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Arbor Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Arbor Common Stock
multiplied by the average of the last reported sales prices of Arbor Common
Stock, as reported on the Nasdaq National Market, on each of the ten
trading days immediately preceding the Closing Date.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Hyperion for 180 days
after the Effective Time shall be delivered to Arbor, upon demand, and any
stockholders of Hyperion who have not previously complied with this Section
2.02 shall thereafter look only to Arbor for payment of their claim for
Arbor Common Stock, any cash in lieu of fractional shares of Arbor Common
Stock and any dividends or distributions with respect to Arbor Common
Stock.
(g) No Liability. To the extent permitted by applicable law, neither
Arbor nor Hyperion shall be liable to any holder of shares of Arbor Common
Stock or Hyperion Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
(h) Withholding Rights. Each of Arbor and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Hyperion
Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
by the Surviving Corporation or Arbor, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Hyperion Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation
or Arbor, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Arbor Common Stock and any
cash in lieu of fractional shares, and unpaid dividends and distributions
on shares of Arbor Common Stock deliverable in respect thereof pursuant to
this Agreement.
(j) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in
Section 6.10) of Hyperion shall not be exchanged until Arbor has received
an Affiliate Agreement (as defined in Section 6.10) from such Affiliate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ARBOR AND SUB
Arbor and Sub represent and warrant to Hyperion that the statements
contained in this Article III are true and correct except as set forth herein
and in the disclosure schedule delivered by Arbor to Hyperion prior to the
execution and delivery of this Agreement (the "Arbor Disclosure Schedule"). The
Arbor Disclosure Schedule shall be arranged in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained in
this Article III and the disclosure in any section or paragraph shall qualify
other sections and paragraphs in this Article III only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other sections and paragraphs.
SECTION 3.01 Organization of Arbor and Sub. Each of Arbor and Sub and
Arbor's other Subsidiaries (as defined below) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted and as proposed to
be conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have an Arbor Material Adverse Effect (as defined below). Except as set
forth in the Arbor SEC Reports (as defined in Section 3.04) filed prior to the
date hereof, neither Arbor nor any of its Subsidiaries directly or indirectly
owns any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity, excluding securities in any publicly
traded company held for investment by Arbor and comprising less
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than five percent (5%) of the outstanding stock of such company. As used in this
Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (a) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (b) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries. As used in this Agreement, any
reference to a party's "knowledge" means, with respect to a matter, such party's
actual knowledge after due and diligent inquiry of officers, directors and other
employees of such party and its Subsidiaries reasonably believed to have
knowledge of such matter. For purposes of this Agreement, the term "Arbor
Material Adverse Effect" means any effect that is, or would reasonably be
expected to be, materially adverse to the business, properties, financial
condition or results of operations of Arbor and its Subsidiaries, taken as a
whole; provided, however, that (i) any adverse change, event or effect that is
demonstrated to be primarily caused by conditions affecting the United States
economy generally or the economy of any nation or region in which Arbor or any
of its Subsidiaries conducts business that is material to the business of Arbor
and its Subsidiaries, taken as a whole, shall not be taken into account in
determining whether there has been or would be an "Arbor Material Adverse
Effect" on or with respect to Arbor and its Subsidiaries, taken as a whole, (ii)
any adverse change, event or effect that is demonstrated to be primarily caused
by conditions generally affecting the enterprise software industry shall not be
taken into account in determining whether there has been or would be an "Arbor
Material Adverse Effect" on or with respect to Arbor and its Subsidiaries, taken
as a whole, (iii) any adverse change, event or effect that is demonstrated to be
primarily caused by the announcement or pendency of the Merger shall not be
taken into account in determining whether there has been or would be an "Arbor
Material Adverse Effect" on or with respect to Arbor and its Subsidiaries, taken
as a whole, and (iv) any adverse change in the stock price of Arbor as quoted on
the Nasdaq National Market shall not be taken into account in determining
whether there has been or would be an "Arbor Material Adverse Effect" on or with
respect to Arbor and its Sub sidiaries, taken as a whole.
SECTION 3.02 Arbor Capital Structure.
(a) The authorized capital stock of Arbor consists of 50,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value ("Arbor Preferred Stock"). As of March 31, 1998, (i) 11,402,591 shares
of Arbor Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) 1,774,402 shares of Arbor Common
Stock were reserved for issuance upon conversion of Arbor's 4 1/2% Convertible
Subordinated Notes Due 2005 in the original principal amount of $100,000,000
(the "Arbor Notes") and (iii) no shares of Arbor Common Stock were held in the
treasury of Arbor or by Subsidiaries of Arbor. Section 3.02 of the Arbor
Disclosure Schedule shows the number of shares of Arbor Common Stock reserved
for future issuance pursuant to stock options granted and outstanding as of
March 31, 1998 and the plans under which such options were granted (together
with the Arbor Employee Stock Purchase Plan, the "Arbor Stock Plans"). No
material change in such capitalization has occurred between March 31, 1998 and
the date of this Agreement. As of the date of this Agreement, none of the shares
of Arbor Preferred Stock is issued and outstanding. All shares of Arbor Common
Stock subject to issuance as specified above are duly authorized and, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of Arbor or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Arbor
Common Stock or the capital stock of any Subsidiary or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
bank obligations of Subsidiaries entered into in the ordinary course of
business. All of the outstanding shares of capital stock of each of Arbor's
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares in the case of
foreign Subsidiaries) are owned by Arbor or another Subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
Arbor's voting rights, charges or other encumbrances of any nature.
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(b) Except as set forth in this Section 3.02 or as reserved for future
grants of options and issuances of shares of Common Stock under the Arbor Stock
Plans, the Arbor Notes or the Hyperion Stock Option Agreement, there are no
equity securities of any class of Arbor or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. Except as set forth in the Arbor SEC
Reports filed prior to the date hereof, in the Hyperion Stock Option Agreement
or disclosed in Section 3.02 of the Arbor Disclosure Schedule, there are no
options, warrants, equity securities, calls, rights, commitments or agreements
of any character to which Arbor or any of its Subsidiaries is a party or by
which it is bound obligating Arbor or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of capital
stock of Arbor or any of its Subsidiaries or obligating Arbor or any of its
Subsidiaries to grant, extend, accelerate the vesting of, change the price of,
or otherwise amend or enter into any such option, warrant, equity security,
call, right, commitment or agreement. To the best knowledge of Arbor, there are
no voting trusts, proxies or other voting agreements or understandings with
respect to the shares of capital stock of Arbor.
SECTION 3.03 Authority; No Conflict; Required Filings and Consents.
(a) Each of Arbor and Sub has all requisite corporate power and authority
to enter into this Agreement and the Hyperion Stock Option Agreement and to
consummate the transactions contemplated by this Agreement and the Hyperion
Stock Option Agreement. The execution and delivery of this Agreement and the
Hyperion Stock Option Agreement and the consummation of the transactions
contemplated by this Agreement and the Hyperion Stock Option Agreement by Arbor
have been duly authorized by all necessary corporate action on the part of each
of Arbor and Sub (including the approval of the Merger by Arbor as the sole
stockholder of Sub), subject only to the approval of the Arbor Voting Proposals
(as defined in Section 6.05) by Arbor's stockholders. This Agreement and the
Hyperion Stock Option Agreement have been duly executed and delivered by Arbor
and, in the case of this Agreement, Sub, and constitute the valid and binding
obligations of Arbor and, in the case of this Agreement, Sub, enforceable in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception").
(b) The execution and delivery of this Agreement and the Hyperion Stock
Option Agreement by Arbor and, in the case of this Agreement, Sub, does not, and
the consummation of the transactions contemplated by this Agreement and the
Hyperion Stock Option Agreement will not, (i) conflict with, or result in any
violation or breach of, any provision of the Certificate of Incorporation or
Bylaws of Arbor or Sub, each as amended to date, (ii) result in any violation
of, or default under or breach of, or constitute (with or without notice or
lapse of time, or both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any material benefit)
under, or require a consent or waiver under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Arbor or any of its Subsidiaries is
a party or by which any of them or any of their properties or assets may be
bound, or (iii) conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Arbor or any of its Subsidiaries or any of its or their properties
or assets, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations that are not,
individually or in the aggregate, reasonably likely to have an Arbor Material
Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Arbor or any of its Subsidiaries in connection
with the execution and delivery of this Agreement and the Hyperion Stock Option
Agreement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of a pre-merger notification report under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Registration Statement (as defined in Section 3.16
below) with the Securities and Exchange Commission (the "SEC") in accordance
with the Securities Act, (iii) the filing of the Certificate of Merger with the
Secretary of State of Delaware, (iv) the filing of the Joint Proxy Statement (as
defined in Section 3.16 below) with the SEC in accordance with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
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and the National Association of Securities Dealers, Inc., and any clearance
thereof by the SEC, (v) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares, (vi) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
reasonably likely to have an Arbor Material Adverse Effect.
SECTION 3.04 SEC Filings; Financial Statements.
(a) Arbor has filed and made available to Hyperion all forms, reports and
documents required to be filed by Arbor with the SEC since April 1, 1995 other
than registration statements on Form S-8 (collectively, the "Arbor SEC
Reports"). The Arbor SEC Reports (i) at the time filed or, with respect to
registration statements filed with the SEC under the Securities Act, as of the
effective date thereof, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Arbor SEC Reports or necessary in order to make the statements in such Arbor SEC
Reports, in the light of the circumstances under which they were made, not
misleading. None of Arbor's Subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Arbor SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, was prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) and fairly presented the consolidated financial position of Arbor and
its Subsidiaries as of the dates and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
unaudited balance sheet of Arbor as of March 31, 1998 is referred to herein as
the "Arbor Balance Sheet."
SECTION 3.05 No Undisclosed Liabilities. Except as disclosed in the Arbor
SEC Reports filed prior to the date hereof, and except for normal or recurring
liabilities incurred since March 31, 1998 in the ordinary course of business
consistent with past practices, Arbor and its Subsidiaries do not have any
liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with GAAP), and whether due
or to become due, which individually or in the aggregate are reasonably likely
to have an Arbor Material Adverse Effect.
SECTION 3.06 Absence of Certain Changes or Events. Except as disclosed in
the Arbor SEC Reports filed prior to the date hereof, during the period
commencing on the date of the Arbor Balance Sheet and ending on the date of this
Agreement, Arbor and its Subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past practice and, during
such period, there has not been (i) any change in the financial condition,
results of operations, business or properties of Arbor and its Subsidiaries,
taken as a whole, which has had or could reasonably be expected to have an Arbor
Material Adverse Effect; (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to Arbor or any of its Subsidiaries having an
Arbor Material Adverse Effect; (iii) any material change by Arbor in its
accounting methods, principles or practices to which Hyperion has not previously
consented in writing; (iv) any revaluation by Arbor of any of its assets having
an Arbor Material Adverse Effect; or (v) any other action or event that would
have required the consent of Hyperion pursuant to Section 5.01 of this Agreement
had such action or event occurred after the date of this Agreement and that, in
the case of this clause (v), individually or in the aggregate, has had or is
reasonably likely to have an Arbor Material Adverse Effect.
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SECTION 3.07 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes'
means any and all material federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, gains, franchise,
withholding, payroll, recapture, employment, excise, unemployment insurance,
social security, business license, occupation, business organization, stamp,
environmental and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity. "Tax Returns'
means all reports, returns, declarations, statements or other information
required to be supplied to a taxing authority in connection with Taxes.
(b) Each of Arbor and its Subsidiaries has filed all Tax Returns that it
was required to file, and, except to the extent that a reserve for Taxes was
reflected on the Arbor Balance Sheet (exclusive of any accruals for "deferred
taxes" or similar items that reflect timing differences between Tax and
financial accounting principles), all such Tax Returns were correct and
complete. Each group of corporations with which Arbor or any Subsidiary has
filed (or was required to file) consolidated, combined, unitary or similar Tax
Returns (an "Arbor Affiliated Group") has filed all such Tax Returns that it was
required to file with respect to any period in which Arbor or a Subsidiary was a
member of such Arbor Affiliated Group (an "Arbor Affiliated Period"), and,
except to the extent that a reserve for Taxes was reflected on the Arbor Balance
Sheet (exclusive of any accruals for "deferred taxes" or similar items that
reflect timing differences between Tax and financial accounting principles), all
such Tax Returns were correct and complete. Except to the extent that a reserve
for Taxes was reflected on the Arbor Balance Sheet (exclusive of any accruals
for "deferred taxes" or similar items that reflect timing differences between
Tax and financial accounting principles), each of Arbor and its Subsidiaries has
paid all Taxes (whether or not shown on such Tax Returns) that were due and
payable, and each Arbor Affiliated Group has paid all Taxes (whether or not
shown on such Tax Returns) that were due and payable with respect to all Arbor
Affiliated Periods and with respect to which Arbor or any of its Subsidiaries
may be liable by operation of law or otherwise. The unpaid Taxes of Arbor and
the Subsidiaries for Tax periods through the date of the Arbor Balance Sheet do
not exceed the accruals and reserves for Taxes set forth on the Arbor Balance
Sheet (exclusive of any accruals for "deferred taxes" or similar items that
reflect timing differences between Tax and financial accounting principles). The
unpaid Taxes of Arbor and the Subsidiaries for Tax periods from the date of the
Arbor Balance Sheet through the Closing Date are attributable solely to the
conduct of their businesses in the ordinary course and in a manner consistence
with past practices. All Taxes that Arbor or any Subsidiary is or was required
by law to withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Entity. Each of the
representations contained in this Section 3.07(b) shall be limited in its
application to items which are reasonably likely, individually or in the
aggregate, to have an Arbor Material Adverse Effect.
(c) Arbor is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax Returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than Arbor nor
does Arbor owe any amount under any such agreement. No examination or audit by
any Governmental Entity of any Tax Return of Arbor, any of its Subsidiaries or
any Arbor Affiliated Group with respect to an Arbor Affiliated Period is
currently in progress or, to the knowledge of Arbor and its Subsidiaries,
threatened or contemplated, in each case, which involve claims that individually
or in the aggregate are reasonably likely to have an Arbor Material Adverse
Effect. Neither Arbor nor any of its Subsidiaries has been informed by any
jurisdiction that the jurisdiction believes that Arbor or any of its
Subsidiaries was required to file any Tax Return that was not filed which
failure or failures individually, or in the aggregate, are reasonably likely to
have an Arbor Material Adverse Effect.
(d) Neither Arbor nor any of its Subsidiaries is a "consenting corporation'
within the meaning of Section 341(f) of the Code, and none of the assets of
Arbor or the Subsidiaries are subject to an election under Section 341(f) of the
Code.
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(e) Neither Arbor nor any of its Subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
(f) Neither Arbor nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will be an "excess parachute payment'
under Code Section 280G.
SECTION 3.08 Properties.
(a) Arbor does not own of record any real property.
(b) All material real property leases of Arbor and its Subsidiaries are in
good standing, valid and effective in accordance with their respective terms,
and neither Arbor nor any of its Subsidiaries is in default under any of such
leases, except where the lack of such good standing, validity or effectiveness
or the existence of such default would not be reasonably likely to have an Arbor
Material Adverse Effect.
SECTION 3.09 Intellectual Property.
(a) Arbor and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Arbor and
its Subsidiaries as currently conducted, or planned to be conducted, the absence
of which would be reasonably likely to have an Arbor Material Adverse Effect
(the "Arbor Intellectual Property Rights").
(b) Neither Arbor nor any of its Subsidiaries is, or will as a result of
the execution and delivery of this Agreement or the performance of Arbor's
obligations under this Agreement or otherwise be, in breach of any license,
sublicense or other agreement relating to the Arbor Intellectual Property
Rights, or any material licenses, sublicenses and other agreements as to which
Arbor or any of its Subsidiaries is a party and pursuant to which Arbor or any
of its Subsidiaries is authorized to use any third party patents, trademarks or
copyrights ("Arbor Third Party Intellectual Property Rights"), including
software that is used in the manufacture of, incorporated in, or forms a part of
any product sold by or expected to be sold by Arbor or any of its Subsidiaries,
the breach of which would be reasonably likely to have an Arbor Material Adverse
Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Arbor or any of its Subsidiaries and which are material to the
business of Arbor and its Subsidiaries, taken as a whole, are valid and
subsisting. Arbor (i) has not been sued in any suit, action or proceeding, or
received in writing any claim or notice, which involves a claim of infringement
of any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party; and (ii) has no knowledge
that the manufacturing, marketing, licensing or sale of its products infringes
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement would reasonably be
expected to have an Arbor Material Adverse Effect.
SECTION 3.10 Agreements, Contracts and Commitments. Arbor has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any agreement, contract or commitment filed as an
exhibit to the Arbor SEC Reports ("Arbor Material Contracts") in such a manner
as, individually or in the aggregate, are reasonably likely to have an Arbor
Material Adverse Effect. Each Arbor Material Contract that has not expired by
its terms is in full force and effect.
SECTION 3.11 Litigation. Except as described in the Arbor SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Arbor or any of its Subsidiaries pending or
as to which Arbor or any such Subsidiary has received any written notice of
assertion, which, individually or in the aggregate, is reasonably likely to have
an Arbor Material Adverse Effect or a material adverse effect on the ability of
Arbor to consummate the transactions contemplated by this Agreement.
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SECTION 3.12 Environmental Matters.
(a) Except as disclosed in the Arbor SEC Reports filed prior to the date
hereof and except for such matters that, individually or in the aggregate, are
not reasonably likely to have an Arbor Material Adverse Effect: (i) Arbor and
its Subsidiaries have complied with all applicable Environmental Laws (as
defined in Section 3.12(b)); (ii) the properties currently owned or operated by
Arbor and its Subsidiaries (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances (as defined in Section 3.12(c)); (iii) the properties formerly owned
or operated by Arbor or any of its Subsidiaries were not contaminated with
Hazardous Substances during the period of ownership or operation by Arbor or any
of its Subsidiaries; (iv) neither Arbor nor any of its Subsidiaries are subject
to liability for any Hazardous Substance disposal or contamination on any third
party property; (v) neither Arbor nor any of its Subsidiaries has been
associated with any release or threat of release of any Hazardous Substance;
(vi) neither Arbor nor any of its Subsidiaries has received any notice, demand,
letter, claim or request for information alleging that Arbor or any of its
Subsidiaries may be in violation of or liable under any Environmental Law; (vii)
neither Arbor nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (viii)
there are no circumstances or conditions involving Arbor or any of its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use or
transfer of any property of Arbor pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (i) the protection, investigation
or restoration of the environment, health and safety, or natural resources, (ii)
the handling, use, presence, disposal, release or threatened release of any
Hazardous Substance or (iii) noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means any substance that
is: (i) listed, classified or regulated pursuant to any Environmental Law; (ii)
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any Governmental Entity pursuant to any Environmental Law.
SECTION 3.13 Employee Benefit Plans.
(a) Arbor has listed in Section 3.13 of the Arbor Disclosure Schedule all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, and all unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of Arbor or any trade or business (whether or not
incorporated) (an "ERISA Affiliate") which under Section 414 of the Code is
aggregated with Arbor or any Subsidiary of Arbor (collectively, the "Arbor
Employee Plans").
(b) With respect to each Arbor Employee Plan, Arbor has made available to
Hyperion a true and correct copy of (i) the most recent annual report (Form
5500), if any, filed with the IRS, (ii) such Arbor Employee Plan, (iii) each
trust agreement and group annuity contract, if any, relating to such Arbor
Employee Plan and (iv) the most recent actuarial report or valuation relating to
an Arbor Employee Plan subject to Title IV of ERISA.
(c) With respect to the Arbor Employee Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of Arbor, there exists no
condition or set of circumstances in connection with which Arbor could be
subject to any liability that is reasonably likely to have an Arbor Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Arbor Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance
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with GAAP, on the financial statements of Arbor, which obligations are
reasonably likely to have an Arbor Material Adverse Effect.
(e) Except as disclosed in Arbor SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Arbor nor
any of its Subsidiaries is a party to any oral or written (i) agreement with any
officer or other key employee of Arbor or any of its Subsidiaries, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Arbor of the nature contemplated by this
Agreement, (ii) agreement with any officer of Arbor providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof and for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
SECTION 3.14 Compliance with Laws. Arbor and each of its Subsidiaries has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have an Arbor Material Adverse Effect.
SECTION 3.15 Accounting and Tax Matters. To its knowledge, after
consulting with its independent auditors, neither Arbor nor any of its
Affiliates (as defined in Section 6.10) has taken or agreed to take any action
which would (i) prevent Arbor from accounting for the business combination to be
effected by the Merger as a pooling of interests or (ii) prevent the Merger from
constituting a transaction qualifying as a reorganization under 368(a) of the
Code.
SECTION 3.16 Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Arbor for inclusion in the registration statement
on Form S-4 pursuant to which shares of Arbor Common Stock issued in the Merger
will be registered under the Securities Act (the "Registration Statement") shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Arbor for inclusion in the joint proxy statement/prospectus to be
sent to the stockholders of Hyperion and Arbor in connection with the meeting of
Arbor's stockholders (the "Arbor Stockholders' Meeting") to consider the
issuance of shares of Arbor Common Stock pursuant to the Merger and in
connection with the meeting of Hyperion's stockholders (the "Hyperion
Stockholders' Meeting") to consider this Agreement and the Merger (the "Joint
Proxy Statement") shall not, on the date the Joint Proxy Statement is first
mailed to stockholders of Arbor or Hyperion, at the time of the Arbor
Stockholders' Meeting and the Hyperion Stockholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the Joint Proxy Statement not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Arbor
Stockholders' Meeting or the Hyperion Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Arbor or any of its Affiliates, officers or directors should be
discovered by Arbor which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, Arbor shall
promptly inform Hyperion. Notwithstanding the foregoing, Arbor makes no
representation, warranty or covenant with respect to any information supplied by
Hyperion that is contained in any of the foregoing documents.
SECTION 3.17 Labor Matters. Neither Arbor nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor,
as of the date hereof, is Arbor or any of its Subsidiaries the subject of any
material proceeding asserting that Arbor or any of its Subsidiaries has
committed an unfair labor practice or is
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seeking to compel it to bargain with any labor union or labor organization nor,
as of the date of this Agreement, is there pending or, to the knowledge of
Arbor, threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving Arbor or any of its Subsidiaries.
SECTION 3.18 Insurance; Risk Management. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by Arbor or any of its Subsidiaries
are with reputable insurance carriers, provide full and adequate coverage for
all normal risks incident to the business of Arbor and its Subsidiaries and
their respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have an Arbor Material Adverse Effect. The steps taken by
Arbor to manage the various risks incident to the business and operations of
Arbor and its Subsidiaries and their respective properties and assets are at
least equivalent to those taken by persons engaged in similar businesses, except
for any failures to take such steps that, individually or in the aggregate, are
not reasonably likely to have an Arbor Material Adverse Effect.
SECTION 3.19 No Existing Discussions. As of the date hereof, Arbor is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
6.01).
SECTION 3.20 Opinion of Financial Advisor. The financial advisor of Arbor,
Morgan Stanley & Co. Incorporated, has delivered to Arbor an opinion dated the
date of this Agreement to the effect that the Exchange Ratio is fair to the
holders of Arbor Common Stock from a financial point of view.
SECTION 3.21 Section 203 of the DGCL Not Applicable. The Board of
Directors of Arbor has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the Hyperion Stock Option Agreement or the consummation of the
Merger or the other transactions contemplated by this Agreement or by the
Hyperion Stock Option Agreement.
SECTION 3.22 Insider Trading Policies and Practices. Section 3.22 to the
Arbor Disclosure Schedule sets forth a copy of Arbor's insider trading policy as
in effect on the date hereof. Arbor and, to the knowledge of Arbor, each of its
directors, officers and employees who are subject to such policy have complied
in all material respects with the terms of such policy.
SECTION 3.23 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HYPERION
Hyperion represents and warrants to Arbor and Sub that the statements
contained in this Article IV are true and correct except as set forth herein and
in the disclosure schedule delivered by Hyperion to Arbor prior to the execution
and delivery of this Agreement (the "Hyperion Disclosure Schedule"). The
Hyperion Disclosure Schedule shall be arranged in sections and paragraphs
corresponding to the numbered and lettered sections and paragraphs contained in
this Article IV and the disclosure in any section or paragraph shall qualify
other sections and paragraphs in this Article IV only to the extent that it is
reasonably apparent from a reading of such disclosure that it also qualifies or
applies to such other sections and paragraphs.
SECTION 4.01 Organization of Hyperion. Each of Hyperion and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a Hyperion
Material Adverse Effect (as defined below). Except as set forth in the Hyperion
SEC Reports (as defined in
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Section 4.04) filed prior to the date hereof, neither Hyperion nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by
Hyperion and comprising less than five percent (5%) of the outstanding stock of
such company. For purposes of this Agreement, the term "Hyperion Material
Adverse Effect" means any effect that is, or would reasonably be expected to be,
materially adverse to the business, properties, financial condition or results
of operations of Hyperion and its Subsidiaries, taken as a whole; provided,
however, that (a) any adverse change, event or effect that is demonstrated to be
primarily caused by conditions affecting the United States economy generally or
the economy of any nation or region in which Hyperion or any of its Subsidiaries
conducts business that is material to the business of Hyperion and its
Subsidiaries, taken as a whole, shall not be taken into account in determining
whether there has been or would be a "Hyperion Material Adverse Effect" on or
with respect to Hyperion and its Subsidiaries, taken as a whole, (b) any adverse
change, event or effect that is demonstrated to be primarily caused by
conditions generally affecting the enterprise software industry shall not be
taken into account in determining whether there has been or would be a "Hyperion
Material Adverse Effect" on or with respect to Hyperion and its Subsidiaries,
taken as a whole, (c) any adverse change, event or effect that is demonstrated
to be primarily caused by the announcement or pendency of the Merger shall not
be taken into account in determining whether there has been or would be a
"Hyperion Material Adverse Effect" on or with respect to Hyperion and its
Subsidiaries, taken as a whole, and (d) any adverse change in the stock price of
Hyperion as quoted on the Nasdaq National Market shall not be taken into account
in determining whether there has been or would be a "Hyperion Material Adverse
Effect" on or with respect to Hyperion and its Subsidiaries, taken as a whole.
SECTION 4.02 Hyperion Capital Structure.
(a) The authorized capital stock of Hyperion consists of 50,000,000 shares
of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01
par value ("Hyperion Preferred Stock"). As of March 31, 1998, (i) 19,040,506
shares of Hyperion Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and (ii) 4,344,599 shares of
Hyperion Common Stock were held in the treasury of Hyperion or by Subsidiaries
of Hyperion. Section 4.02 of the Hyperion Disclosure Schedule shows the number
of shares of Hyperion Common Stock reserved for future issuance pursuant to
stock options granted and outstanding as of March 31, 1998 and the plans under
which such options were granted (together with the Hyperion 1991 Employee Stock
Purchase Plan, the "Hyperion Stock Plans"). No material change in such
capitalization has occurred between March 31, 1998 and the date of this
Agreement. As of the date of this Agreement, none of the shares of Hyperion
Preferred Stock is issued and outstanding. All shares of Hyperion Common Stock
subject to issuance as specified above are duly authorized and, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of Hyperion or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of Hyperion Common Stock or
the capital stock of any Subsidiary or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of Hyperion's Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and all such shares
(other than directors' qualifying shares in the case of foreign Subsidiaries)
are owned by Hyperion or another Subsidiary free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Hyperion's voting
rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options and issuances of shares of Common Stock under the Hyperion
Stock Plans or the Arbor Stock Option Agreement, and except for the rights (the
"Hyperion Rights") issued and issuable under the Rights Agreement dated November
17, 1995, as amended, between Hyperion and American Stock Transfer & Trust
Company (the "Hyperion Rights Plan"), there are no equity securities of any
class of Hyperion or any of its Subsidiaries, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in the Hyperion SEC Reports filed prior to the
date hereof, in the Arbor Stock Option Agreement or disclosed in Section 4.02 of
the Hyperion Disclosure Schedule, there are no options, warrants, equity
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securities, calls, rights, commitments or agreements of any character to which
Hyperion or any of its Subsidiaries is a party or by which it is bound
obligating Hyperion or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Hyperion or any of its Subsidiaries or obligating Hyperion or any of its
Subsidiaries to grant, extend, accelerate the vesting of, change the price of,
or otherwise amend or enter into any such option, warrant, equity security,
call, right, commitment or agreement. To the best knowledge of Hyperion, there
are no voting trusts, proxies or other voting agreements or understandings with
respect to the shares of capital stock of Hyperion.
SECTION 4.03 Authority; No Conflict; Required Filings and Consents.
(a) Hyperion has all requisite corporate power and authority to enter into
this Agreement and the Arbor Stock Option Agreement and to consummate the
transactions contemplated by this Agreement and the Arbor Stock Option
Agreement. The execution and delivery of this Agreement and the Arbor Stock
Option Agreement and the consummation of the transactions contemplated by this
Agreement and the Arbor Stock Option Agreement by Hyperion have been duly
authorized by all necessary corporate action on the part of Hyperion, subject
only to the approval of the Merger by Hyperion's stockholders under the DGCL.
This Agreement and the Arbor Stock Option Agreement have been duly executed and
delivered by Hyperion and constitute the valid and binding obligation of
Hyperion, enforceable in accordance with their terms, subject to the Bankruptcy
and Equity Exception.
(b) The execution and delivery of this Agreement and the Arbor Stock Option
Agreement by Hyperion does not, and the consummation of the transactions
contemplated by this Agreement and the Arbor Stock Option Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of Hyperion, each as amended to date,
(ii) result in any violation of, or default under or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, or require a consent or waiver under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Hyperion or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Hyperion or any of its Subsidiaries
or any of its or their properties or assets, except in the case of clauses (ii)
and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations that are not, individually or in the aggregate,
reasonably likely to have a Hyperion Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Hyperion or any of its Subsidiaries in connection with the execution
and delivery of this Agreement and the Arbor Stock Option Agreement or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of a pre-merger notification report under the HSR Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of Delaware,
(iii) the filing of the Joint Proxy Statement with the SEC in accordance with
the Exchange Act and the National Association of Securities Dealers, Inc., and
any clearance thereof by the SEC, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (v)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not be reasonably likely to have a Hyperion
Material Adverse Effect.
SECTION 4.04 SEC Filings; Financial Statements.
(a) Hyperion has filed and made available to Arbor all forms, reports and
documents required to be filed by Hyperion with the SEC since July 1, 1995 other
than registration statements on Form S-8 (collectively, the "Hyperion SEC
Reports"). The Hyperion SEC Reports (i) at the time filed or, with respect to
registration statements filed with the SEC under the Securities Act, as of the
effective date thereof, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to
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state a material fact required to be stated in such Hyperion SEC Reports or
necessary in order to make the statements in such Hyperion SEC Reports, in the
light of the circumstances under which they were made, not misleading. None of
Hyperion's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Hyperion SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly presented the consolidated
financial position of Hyperion and its Subsidiaries as of the dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The audited balance sheet of Hyperion as of June 30, 1997
is referred to herein as the "Hyperion Balance Sheet."
SECTION 4.05 No Undisclosed Liabilities. Except as disclosed in the
Hyperion SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since June 30, 1997 in the ordinary course of
business consistent with past practices, Hyperion and its Subsidiaries do not
have any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with GAAP), and
whether due or to become due, which individually or in the aggregate, are
reasonably likely to have a Hyperion Material Adverse Effect.
SECTION 4.06 Absence of Certain Changes or Events. Except as disclosed in
the Hyperion SEC Reports filed prior to the date hereof, during the period
commencing on the date of the Hyperion Balance Sheet and ending on the date of
this Agreement, Hyperion and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
during such period, there has not been (i) any change in the financial
condition, results of operations, business or properties of Hyperion and its
Subsidiaries, taken as a whole, which has had or could reasonably be expected to
have a Hyperion Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Hyperion or any of its
Subsidiaries having a Hyperion Material Adverse Effect; (iii) any material
change by Hyperion in its accounting methods, principles or practices to which
Arbor has not previously consented in writing; (iv) any revaluation by Hyperion
of any of its assets having a Hyperion Material Adverse Effect; or (v) any other
action or event that would have required the consent of Arbor pursuant to
Section 5.01 of this Agreement had such action or event occurred after the date
of this Agreement and that, in the case of this clause (v), individually or in
the aggregate, has had or is reasonably likely to have a Hyperion Material
Adverse Effect.
SECTION 4.07 Taxes.
(a) Each of Hyperion and its Subsidiaries has filed all Tax Returns that it
was required to file, and, except to the extent that a reserve for Taxes was
reflected on the Hyperion Balance Sheet (exclusive of any accruals for "deferred
taxes" or similar items that reflect timing differences between Tax and
financial accounting principles), all such Tax Returns were correct and
complete. Each group of corporations with which Hyperion or any Subsidiary has
filed (or was required to file) consolidated, combined, unitary or similar Tax
Returns (a "Hyperion Affiliated Group") has filed all such Tax Returns that it
was required to file with respect to any period in which Hyperion or a
Subsidiary was a member of such Hyperion Affiliated Group (a "Hyperion
Affiliated Period"), and, except to the extent that a reserve for Taxes was
reflected on the Hyperion Balance Sheet (exclusive of any accruals for "deferred
taxes" or similar items that reflect timing differences between Tax and
financial accounting principles), all such Tax Returns were correct and
complete. Except to the extent that a reserve for Taxes was reflected on the
Hyperion Balance Sheet (exclusive of any accruals for "deferred taxes" or
similar items that reflect timing differences between Tax and financial
accounting principles), each of Hyperion and its Subsidiaries has paid all Taxes
(whether or not shown on such Tax Returns) that were due and payable, and each
Hyperion Affiliated Group has paid all Taxes (whether or not shown on such Tax
Returns) that were due and payable with respect to all Hyperion Affiliated
Periods and
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with respect to which Hyperion or any of its Subsidiaries may be liable by
operation of law or otherwise. The unpaid Taxes of Hyperion and the Subsidiaries
for Tax periods through the date of the Hyperion Balance Sheet do not exceed the
accruals and reserves for Taxes set forth on the Hyperion Balance Sheet
(exclusive of any accruals for "deferred taxes" or similar items that reflect
timing differences between Tax and financial accounting principles). The unpaid
Taxes of Hyperion and the Subsidiaries for Tax periods from the date of the
Hyperion Balance Sheet through the Closing Date are attributable solely to the
conduct of their businesses in the ordinary course and in a manner consistence
with past practices. All Taxes that Hyperion or any Subsidiary is or was
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental Entity. Each
of the representations contained in this Section 4.07(a) shall be limited in its
application to items which are reasonably likely, individually or in the
aggregate, to have a Hyperion Material Adverse Effect.
(b) Hyperion is not and never has been a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement (whether written or unwritten
or arising under operation of federal law as a result of being a member of a
group filing consolidated Tax Returns, under operation of certain state laws as
a result of being a member of a unitary group, or under comparable laws of other
states or foreign jurisdictions) which includes a party other than Hyperion nor
does Hyperion owe any amount under any such agreement. No examination or audit
by any Governmental Entity of any Tax Return of Hyperion, any of its
Subsidiaries or any Hyperion Affiliated Group with respect to a Hyperion
Affiliated Period is currently in progress or, to the knowledge of Hyperion and
its Subsidiaries, threatened or contemplated, in each case, which involve claims
that individually or in the aggregate are reasonably likely to have a Hyperion
Material Adverse Effect. Neither Hyperion nor any of its Subsidiaries has been
informed by any jurisdiction that the jurisdiction believes that Hyperion or any
of its Subsidiaries was required to file any Tax Return that was not filed which
failure or failures individually, or in the aggregate, are reasonably likely to
have a Hyperion Material Adverse Effect.
(c) Neither Hyperion nor any of its Subsidiaries is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of Hyperion or the Subsidiaries are subject to an election under Section
341(f) of the Code.
(d) Neither Hyperion nor any of its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the
Code.
(e) Neither Hyperion nor any of its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will be an "excess parachute payment'
under Code Section 280G.
SECTION 4.08 Properties.
(a) Hyperion has provided to Arbor a true and complete list of all real
property that Hyperion or any of its Subsidiaries owns. With respect to each
such item of real property, except as disclosed in the Hyperion SEC Reports and
except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Hyperion Material Adverse Effect: (a) Hyperion or
the identified Subsidiary has good and clear record and marketable title to such
property, insurable by a recognized national title insurance company at standard
rates, free and clear of any security interest, easement, covenant or other
restriction, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or occupancy of such property;
and (b) the improvements constructed on such property are in good condition, and
all mechanical and utility systems servicing such improvements are in good
condition, free in each case of material defects.
(b) All material real property leases of Hyperion and its Subsidiaries are
in good standing, valid and effective in accordance with their respective terms,
and neither Hyperion nor its Subsidiaries is in default under any of such
leases, except where the lack of such good standing, validity or effectiveness
or the existence of such default would not be reasonably likely to have a
Hyperion Material Adverse Effect.
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SECTION 4.09 Intellectual Property.
(a) Hyperion and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Hyperion
and its Subsidiaries as currently conducted, or planned to be conducted, the
absence of which would be reasonably likely to have a Hyperion Material Adverse
Effect (the "Hyperion Intellectual Property Rights").
(b) Neither Hyperion nor any of its Subsidiaries is, or will as a result of
the execution and delivery of this Agreement or the performance of Hyperion's
obligations under this Agreement or otherwise be, in breach of any license,
sublicense or other agreement relating to the Hyperion Intellectual Property
Rights, or any material licenses, sublicenses and other agreements as to which
Hyperion or any of its Subsidiaries is a party and pursuant to which Hyperion or
any of its Subsidiaries is authorized to use any third party patents, trademarks
or copyrights ("Hyperion Third Party Intellectual Property Rights"), including
software that is used in the manufacture of, incorporated in, or forms a part of
any product sold by or expected to be sold by Hyperion or any of its
Subsidiaries, the breach of which would be reasonably likely to have a Hyperion
Material Adverse Effect.
(c) All patents, registered trademarks, service marks and copyrights which
are held by Hyperion or any of its Subsidiaries and which are material to the
business of Hyperion and its Subsidiaries, taken as a whole, are valid and
subsisting. Hyperion (i) has not been sued in any suit, action or proceeding, or
received in writing any claim or notice, which involves a claim of infringement
of any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party; and (ii) has no knowledge
that the manufacturing, marketing, licensing or sale of its products infringes
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement would reasonably be
expected to have a Hyperion Material Adverse Effect.
SECTION 4.10 Agreements, Contracts and Commitments. Hyperion has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any agreement, contract or commitment filed as an
exhibit to the Hyperion SEC Reports ("Hyperion Material Contracts") in such a
manner as, individually or in the aggregate, are reasonably likely to have a
Hyperion Material Adverse Effect. Each Hyperion Material Contract that has not
expired by its terms is in full force and effect.
SECTION 4.11 Litigation. Except as described in the Hyperion SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Hyperion or any of its Subsidiaries pending
or as to which Hyperion or any such Subsidiary has received any written notice
of assertion, which, individually or in the aggregate, is reasonably likely to
have a Hyperion Material Adverse Effect or a material adverse effect on the
ability of Hyperion to consummate the transactions contemplated by this
Agreement.
SECTION 4.12 Environmental Matters. Except as disclosed in the Hyperion
SEC Reports filed prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Hyperion
Material Adverse Effect: (i) Hyperion and its Subsidiaries have complied with
all applicable Environmental Laws; (ii) the properties currently owned or
operated by Hyperion and its Subsidiaries (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Hyperion or any
of its Subsidiaries were not contaminated with Hazardous Substances during the
period of ownership or operation by Hyperion or any of its Subsidiaries; (iv)
neither Hyperion nor any of its Subsidiaries are subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
neither Hyperion nor any of its Subsidiaries has been associated with any
release or threat of release of any Hazardous Substance; (vi) neither Hyperion
nor any of its Subsidiaries has received any notice, demand, letter, claim or
request for information alleging that Hyperion or any of its Subsidiaries may be
in violation of or liable under any Environmental Law; (vii) neither Hyperion
nor any of its Subsidiaries is subject to any orders, decrees,
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injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (viii)
there are no circumstances or conditions involving Hyperion or any of its
Subsidiaries that could reasonably be expected to result in any claims,
liability, investigations, costs or restrictions on the ownership, use or
transfer of any property of Hyperion pursuant to any Environmental Law.
SECTION 4.13 Employee Benefit Plans.
(a) Hyperion has listed in Section 4.13 of the Hyperion Disclosure Schedule
all employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Hyperion or any ERISA Affiliate
of Hyperion, or any Subsidiary of Hyperion (collectively, the "Hyperion Employee
Plans").
(b) With respect to each Hyperion Employee Plan, Hyperion has made
available to Arbor, a true and correct copy of (i) the most recent annual report
(Form 5500), if any, filed with the IRS, (ii) such Hyperion Employee Plan, (iii)
each trust agreement and group annuity contract, if any, relating to such
Hyperion Employee Plan and (iv) the most recent actuarial report or valuation
relating to a Hyperion Employee Plan subject to Title IV of ERISA.
(c) With respect to the Hyperion Employee Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of Hyperion, there exists
no condition or set of circumstances in connection with which Hyperion could be
subject to any liability that is reasonably likely to have a Hyperion Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Hyperion Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
that have not been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, on the financial statements of Hyperion, which obligations
are reasonably likely to have a Hyperion Material Adverse Effect.
(e) Except as disclosed in Hyperion SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Hyperion
nor any of its Subsidiaries is a party to any oral or written (i) agreement with
any officer or other key employee of Hyperion or any of its Subsidiaries, the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Hyperion of the nature
contemplated by this Agreement, (ii) agreement with any officer of Hyperion
providing any term of employment or compensation guarantee extending for a
period longer than one year from the date hereof or for the payment of
compensation in excess of $100,000 per annum, or (iii) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
SECTION 4.14 Compliance with Laws. Hyperion and each of its Subsidiaries
has complied with, is not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Hyperion Material Adverse Effect.
SECTION 4.15 Accounting and Tax Matters. To its knowledge, after
consulting with its independent auditors, neither Hyperion nor any of its
Affiliates has taken or agreed to take any action which would (i) prevent Arbor
from accounting for the business combination to be effected by the Merger as a
pooling of interests or (ii) prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
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SECTION 4.16 Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Hyperion for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Hyperion for inclusion in the Joint Proxy Statement shall not, on
the date the Joint Proxy Statement is first mailed to stockholders of Hyperion
or Arbor, at the time of the Hyperion Stockholders' Meeting and the Arbor
Stockholders' Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Hyperion Stockholders' Meeting or the Arbor
Stockholders' Meetings which has become false or misleading. If at any time
prior to the Effective Time any event relating to Hyperion or any of its
Affiliates, officers or directors should be discovered by Hyperion which should
be set forth in an amendment to the Registration Statement or a supplement to
the Joint Proxy Statement, Hyperion shall promptly inform Arbor. Notwithstanding
the foregoing, Hyperion makes no representation, warranty or covenant with
respect to any information supplied by Arbor that is contained in any of the
foregoing documents.
SECTION 4.17 Labor Matters. Neither Hyperion nor any of its Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor, as of the date hereof, is Hyperion or any of its Subsidiaries
the subject of any material proceeding asserting that Hyperion or any of its
Subsidiaries has committed an unfair labor practice or is seeking to compel it
to bargain with any labor union or labor organization nor, as of the date of
this Agreement, is there pending or, to the knowledge of Hyperion, threatened,
any material labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving Hyperion or any of its Subsidiaries.
SECTION 4.18 Insurance; Risk Management. All material fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by Hyperion or any of its
Subsidiaries are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of Hyperion and its
Subsidiaries and their respective properties and assets, and are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except for any
such failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Hyperion Material Adverse Effect.
The steps taken by Hyperion to manage the various risks incident to the business
and operations of Hyperion and its Subsidiaries and their respective properties
and assets are at least equivalent to those taken by persons engaged in similar
businesses, except for any failures to take such steps that, individually or in
the aggregate, are not reasonably likely to have a Hyperion Material Adverse
Effect.
SECTION 4.19 No Existing Discussions. As of the date hereof, Hyperion is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal.
SECTION 4.20 Opinion of Financial Advisor. The financial advisor of
Hyperion, Goldman, Sachs & Co., has delivered to the Board of Directors of
Hyperion an opinion dated the date of this Agreement to the effect that the
Exchange Ratio is fair, as of the date of the Agreement, to the stockholders of
Hyperion from a financial point of view.
SECTION 4.21 Section 203 of the DGCL not Applicable. The Board of
Directors of Hyperion has taken all actions so that the restrictions contained
in Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the Arbor Stock Option Agreement or the consummation of the Merger
or the other transactions contemplated by this Agreement or by the Arbor Stock
Option Agreement.
SECTION 4.22 Insider Trading Policies and Practices. Section 4.22 to the
Hyperion Disclosure Schedule sets forth a copy of Hyperion's insider trading
policy as in effect on the date hereof. Hyperion and, to
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the knowledge of Hyperion, each of its directors, officers and employees who are
subject to such policy have complied in all material respects with the terms of
such policy.
SECTION 4.23 Rights Agreement. The Hyperion Rights Plan has been amended
as set forth in Section 4.23 of the Hyperion Disclosure Schedule.
ARTICLE V
CONDUCT OF BUSINESS
SECTION 5.01 Covenants of Arbor and Hyperion. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Arbor and Hyperion each agrees as to
itself and its respective Subsidiaries (except to the extent expressly
contemplated by this Agreement or the Disclosure Schedules or that the other
party shall otherwise consent in writing), to carry on its and its Subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as previously conducted, to pay and to cause its Subsidiaries to pay
debts and Taxes when due subject to good faith disputes over such debts or
Taxes, to pay or perform its and its Subsidiaries' other obligations when due,
and, to the extent consistent with such business, use all reasonable efforts
(and in any event efforts no less favorable than those consistent with past
practices and policies) to preserve intact its and its Subsidiaries' present
business organizations, to use its reasonable best efforts to keep available the
services of its present officers and key employees and to use its reasonable
best efforts to preserve its and its Subsidiaries' relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it or its Subsidiaries to the end that its and its Subsidiaries'
goodwill and ongoing business shall be unimpaired at the Effective Time. Arbor
and Hyperion each shall promptly notify the other party of any material event or
occurrence not in the ordinary course of business. Except as expressly
contemplated by this Agreement, Arbor and Hyperion each shall not (and shall not
permit any of its respective Subsidiaries to), without the written consent of
the other party:
(a) Accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such
party or authorize cash payments in exchange for any options granted under
any of such plans except as required by the terms of such plans or any
related agreements in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to such party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options consistent with past
practices to new employees, or otherwise upon consent in accordance with
the provisions of this Section 5.01, (ii) the issuance of shares of Arbor
Common Stock or Hyperion Common Stock, as the case may be, pursuant to the
exercise of options outstanding on the date of this Agreement, or (iii) the
issuance of shares of Arbor Common Stock or Hyperion Common Stock pursuant
to the terms of the Arbor Employee Stock Purchase Plan or the Hyperion 1991
Employee Stock Purchase Plan, respectively, each as in effect on the date
hereof;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business), except for
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any such acquisitions involving aggregate consideration (including assumed
indebtedness) of not more than $1,000,000;
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees (other than officers) in accordance with past
practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any employees or
officers, (iii) enter into any collective bargaining agreement (other than
as required by law or extensions to existing agreements in the ordinary
course of business), (iv) establish, adopt, enter into or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees;
(g) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to
credit agreements in effect as of the date hereof;
(i) Initiate, compromise or settle any material litigation or
arbitration proceeding (other than as a result of a breach of this
Agreement);
(j) Except in the ordinary course of business, modify, amend or
terminate any Arbor Material Contract or Hyperion Material Contract or
waive, release or assign any material rights or claims;
(k) Change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable
change in GAAP; or
(l) Take, or agree in writing or otherwise to take, any of the actions
described in paragraphs (a) through (k) above.
In addition, Hyperion shall notify Arbor promptly following the execution
by Hyperion or any of its Subsidiaries of any agreement providing for the
receipt or payment of in excess of $3,000,000, and Arbor shall notify Hyperion
promptly following the execution by Arbor or any of its Subsidiaries of any
agreement providing for the receipt or payment of in excess of $1,000,000.
SECTION 5.02 Cooperation. Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Hyperion and Arbor shall
confer on a regular and frequent basis with one or more representatives of the
other party to report on the general status of ongoing operations and shall
promptly provide the other party or its counsel with copies of all filings made
by such party with any Governmental Entity in connection with this Agreement,
the Merger and the transactions contemplated hereby and thereby.
SECTION 5.03 Arbor Rights Plan. On or prior to June 15, 1998, Arbor shall
cause to be adopted a rights agreement in form and substance reasonable
satisfactory to Hyperion, provided that neither Hyperion nor any of its
Affiliates shall, by virtue of its ownership or voting of capital stock of Arbor
acquired pursuant to this Agreement or the Hyperion Option Agreement, be defined
as a person or entity similar to an "acquiring person" under such rights
agreement. Arbor shall not redeem the rights issued under such rights agreement,
or amend (other than to delay any "distribution date" therein or to render the
rights inapplicable to the Merger or any action permitted under this Agreement
or the Hyperion Option Agreement) or terminate such rights agreement prior to
the Effective Time unless required to do so by order of a court or competent
jurisdiction or in connection with the exercise by the directors of Arbor of
their fiduciary duties.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 No Solicitation.
(a) Arbor and Hyperion each shall not, directly or indirectly, through any
officer, director, employee, financial advisor, representative or agent of such
party (i) take any action to solicit, initiate or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transaction involving such party
or any of its Subsidiaries, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any Acquisition Proposal, or (iii) agree to or recommend any
Acquisition Proposal; provided, however, that nothing contained in this
Agreement shall prevent Arbor or Hyperion, or their respective Boards of
Directors, to the extent such Board of Directors determines, in good faith,
based upon and consistent with advice received in consultation with outside
legal counsel, that such Board of Directors' fiduciary duties under applicable
law require it to do so, from (A) furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written Acquisition Proposal by such
person or entity or recommending an unsolicited bona fide written Acquisition
Proposal by such person or entity to the stockholders of such party, if and only
to the extent that (1) the Board of Directors of such party believes in its good
faith reasonable judgment (based upon and consistent with advice received in
consultation with independent financial and legal advisors) that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to be
derived from the Merger and the long-term prospects of Arbor and Hyperion as a
combined company, would, if consummated, result in a transaction more favorable
over the long term from a financial point of view than the transaction
contemplated by this Agreement (any such more favorable Acquisition Proposal
being referred to in this Agreement as a "Superior Proposal") and the Board of
Directors of such party determines in good faith after consultation with, and
based upon and consistent with advice received from, outside legal counsel that
such action is necessary for such Board of Directors to comply with its
fiduciary duties to stockholders under applicable law and (2) prior to
furnishing such non-public information to, or entering into discussions or
negotiations with, such person or entity, such Board of Directors receives from
such person or entity an executed confidentiality agreement with terms no less
favorable to such party than those contained in the Non-Disclosure Agreement
dated January 14, 1998 between Arbor and Hyperion (the "Confidentiality
Agreement"), such non-public information has been previously delivered to the
Board of Directors of the other party hereto and such party advises the other
party hereto in writing of such disclosure or negotiations, including the party
to whom disclosed or with whom discussions or negotiations will occur; or (B)
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to an Acquisition Proposal.
(b) Arbor and Hyperion shall each notify the other party immediately after
receipt by Arbor or Hyperion (or their advisors) of any Acquisition Proposal or
any request for non-public information in connection with an Acquisition
Proposal or for access to the properties, books or records of such party or any
of its Subsidiaries by any person or entity that informs such party that it is
considering making, or has made, an Acquisition Proposal. Such notice shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offeror and the terms and conditions of such proposal, inquiry or
contact. Such party shall continue to keep the other party hereto informed, on a
current basis, of the status of any such discussions or negotiations and the
terms being discussed or negotiated.
SECTION 6.02 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practical after the execution of this Agreement,
Hyperion and Arbor shall prepare and file with the SEC the Joint Proxy
Statement, and Arbor shall prepare and file with the SEC the Registration
Statement, in which the Joint Proxy Statement will be included as a prospectus,
provided that Arbor may delay the filing of the Registration Statement until
approval of the Joint Proxy Statement by the
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SEC. Hyperion and Arbor shall use all reasonable efforts to cause the
Registration Statement to become effective as soon after such filing as
practical; provided, however, that Arbor shall have no obligation to agree to
account for the Merger as a "purchase" in order to cause the Registration
Statement to become effective. The Joint Proxy Statement, and any amendment or
supplement thereto, shall include the recommendation of the Board of Directors
of Arbor in favor of the issuance of shares of Arbor Common Stock pursuant to
the Merger and the recommendation of the Board of Directors of Hyperion in favor
of this Agreement and the Merger; provided that the Board of Directors of either
party may withdraw such recommendation if such Board of Directors believes in
its good faith reasonable judgment, based upon and consistent with advice
received in consultation with outside legal counsel, that the withdrawal of such
recommendation is necessary for such Board of Directors to comply with its
fiduciary duties under applicable law.
(b) Hyperion and Arbor shall make all necessary filings with respect to the
Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
SECTION 6.03 Nasdaq Quotation. Each of Hyperion and Arbor agrees to
continue the quotation of Hyperion Common Stock and Arbor Common Stock on the
Nasdaq National Market during the term of this Agreement so that appraisal
rights will not be available to stockholders of Arbor under Section 262 of the
DGCL.
SECTION 6.04 Access to Information. Upon reasonable notice, Arbor and
Hyperion shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Arbor and Hyperion
shall (and shall cause each of their respective Subsidiaries to) furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is non-public in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained in any
investigation pursuant to this Section 6.04 shall affect or be deemed to modify
any representation or warranty contained in this Agreement or the conditions to
the obligations of the parties to consummate the Merger.
SECTION 6.05 Stockholders' Meetings.
(a) Arbor and Hyperion shall each call a meeting of its respective
stockholders to be held as promptly as practicable for the purpose of voting, in
the case of Hyperion, upon this Agreement and the Merger and, in the case of
Arbor, upon (i) the issuance of shares of Arbor Common Stock pursuant to the
Merger, (ii) an increase in the authorized number of shares of Arbor Common
Stock to 300,000,000 shares, the change in the name of Arbor to "Hyperion
Solutions Corporation," the creation of a staggered Board of Directors and the
incorporation into Arbor's Certificate of Incorporation of indemnification
provisions in substantially the form set forth in Arbor's current Bylaws
(collectively, the "Arbor Charter Amendment"), and (iii) the election of
directors of Newco in accordance with Section 1.04 (the proposals referred to in
clauses (i), (ii) and (iii) of this Section 6.05(a) being hereinafter referred
to collectively as the "Arbor Voting Proposals"). Subject to Sections 6.01 and
6.02, Arbor and Hyperion will, through their respective Boards of Directors,
recommend to their respective stockholders approval of such matters and will
coordinate and cooperate with respect to the timing of such meetings and shall
use their best efforts to hold such meetings on the same day and as soon as
practicable after the date hereof and shall not postpone or adjourn (other than
for the absence of a quorum) their respective stockholders' meetings without the
consent of the other party. Subject to Section 6.02, each party shall use all
reasonable efforts to solicit from stockholders of such party proxies in favor
of such matters.
(b) Arbor may also submit additional proposals to its stockholders at the
Arbor Stockholders' Meeting, separate from the Arbor Voting Proposals referred
to in Section 6.05(a). The approval by Arbor's stockholders of such additional
proposals shall not be a condition to the closing of the Merger under this
Agreement.
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SECTION 6.06 Legal Conditions to Merger.
(a) Subject to Section 6.02, Arbor and Hyperion shall each use their best
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary and proper under applicable law to
consummate and make effective the transactions contemplated hereby as promptly
as practicable, (ii) obtain from any Governmental Entity any consents, licenses,
permits, waivers, approvals, authorizations or orders required to be obtained or
made by Arbor or Hyperion or any of their Subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, the Merger,
and (iii) as promptly as practicable, make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under (A) the Securities Act and the Exchange Act, and any other
applicable federal or state securities laws, (B) the HSR Act and any related
governmental request thereunder, and (C) any other applicable law. Arbor and
Hyperion shall cooperate with each other in connection with the making of all
such filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
Arbor and Hyperion shall use their best efforts to furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable law (including all information
required to be included in the Joint Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by this Agreement.
(b) Hyperion and Arbor agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective best efforts to obtain
any government clearances or approvals required for Closing under the HSR Act,
the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other Federal, state or foreign law,
regulation, rule, order or decree designed to prohibit, restrict or regulate
actions for the purpose or effect of monopolization or restraint of trade
(collectively, "Antitrust Laws"), to respond to any government requests for
information under any Antitrust Law, and to contest and resist any action,
including any legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (an "Order") that
restricts, prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement under any Antitrust Law. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to any Antitrust Law. In the event of a challenge to the
transactions contemplated by this Agreement pursuant to the HSR Act, Arbor and
Hyperion shall use their best efforts to defeat such challenge, including by
institution and defense of litigation, or to settle such challenge on terms that
permit the consummation of the Merger; provided, however, that nothing herein
shall require either party to agree to divest or hold separate any portion of
its business, product line or assets or otherwise take action that could
reasonably be expected to have an Arbor Material Adverse Effect, a Hyperion
Material Adverse Effect or an effect to Arbor combined with the Surviving
Corporation after the Effective Time comparable to either an Arbor Material
Adverse Effect or a Hyperion Material Adverse Effect. Without limiting the
foregoing, in the event that either the Federal Trade Commission or the
Antitrust Division of the United States Department of Justice should issue a
Request for Additional Information or Documentary Material under 17 C.F.R. ss.
803.20 (a "Second Request"), then Arbor and Hyperion each agree to use their
best efforts to respond fully to such Second Request within 20 days after its
receipt and shall promptly make any further filings or information submissions
and make any employee available for interview or testimony pursuant to the
foregoing (both before and after any Second Request) that may be necessary,
proper or advisable. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of either of the Constituent
Corporations, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
(c) Each of Arbor and Hyperion shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their best efforts to obtain any
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third party consents related to or required in connection with the Merger that
are (i) necessary to consummate the transactions contemplated hereby, (ii)
disclosed or required to be disclosed in the Arbor Disclosure Schedule or the
Hyperion Disclosure Schedule, as the case may be, or (iii) required to prevent
an Arbor Material Adverse Effect or a Hyperion Material Adverse Effect from
occurring prior to or after the Effective Time.
SECTION 6.07 Public Disclosure. Hyperion and Arbor shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with
any national securities exchange or by the National Association of Securities
Dealers, Inc.
SECTION 6.08 Tax-Free Reorganization. Hyperion and Arbor shall each use
its best efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code.
SECTION 6.09 Pooling Accounting. From and after the date hereof and until
the Effective Time, Arbor and Hyperion shall each use its best efforts to cause
the business combination to be effected by the Merger to be accounted for as a
pooling of interests and to take such action as may be reasonably necessary to
permit such treatment. Each of Arbor and Hyperion shall use its best efforts to
cause its respective Affiliates not to take any action that would adversely
affect the ability of Arbor to account for the business combination to be
effected by the Merger as a pooling of interests.
SECTION 6.10 Affiliate Agreements. Upon the execution of this Agreement,
Hyperion and Arbor will provide each other with a list of those persons who are,
in Hyperion's or Arbor's respective reasonable judgment, "affiliates" of
Hyperion or Arbor, respectively, within the meaning of Rule 145 promulgated
under the Securities Act ("Rule 145") (each such person who is an "affiliate" of
Hyperion or Arbor within the meaning of Rule 145 is referred to as an
"Affiliate"). Hyperion and Arbor shall provide each other with such information
and documents as Arbor or Hyperion shall reasonably request for purposes of
reviewing such list and shall notify the other party in writing regarding any
change in the identity of its Affiliates prior to the Closing Date. Arbor and
Hyperion shall each use its best efforts to deliver or cause to be delivered to
each other by June 10, 1998 (and in any case prior to the Effective Time) from
each of its Affiliates, an executed Affiliate Agreement, in form attached hereto
as EXHIBIT D-1, in the case of Affiliates of Hyperion, and in the form attached
hereto as EXHIBIT D-2, in the case of Affiliates of Arbor (each, an "Affiliate
Agreement"). Arbor shall be entitled to place appropriate legends on the
certificates evidencing any Arbor Common Stock to be received by such Affiliates
of Hyperion pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Arbor Common Stock,
consistent with the terms of the Affiliate Agreements (provided that such
legends or stop transfer instructions shall be removed, two years after the
Effective Date, upon the request of any stockholder that is not then an
Affiliate of Arbor).
SECTION 6.11 Nasdaq Quotation. Arbor shall use its best efforts to cause
the shares of Arbor Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
SECTION 6.12 Stock Plans.
(a) At the Effective Time, each outstanding option to purchase shares of
Hyperion Common Stock (a "Hyperion Stock Option") under the Hyperion Stock
Plans, whether vested or unvested, shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such Hyperion
Stock Option, the same number of shares of Arbor Common Stock as the holder of
such Hyperion Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (rounded downward to the nearest whole number), at a price per
share (rounded upward to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Hyperion Common Stock purchasable pursuant to
such Hyperion Stock Option immediately prior to the Effective Time divided by
(z) the number of full shares of Arbor Common Stock deemed purchasable pursuant
to such Hyperion Stock Option in accordance with the foregoing.
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(b) As soon as practicable after the Effective Time, Arbor shall deliver to
the participants in Hyperion Stock Plans appropriate notice setting forth such
participants' rights pursuant thereto and the grants pursuant to Hyperion Stock
Plans shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 6.12 after giving effect to the Merger).
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Arbor shall assume the Hyperion Stock Plans, with
the result that all obligations of Hyperion under the Hyperion Stock Plans,
including with respect to Hyperion Stock Options outstanding at the Effective
Time under each Hyperion Stock Plan, shall be obligations of Arbor following the
Effective Time. Arbor shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Arbor Common Stock for delivery under
Hyperion Stock Plans assumed in accordance with this Section 6.12. As soon as
practicable and in no event more than five business days after the Effective
Time, Arbor shall file a registration statement on Form S-8 (or any successor or
other appropriate forms), or another appropriate form with respect to the shares
of Arbor Common Stock subject to such options, and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
(d) The Board of Directors of Hyperion shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Hyperion Stock Plans and the instruments evidencing the
Hyperion Stock Options, to provide for the conversion of the Hyperion Stock
Options into options to acquire Arbor Common Stock in accordance with this
Section 6.12, and that no consent of the holders of the Hyperion Stock Options
is required in connection with such conversion.
SECTION 6.13 Brokers or Finders. Each of Hyperion and Arbor represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Morgan Stanley & Co. Incorporated, whose fees and expenses will be paid by Arbor
in accordance with Arbor's agreement with such firm (a copy of which has been
delivered by Arbor to Hyperion prior to the date of this Agreement), and
Goldman, Sachs & Co. and BT Alex. Brown Incorporated, whose fees and expenses
will be paid by Hyperion in accordance with Hyperion's agreements with such
firms (copies of which have been delivered by Hyperion to Arbor prior to the
date of this Agreement). Each of Hyperion and Arbor agrees to indemnify and hold
the other harmless from and against any and all claims, liabilities or
obligations with respect to any such fees, commissions or expenses asserted by
any person on the basis of any act or statement alleged to have been made by
such party or any of its Affiliates.
SECTION 6.14 Indemnification.
(a) From and after the Effective Time, Arbor agrees that it will, and will
cause the Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of Hyperion (the "Indemnified Parties"), against any
costs or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement (collectively, "Costs")
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Hyperion would have been permitted under
Delaware law and its certificate of incorporation or bylaws in effect on the
date hereof to indemnify such Indemnified Party (and Arbor and the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification).
(b) For a period of three years after the Effective Time, Arbor shall cause
the Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by Hyperion's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered to
Arbor) with coverage in amount and scope at least as favorable as Hyperion's
existing coverage; provided, that in no event shall Arbor or the Surviving
Corporation
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be required to expend in excess of 150% of the annual premium currently paid by
Hyperion for such coverage (currently approximately $594,000).
(c) The provisions of this Section 6.14 are intended to be an addition to
the rights otherwise available to the current officers and directors of Hyperion
by law, charter, statute, bylaw or agreement, and shall operate for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
SECTION 6.15 Letter of Hyperion's Accountants. Hyperion shall use all
reasonable efforts to cause to be delivered to Arbor and Hyperion a letter of
Ernst & Young LLP, Hyperion's independent auditors, dated a date within two
business days before the date on which the Registration Statement shall become
effective and addressed to Arbor, in form reasonably satisfactory to Arbor and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
SECTION 6.16 Letter of Arbor's Accountants. Arbor shall use all reasonable
efforts to cause to be delivered to Hyperion and Arbor a letter of Price
Waterhouse LLP, Arbor's independent auditors, dated a date within two business
days before the date on which the Registration Statement shall become effective
and addressed to Hyperion, in form reasonably satisfactory to Hyperion and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
SECTION 6.17 Schedules. From time to time prior to the Closing Date, each
of Arbor and Hyperion will promptly supplement or amend the Arbor or Hyperion
Disclosure Schedules, as the case may be, with respect to any matter hereafter
arising that, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the Arbor or
Hyperion Disclosure Schedules, as the case may be, or that is necessary to
correct any information in the Arbor or Hyperion Disclosure Schedules, as the
case may be, or in any representation and warranty of each of Arbor and Hyperion
that has been rendered inaccurate thereby. For purposes of determining the
accuracy of the respective representations and warranties contained in Articles
III and IV, and in order to determine the fulfillment of the conditions set
forth in Article VII, the Arbor or Hyperion Disclosure Schedules, as the case
may be, shall be deemed to include only that information contained therein on
the date of this Agreement and shall be deemed to exclude any information
contained in any subsequent supplement or amendment thereto unless such changes
reflect actions taken in compliance with the provisions of Articles V and VI
hereof.
ARTICLE VII
CONDITIONS TO MERGER
SECTION 7.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Hyperion Common Stock and the Arbor
Voting Proposals shall have been approved by the affirmative vote of the
holders of a majority of the shares of Arbor Common Stock present or
represented at the Arbor Stockholders' Meeting at which a quorum is present
and, in the case of the Arbor Charter Amendment, by the affirmative vote of
the holders of a majority of the outstanding shares of Arbor Common Stock.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Approvals. Other than the filing provided for by Section 1.01, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to file, obtain or occur is
reasonably likely to have a Hyperion
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Material Adverse Effect or an Arbor Material Adverse Effect shall have been
filed, been obtained or occurred.
(d) Registration Statement. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Joint Proxy Statement, shall have been initiated or
threatened by the SEC.
(e) No Injunctions. No Governmental Entity or federal, state or
foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute, rule, regulation which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger or otherwise limiting or
restricting Arbor's conduct or operation of the business of Hyperion and
its Subsidiaries following the Merger in a manner that could reasonably be
expected to have an affect on Arbor combined with the Surviving Corporation
after the Effective Time comparable to either an Arbor Material Adverse
Effect or a Hyperion Material Adverse Effect.
(f) Pooling Letters. Hyperion shall have received a letter from Ernst
& Young LLP addressed to Hyperion and Arbor shall have received a letter
from Price Waterhouse LLP addressed to Arbor, each regarding its
concurrence with management's conclusions, as to the appropriateness of the
pooling of interests accounting, under Accounting Principles Board Opinion
No. 16 for the Merger, if closed and consummated in accordance with this
Agreement, it being agreed that Hyperion and Arbor shall each provide
reasonable cooperation to Ernst & Young LLP and Price Waterhouse LLP, to
enable them to issue such letters.
(g) NASDAQ. The shares of Arbor Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National
Market.
SECTION 7.02 Additional Conditions to Obligations of Hyperion. The
obligation of Hyperion to effect the Merger is subject to the satisfaction of
each of the following conditions, any of which may be waived in writing
exclusively by Hyperion:
(a) Representations and Warranties. The representations and warranties
of Arbor and Sub set forth in this Agreement shall be true and correct as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except (i) for
changes contemplated by this Agreement and (ii) in the case of
representations and warranties that are not qualified as to materiality,
where the failures to be true and correct, individually or in the
aggregate, have not had and are not reasonably likely to have an Arbor
Material Adverse Effect or a material adverse effect upon the consummation
of the transactions contemplated hereby; and Hyperion shall have received a
certificate signed on behalf of Arbor by the chief executive officer and
the chief financial officer of Arbor to such effect.
(b) Performance of Obligations of Arbor and Sub. Arbor and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Hyperion shall have received a certificate signed on behalf of Arbor by the
chief executive officer and the chief financial officer of Arbor to such
effect.
(c) Affiliates Agreements. Each Affiliate of Arbor shall have entered
into an Affiliate Agreement with Hyperion and Arbor in accordance with
Section 6.10 of this Agreement.
(d) Tax Opinion. Hyperion shall have received a written opinion from
Hale and Dorr LLP, counsel to Hyperion, to the effect that the Merger will
be treated for Federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Code, and such opinion shall
not have been withdrawn.
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SECTION 7.03 Additional Conditions to Obligations of Arbor and Sub. The
obligation of Arbor to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived in writing exclusively
by Arbor and Sub:
(a) Representations and Warranties. The representations and warranties
of Hyperion set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations speak
as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except (i) for changes contemplated by this Agreement and
(ii) in the case of representations and warranties that are not qualified
as to materiality, where the failures to be true and correct, individually
or in the aggregate, have not had and are not reasonably likely to have a
Hyperion Material Adverse Effect or a material adverse effect upon the
consummation of the transactions contemplated hereby; and Arbor shall have
received a certificate signed on behalf of Hyperion by the chief executive
officer and the chief financial officer of Hyperion to such effect.
(b) Performance of Obligations of Hyperion. Hyperion shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Arbor shall
have received a certificate signed on behalf of Hyperion by the chief
executive officer and the chief financial officer of Hyperion to such
effect.
(c) Affiliates Agreements. Each Affiliate of Hyperion shall have
entered into an Affiliate Agreement with Hyperion and Arbor in accordance
with Section 6.10 of this Agreement.
(d) Tax Opinion. Arbor shall have received the opinion of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to Arbor, to
the effect that the Merger will be treated for Federal income tax purposes
as a tax-free reorganization within the meaning of Section 368(a) of the
Code, and such opinion shall not have been withdrawn.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Arbor or Hyperion:
(a) by mutual written consent of Hyperion and Arbor; or
(b) by either Hyperion or Arbor if the Merger shall not have been
consummated by October 30, 1998 (the "Outside Date") (provided that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been a significant cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either Hyperion or Arbor if a court of competent jurisdiction
or other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by Hyperion, if, at the Arbor Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Arbor in favor of the Arbor Voting Proposals shall not have been obtained;
or by Arbor if, at the Hyperion Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Hyperion in favor of this Agreement and the Merger shall not have been
obtained; or
(e) by Hyperion, if (i) the Board of Directors of Arbor shall have
withdrawn or modified its recommendation of this Agreement or the Merger;
(ii) the Board of Directors of Arbor shall have recommended to the
stockholders of Arbor an Alternative Transaction (as defined in Section
8.03(g));
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(iii) a tender offer or exchange offer for 15% or more of the outstanding
shares of Arbor Common Stock is commenced (other than by Hyperion or an
Affiliate of Hyperion) and the Board of Directors of Arbor recommends that
the stockholders of Arbor tender their shares in such tender or exchange
offer; or (iv) for any reason Arbor fails to call and hold the Arbor
Stockholders' Meeting by the Outside Date (provided that Hyperion's right
to terminate this Agreement under such clause (iv) shall not be available
if at such time Arbor would be entitled to terminate this Agreement under
Section 8.01(g)); or
(f) by Arbor, if (i) the Board of Directors of Hyperion shall have
withdrawn or modified its recommendation of this Agreement or the Merger;
(ii) the Board of Directors of Hyperion shall have recommended to the
stockholders of Hyperion an Alternative Transaction; (iii) a tender offer
or exchange offer for 15% or more of the outstanding shares of Hyperion
Common Stock is commenced (other than by Arbor or an Affiliate of Arbor)
and the Board of Directors of Hyperion recommends that the stockholders of
Hyperion tender their shares in such tender offer or exchange offer; or
(iv) for any other reason Hyperion fails to call and hold the Hyperion
Stockholders' Meeting by the Outside Date (provided that Arbor's right to
terminate this Agreement under such clause (iv) shall not be available if
at such time Hyperion would be entitled to terminate this Agreement under
Section 8.01(g)); or
(g) by Hyperion or Arbor, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 7.02(a) or (b) (in the case of termination by
Hyperion) or 7.03(a) or (b) (in the case of termination by Arbor) not to be
satisfied, and (ii) shall not have been cured within 20 business days
following receipt by the breaching party of written notice of such breach
from the other party.
SECTION 8.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Hyperion,
Arbor, Sub or their respective officers, directors, stockholders or Affiliates,
except as set forth in Section 8.03; provided, that any such termination shall
not limit liability for any willful breach of this Agreement; and provided
further, that the provisions of Section 8.03 of this Agreement, the Stock Option
Agreements and the Confidentiality Agreement shall remain in full force and
effect and survive any termination of this Agreement.
SECTION 8.03 Fees and Expenses.
(a) Except as set forth in this Section 8.03, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that Arbor and Hyperion shall share
equally all fees and expenses, other than attorneys' fees, incurred in relation
to the printing and filing of the Joint Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
(b) Arbor shall pay Hyperion up to $2,500,000 as reimbursement for expenses
of Hyperion actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Hyperion's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Hyperion pursuant to Section 8.01(d) as a result of the
failure to receive the requisite vote for approval of the Arbor Voting Proposals
by the stockholders of Arbor at the Arbor Stockholders' Meeting (other than in
the circumstances set forth in Section 8.03(c)(iii)).
(c) Arbor shall pay Hyperion a termination fee of $20,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Hyperion pursuant to Section
8.01(e); or
(ii) the termination of this Agreement by Hyperion pursuant to Section
8.01(g) after a breach by Arbor of this Agreement; or
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<PAGE> 157
(iii) the termination of the Agreement by Hyperion pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote for
approval of the Arbor Voting Proposals by the stockholders of Arbor at the
Arbor Stockholders' Meeting if, at the time of such failure, there shall
have been announced an Alternative Transaction relating to Arbor which
shall not have been absolutely and unconditionally withdrawn and abandoned.
(d) Hyperion shall pay Arbor up to $2,500,000 as reimbursement for expenses
of Arbor actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Arbor's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Arbor pursuant to Section 8.01(d) as a result of the failure
to receive the requisite vote for approval of this Agreement and the Merger by
the stockholders of Hyperion at the Hyperion Stockholders' Meeting (other than
in the circumstances set forth in Section 8.03(e)(iii)).
(e) Hyperion shall pay Arbor a termination fee of $20,000,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Arbor pursuant to Section
8.01(f); or
(ii) the termination of this Agreement by Arbor pursuant to Section
8.01(g) after a breach by Hyperion of this Agreement; or
(iii) the termination of the Agreement by Arbor pursuant to Section
8.01(d) as a result of the failure to receive the requisite vote for
approval of this Agreement and the Merger by the stockholders of Hyperion
at the Hyperion Stockholders' Meeting if, at the time of such failure,
there shall have been announced an Alternative Transaction relating to
Hyperion which shall not have been absolutely and unconditionally withdrawn
and abandoned.
(f) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), 8.03(d) and 8.03(e) shall be paid within one business day
after the first to occur of the events described in Section 8.03(b), 8.03(c)(i),
(ii) or (iii), 8.03(d) or 8.03(e)(i), (ii) or (iii); provided that in no event
shall Hyperion or Arbor, as the case may be, be required to pay the expenses and
fees, if applicable, to the other, if, immediately prior to the termination of
this Agreement, the party to receive the expenses and fees, if applicable, was
in material breach of its obligations under this Agreement.
(g) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Hyperion or Arbor or its respective affiliates (a "Third Party"), acquires more
than 15% of the outstanding shares of Arbor Common Stock or Hyperion Common
Stock, as the case may be, pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving Hyperion or
Arbor pursuant to which any Third Party acquires more than 15% of the
outstanding equity securities of Hyperion or Arbor or the entity surviving such
merger or business combination, (iii) any other transaction pursuant to which
any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of Hyperion or Arbor, and the
entity surviving any merger or business combination including any of them) of
Hyperion or Arbor having a fair market value (as determined by the Board of
Directors of Hyperion or Arbor, as the case may be, in good faith) equal to more
than 15% of the fair market value of all the assets of Hyperion or Arbor and its
Subsidiaries, taken as a whole, immediately prior to such transaction, or (iv)
any public announcement by a Third Party of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
SECTION 8.04 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Arbor or of Hyperion, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
A-32
<PAGE> 158
SECTION 8.05 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
1.04, 2.01, 2.02, 6.14 and Article IX, and the agreements of the Affiliates
delivered pursuant to Section 6.10. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement.
SECTION 9.02 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Hyperion, to
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Attn: Secretary
Telecopy: (203) 461-7795
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: John A. Burgess, Esq.
Hal J. Leibowitz, Esq.
Telecopy: (617) 526-5000
(b) if to Arbor or Sub, to
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Attn: General Counsel
Telecopy: (408) 543-4788
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Robert V. Gunderson, Jr. Esq.
Steven M. Spurlock, Esq.
Telecopy: (650) 321-2800
A-33
<PAGE> 159
SECTION 9.03 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to May
25, 1998.
SECTION 9.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
SECTION 9.05 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.14 is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder; provided that the Confidentiality Agreement shall remain in
full force and effect until the Effective Time. Each party hereto agrees that,
except for the representations and warranties contained in this Agreement,
neither Arbor nor Hyperion makes any other representations or warranties, and
each hereby disclaims any other representations and warranties made by itself or
any of its officers, directors, employees, agents, financial and legal advisors
or other representatives, with respect to the execution and delivery of this
Agreement or the transactions contemplated hereby, notwithstanding the delivery
or disclosure to the other or the other's representatives of any documentation
or other information with respect to any one or more of the foregoing.
SECTION 9.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
SECTION 9.07 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
[Remainder of page intentionally left blank.]
A-34
<PAGE> 160
IN WITNESS WHEREOF, Hyperion, Sub and Arbor have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
Hyperion Software Corporation
By: /s/ JAMES PERAKIS
------------------------------------
Title: Chairman and Chief Executive
Officer
HSC Merger Corp.
By: /s/ JOHN DILLON
------------------------------------
Title: President
Arbor Software Corporation
By: /s/ JOHN DILLON
------------------------------------
Title: President and Chief Executive
Officer
A-35
<PAGE> 161
EXHIBIT A
HYPERION STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 25, 1998 (the "Agreement"), between
HYPERION SOFTWARE CORPORATION, a Delaware corporation (the "Grantee"), and ARBOR
SOFTWARE CORPORATION, a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, the Grantor and HSC Merger Corp., a Delaware
corporation and a wholly owned subsidiary of the Grantor ("Sub"), are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Sub with and into the Grantee;
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Grantee has requested that the Grantor grant to the Grantee an
option to purchase 2,274,000 shares of Common Stock, par value $0.001 per share,
of the Grantor (the "Common Stock"), upon the terms and subject to the
conditions hereof; and
WHEREAS, in order to induce the Grantee to enter into the Merger Agreement,
the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread.
(a) Contemporaneously herewith the Grantee, Sub and the Grantor are
entering into the Merger Agreement. Subject to the other terms and
conditions set forth herein, the Grantor hereby grants to the Grantee an
irrevocable option (the "Option") to purchase up to 2,274,000 shares of
Common Stock (the "Shares") at a cash purchase price equal to the lowest of
(i) $42.125 per Share, (ii) the average closing price of the Common Stock
on the Nasdaq National Market for the five consecutive trading days
beginning on and including the day that the Merger is publicly announced,
or (iii) the average closing price of the Common Stock on the Nasdaq
National Market for the five consecutive trading days immediately preceding
the public announcement of an Alternative Transaction (as defined in the
Merger Agreement) involving Grantor giving rise to the right to exercise
this Option pursuant to Section 2 below (the "Purchase Price"). The Option
may be exercised by the Grantee, in whole or in part, at any time, or from
time to time, following the occurrence of one of the events set forth in
Section 2(c) hereof and prior to the termination of the Option in
accordance with the terms of this Agreement.
(b) In the event the Grantee wishes to exercise the Option, the
Grantee shall send a written notice to the Grantor (the "Stock Exercise
Notice") specifying a date (subject to the HSR Act (as defined below)) not
later than 10 business days and not earlier than the next business day
following the date such notice is given for the closing of such purchase.
In the event of any change in the number of issued and outstanding shares
of Common Stock by reason of any stock dividend, stock split, split-up,
recapitalization, merger or other change in the corporate or capital
structure of the Grantor, the number of Shares subject to this Option and
the purchase price per Share shall be appropriately adjusted to restore to
the Grantee its rights hereunder, including its right to purchase Shares
representing 19.9% of the capital stock of the Grantor entitled to vote
generally for the election of the directors of the Grantor which is issued
and outstanding immediately prior to the exercise of the Option at an
aggregate purchase price equal to the Purchase Price multiplied by
2,274,000.
(c) If at any time the Option is then exercisable pursuant to the
terms of Section 1(a) hereof, the Grantee may elect, in lieu of exercising
the Option to purchase Shares provided in Section 1.(a) hereof, to send a
written notice to the Grantor (the "Cash Exercise Notice") specifying a
date not later than 20 business days and not earlier than 10 business days
following the date such notice is given on which date the Grantor shall pay
to the Grantee an amount in cash equal to the Spread (as hereinafter
defined) multiplied by all or such portion of the Shares subject to the
Option as Grantee shall specify. As used
Exhibit A-1
<PAGE> 162
herein "Spread" shall mean the excess, if any, over the Purchase Price of
the higher of (x) if applicable, the highest price per share of Common
Stock (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by any person in an Alternative Transaction (as defined
in the Merger Agreement) (the "Alternative Purchase Price") or (y) the
closing price of the shares of Common Stock on the Nasdaq National Market
on the last trading day immediately prior to the date of the Cash Exercise
Notice (the "Closing Price"). If the Alternative Purchase Price includes
any property other than cash, the Alternative Purchase Price shall be the
sum of (i) the fixed cash amount, if any, included in the Alternative
Purchase Price plus (ii) the fair market value of such other property. If
such other property consists of securities with an existing public trading
market, the average of the closing prices (or the average of the closing
bid and asked prices if closing prices are unavailable) for such securities
in their principal public trading market on the five trading days ending
five days prior to the date of the Cash Exercise Notice shall be deemed to
equal the fair market value of such property. If such other property
consists of something other than cash or securities with an existing public
trading market and, as of the payment date for the Spread, agreement on the
value of such other property has not been reached, the Alternative Purchase
Price shall be deemed to equal the Closing Price. Upon exercise of its
right to receive cash pursuant to this Section 1(c), the obligations of the
Grantor to deliver Shares pursuant to Section 3 shall be terminated with
respect to such number of Shares for which the Grantee shall have elected
to be paid the Spread.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option or the Spread upon exercise of the Grantor's
rights under Section 1(c) above is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired or
been terminated; and
(c) A proposal for an Alternative Transaction involving Grantor shall
have been made prior to the date the Merger Agreement is terminated
pursuant to the terms thereof (the "Merger Termination Date") and one or
more of the following events shall have occurred on or after the date of
the making of such proposal: (1) the requisite vote of the stockholders of
Grantor in favor of the Arbor Voting Proposals shall not have been obtained
at the Arbor Stockholders' Meeting (as such terms are defined in the Merger
Agreement) or any adjournment or postponement thereof; (2) the Board of
Directors of Grantor shall have withdrawn or modified its recommendation of
the Merger Agreement or the Merger; (3) the Board of Directors of Grantor
shall have recommended to the stockholders of Grantor an Alternative
Transaction (as defined in the Merger Agreement); (4) a tender offer or
exchange offer for 15% or more of the outstanding shares of Grantor Common
Stock shall have been commenced (other than by Grantee or an affiliate of
Grantee) and the Board of Directors of Grantor shall have recommended that
the stockholders of Grantor tender their shares in such tender or exchange
offer; or (5) for any reason Grantor shall have failed to call and hold the
Arbor Stockholders' Meeting (as defined in the Merger Agreement) by the
Outside Date (as defined in the Merger Agreement) and Grantor is not at
such time otherwise entitled to terminate the Merger Agreement pursuant to
Section 8.01(g) thereof.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the case may
be, at 10:00 A.M., local time, at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, or, if the conditions set forth in Section 2(a)
or 2(b) have not then been satisfied, on the second business day following the
satisfaction of such conditions, or at such other time and place as the parties
hereto may agree (the "Closing Date"). On the Closing Date, (i) in the event of
a closing pursuant to Section 1(b) hereof, the Grantor will deliver to the
Grantee a certificate or certificates, duly endorsed (or accompanied by duly
executed stock powers), representing the Shares in the denominations designated
by the Grantee in its Stock Exercise Notice and the Grantee will purchase such
Shares from the Grantor at the price per Share equal to the Purchase Price or
(ii) in the event of a closing pursuant to
Exhibit A-2
<PAGE> 163
Section 1(c) hereof, the Grantor will deliver to the Grantee cash in an amount
determined pursuant to Section 1(c) hereof. Any payment made by the Grantee to
the Grantor, or by the Grantor to the Grantee, pursuant to this Agreement shall
be made by certified or official bank check or by wire transfer of immediately
available federal funds to a bank designated by the party receiving such funds.
(b) The certificates representing the Shares may bear an appropriate legend
relating to the fact that such Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Grantor has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option and the Shares, when issued and
delivered by the Grantor upon exercise of the Option, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights; (d)
except as otherwise required by the HSR Act, the execution and delivery of this
Agreement by the Grantor and the consummation by it of the transactions
contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of any charter or by-law, indenture,
mortgage, lien, lease, agreement, contract, instrument, order, law, rule,
regulation, judgment, ordinance, decree or restriction by which the Grantor or
any of its subsidiaries or any of their respective properties or assets is
bound; and (e) no "fair price", "moratorium", "control share acquisition" or
other form of antitakeover statute or regulation (including, without limitation,
Section 203 of the Delaware General Corporation Law) is or shall be applicable
to the acquisition of Shares pursuant to this Agreement.
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that (a) the execution and delivery of this
Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and will constitute a
valid and binding obligation of Grantee; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
6. Listing of Shares; HSR Act Filings; Governmental Consents; Directorship.
(a) Subject to applicable law and the rules and regulations of the Nasdaq
National Market, the Grantor will promptly file an application to list the
Shares on the Nasdaq National Market and will use its best efforts to obtain
approval of such listing and to effect all necessary filings by the Grantor
under the HSR Act; provided, however, that if the Grantor is unable to effect
such listing on the Nasdaq National Market by the Closing Date, the Grantor will
nevertheless be obligated to deliver the Shares upon the Closing Date. Each of
the parties hereto will use its best efforts to obtain consents of all third
parties and governmental authorities, if any, necessary to the consummation of
the transactions contemplated.
(b) Upon exercise by the Grantee of the Option, in whole or in part, for at
least 1,143,000 Shares (such number representing approximately 10% of the number
of outstanding shares of Common Stock on the date hereof) the Grantee shall be
entitled to designate one person to be appointed to the Board of Directors of
the Grantor. Within five business days of the giving of notice by the Grantee to
the Grantor of the name of such designee, the Grantor, subject to the fiduciary
obligations of the Board of Directors of the Grantor, shall cause such designee
to be appointed to the Board of Directors of the Grantor. Thereafter, subject to
the further provisions hereof, the Grantor's nominating committee (or any other
committee exercising a similar function)
Exhibit A-3
<PAGE> 164
shall recommend to the Board of Directors of the Grantor that such person
designated by the Grantee be included in the slate of nominees recommended by
the Board of Directors to the stockholders for election as directors at each
annual meeting of stockholders of the Grantor. In the event that the designee of
the Grantee shall cease to serve as a director for any reason, the Grantee shall
give notice to the Grantor of the name of a designee to fill such vacancy in
accordance with the second and third sentences of this Section 6(b). If any such
person has been designated by the Grantee and not approved by the Board of
Directors, the Grantee shall be permitted to designate a substitute designee for
such person in accordance with this Section 6(b). Notwithstanding the foregoing,
the Grantor shall not be required to nominate the designee of the Grantee, and
shall be entitled to request and receive the resignation of any designee of the
Grantee then serving on the Board of Directors of the Grantor, at any time that
the Grantee then beneficially owns less than 1,143,000 shares of Common Stock.
The Grantee and the Grantor agree to take such steps as may be necessary to give
effect to this Section 6(b) in a manner consistent with applicable law.
7. Covenants of the Grantee. For so long as, and at any time that, a
designee of the Grantee is a member of the Board of Directors of the Grantor,
the Grantee covenants and agrees that the Grantee will not enter into any
agreement or understanding with any person with respect to the voting of any
shares of Common Stock it may beneficially own, and shall vote all such shares
beneficially owned by it (unless the aggregate of all such shares of Common
Stock beneficially owned by the Grantee and its affiliates exceeds 50% of the
outstanding shares of Common Stock) in favor of the Grantor's nominees for
election of directors.
8. Right of First Refusal. If a Change in Control Event (as defined in
Section 8(e) below) has not then already occurred, if the Grantee, at any time
prior to the first anniversary of the Merger Termination Date, seeks to sell all
or any part of the Shares (i) in a transaction registered under the Securities
Act (other than in a registered public offering in which the underwriters are
instructed to achieve a broad public distribution) or (ii) in a transaction not
required to be registered under the Securities Act (other than in a transfer by
operation of law upon consummation of a merger), it shall give the Grantor (or a
designee of the Grantor) the opportunity, in the following manner, to purchase
such Shares:
(a) The Grantee shall give notice to the Grantor in writing of its
intent to sell Shares (a "Disposition Notice"), specifying the number of
Shares to be sold, the price and, if applicable, the material terms of any
agreement relating thereto For purposes of this Section 8, if the
Disposition Notice is given with respect to the sale of the Shares pursuant
to a tender or exchange offer, it shall be assumed that all Shares tendered
will be accepted for payment. The Disposition Notice may be given at any
time, including prior to the giving of any Stock Exercise Notice.
(b) The Grantor or its designee shall have the right, exercisable by
written notice given to the Grantee within five business days after receipt
of a Disposition Notice (or, if applicable, in the case of a proposed sale
pursuant to a tender or exchange offer for shares of Common Stock, by
written notice given to the Grantee at least two business days prior to the
then announced expiration date of such tender or exchange offer (the
"Expiration Date") if such Disposition Notice was given at least four
business days prior to such Expiration Date), to purchase all, but not less
than all, of the Shares specified in the Disposition Notice at the price
set forth in the Disposition Notice. If the purchase price specified in the
Disposition Notice includes any property other than cash, the purchase
price to be paid by the Grantor shall be an amount of cash equal to the sum
of (i) the cash included in the purchase price plus (ii) the fair market
value of such other property at the date of the Disposition Notice. If such
other property consists of securities with an existing public trading
market, the average of the last sales prices for such securities on the
five trading days ending five days prior to the date of the Disposition
Notice shall be used as the fair market value of such property. If such
other property consists of something other than cash or securities with an
existing public trading market and at the time of the closing referred to
in paragraph (c) below, agreement on the value of such other property has
not been reached, the average of the closing prices for the Grantor's
Common Stock on the five trading days ending five days prior to the date of
the Disposition Notice shall be used as the per share purchase price;
provided, however, that promptly after the closing, the Grantee and the
Grantor or its designee, as the case may be, shall settle any additional
amounts to be paid or returned as a result of the determination of fair
market value of such other property made by a nationally recognized
investment banking firm selected by the Grantor and approved by the
Exhibit A-4
<PAGE> 165
Grantee within 30 days of the closing. Such determination shall be final
and binding on all parties hereto. If, at the time of the purchase of any
Shares by the Grantor (or its designee) pursuant to this Section 8, a
tender or exchange offer is outstanding, then the Grantor (or its designee)
shall agree at the time of such purchase to promptly pay to Grantee from
time to time such additional amounts, if any, so that the consideration
received by Grantee with respect to each Share shall be equal to the
highest price paid for a share of Common Stock pursuant to such tender or
exchange, or pursuant to any other tender or exchange offer outstanding at
any time such tender or exchange offer is outstanding.
(c) If the Grantor exercises its right of first refusal hereunder, the
closing of the purchase of the Shares with respect to which such right has
been exercised shall take place within five business days after the notice
of such exercise (or, if applicable, in the case of a tender or exchange
offer, no later than one business day prior to the expiration date of the
offer if written notice was given within the time set forth in the
parenthetical in the first sentence of paragraph (b) above); provided,
however, that at any time prior to the closing of the purchase of Shares
hereunder, the Grantee may determine not to sell the Shares and revoke the
Disposition Notice and by so doing, cancel the Grantor's right of first
refusal with respect to the disposition in question. The Grantor (or its
designee) shall pay for the Shares in immediately available funds.
(d) If the Grantor does not exercise its right of first refusal
hereunder within the time specified for such exercise, the Grantee shall be
free for 90 days following the expiration of such time for exercise to sell
or enter into an agreement to sell the Shares specified in the Disposition
Notice, at the price specified in the Disposition Notice or any price in
excess thereof and otherwise on substantially the same terms set forth in
the Disposition Notice; provided, that if such sale is not consummated
within such 90-day period, then the provisions of this Section 8 will again
apply to the sale of such Shares.
(e) For purposes of the Agreement, a "Change in Control Event" shall
be deemed to have occurred if (i) any person has a acquired beneficial
ownership of more than 50% (excluding the Shares) of the outstanding shares
of Common Stock or (ii) the Grantor shall have entered into an agreement,
including without limitation an agreement in principle, providing for a
merger or other business combination involving the Grantor or the
acquisition of 20% or more of the assets of the Grantor and its
subsidiaries, taken as a whole.
9. Repurchase of Shares; Sale of Shares.
(a) If a Change in Control Event has not occurred prior to the first
anniversary date of the Merger Termination Date, then beginning on such
anniversary date, the Grantor shall have the right to purchase (the "Repurchase
Right") all, but not less than all, of the Shares at the greater of (i) the
Purchase Price, or (ii) the average of the closing prices for shares of Common
Stock on the five trading days ending five days prior to the date the Grantor
gives written notice of its intention to exercise the Repurchase Right. If the
Grantor does not exercise the Repurchase Right within 30 days following the
first anniversary of the Merger Termination Date, the Repurchase Right shall
terminate. In the event the Grantor wishes to exercise the Repurchase Right, the
Grantor shall send a written notice to the Grantee specifying a date (not later
than 10 business days and not earlier than the next business day following the
date such notice is given) for the closing of such purchase.
(b) At any time prior to the first anniversary of the Merger Termination
Date, the Grantee shall have the right to sell (the "Sale Right") to the Grantor
all, but no less than all, of the Shares at the greater of (i) the Purchase
Price or (ii) the average of the last sales prices for shares of Common Stock on
the five trading days ending five days prior to the date the Grantee gives
written notice of its intention to exercise the Sale Right. If the Grantee does
not exercise the Sale Right prior to the first anniversary of the Merger
Termination Date, the Sale Right shall terminate. In the event the Grantee
wishes to exercise the Sale Right, the Grantee shall send a written notice to
the Grantor specifying a date (not later than 20 business days and not earlier
than 10 business days following the date such notice is given) for the closing
of such sale.
Exhibit A-5
<PAGE> 166
10. Registration Rights.
(a) In the event that the Grantee shall desire to sell any of the Shares
within two years after the purchase of such Shares pursuant hereto, and such
sale requires, in the opinion of counsel to the Grantee, which opinion shall be
reasonably satisfactory to the Grantor and its counsel, registration of such
Shares under the Securities Act, the Grantor will cooperate with the Grantee and
any underwriters in registering such Shares for resale, including, without
limitation, promptly filing a registration statement that complies with the
requirements of applicable federal and state securities laws and entering into
an underwriting agreement with such underwriters upon such terms and conditions
as are customarily contained in underwriting agreements with respect to
secondary distributions; provided that the Grantor shall not be required to have
declared effective more than two registration statements hereunder and shall be
entitled to delay the filing or effectiveness of any registration statement for
up to 120 days if the offering would, in the judgment of the Board of Directors
of the Grantor, require premature disclosure of any material corporate
development or otherwise interfere with or adversely affect any pending or
proposed offering of securities of the Grantor or any other material transaction
involving the Grantor.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 10, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. The Grantor shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Grantor, except that the Grantee shall pay the
fees and disbursements of its counsel, the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Grantee. The
Grantor shall indemnify and hold harmless Grantee, its affiliates and its
officers and directors from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in, omissions or alleged omissions from, each registration statement filed
pursuant to this paragraph; provided, however, that this provision does not
apply to any loss, liability, claim, damage or expense to the extent it arises
out of any untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Grantor by the Grantee, its affiliates
and its officers expressly for use in any registration statement (or any
amendment thereto) or any preliminary prospectus filed pursuant to this
paragraph. The Grantor shall also indemnify and hold harmless each underwriter
and each person who controls any underwriter within the meaning of either the
Securities Act or the Securities Exchange Act of 1934 against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however, that
this provision does not apply to any loss, liability, claim, damage or expense
to the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Grantor by the
underwriters expressly for use in any registration statement (or any amendment
thereto) or any preliminary prospectus filed pursuant to this paragraph.
11. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as defined in Section 11(c) below) exceed $30
million and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) deliver to the Grantor for cancellation Shares
previously purchased by Grantee, (ii) pay cash or other consideration to the
Grantor or (iii) undertake any combination thereof, so that Grantee's Total
Profit shall not exceed $30 million after taking into account the foregoing
actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of Shares as would, as of the date of the Stock
Exercise Notice, result in a Notional Total Profit (as
Exhibit A-6
<PAGE> 167
defined in Section 11(c) below) of more than $30 million and, if exercise of the
Option otherwise would exceed such amount, the Grantee, at its discretion, may
increase the Purchase Price for that number of Shares set forth in the Stock
Exercise Notice so that the Notional Total Profit shall not exceed $30 million;
provided, that nothing in this sentence shall restrict any exercise of the
Option permitted hereby on any subsequent date at the Purchase Price set forth
in Section 1(a) hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by Grantee
pursuant to Section 8.03(c) of the Merger Agreement and Section 1(c) hereof,
(ii) (x) the amount received by Grantee pursuant to the Grantor's repurchase of
Shares pursuant to Sections 8 or 9 hereof, less (y) the Grantee's purchase price
for such Shares, and (iii) (x) the net cash amounts received by Grantee pursuant
to the sale of Shares (or any other securities into which such Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price for such Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of the Stock Exercise Notice
assuming that this Option were exercised on such date for such number of Shares
and assuming that such Shares, together with all other Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
12. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
13. Specific Performance. The Grantor acknowledges that if the Grantor
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. The Grantor
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief.
14. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or delivered
by certified mail, return receipt requested, or if sent by facsimile
transmission, upon receipt of oral confirmation that such transmission has been
received, to the person at the address set forth below, or such other address as
may be designated in writing hereafter, in the same manner, by such person:
If to the Grantor:
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Attn: General Counsel
Telecopy: (408) 543-4788
With a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Robert V. Gunderson, Jr., Esq.
Steven M. Spurlock, Esq.
Telecopy: (650) 321-2800
Exhibit A-7
<PAGE> 168
If to the Grantee:
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Attn: Secretary
Telecopy: (203) 461-7795
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: John A. Burgess, Esq.
Hal J. Leibowitz, Esq.
Telecopy: (617) 526-5000
15. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successors in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Grantor or the Grantee, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
16. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but may be changed only by an agreement in
writing signed by the party against whom any waiver, change, amendment,
modification or discharge may be sought.
17. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto, except that the Grantee may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries, but no
such transfer shall relieve the Grantee of its obligations hereunder if such
transferee does not perform such obligations.
18. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
21. Termination. The right to exercise the Option granted pursuant to this
Agreement shall terminate at the earlier of (i) the Effective Time (as defined
in the Merger Agreement), (ii) the date on which Grantee realizes a Total Profit
of $30 million and (iii) 90 days after the Merger Termination Date (the date
referred to in clause (iii) being hereinafter referred to as the "Option
Termination Date"); provided that if the Option cannot be exercised or the
Shares cannot be delivered to Grantee upon such exercise because the conditions
set forth in Section 2(a) or Section 2(b) hereof have not yet been satisfied,
the Option Termination Date shall be extended until thirty days after such
impediment to exercise has been removed; and provided, further, that, if at any
time the Grantee seeks to exercise the Option by delivery of a Stock Exercise
Notice but is unable to do so with respect to all of the Shares subject to the
Option at the Purchase Price because of the limitation on profit contained in
Section 11(b) hereof, the Option Termination Date shall be extended for an
additional 180 days from the date of such Stock Exercise Notice (but in no event
shall the Option Termination Date be more than 270 days after the Merger
Termination Date).
Exhibit A-8
<PAGE> 169
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
22. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
23. Public Announcement. The Grantee will consult with the Grantor and the
Grantor will consult with the Grantee before issuing any press release with
respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or by the National Association of Securities Dealers, Inc.
[Remainder of page intentionally left blank.]
Exhibit A-9
<PAGE> 170
IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.
Hyperion Software Corporation
By: /s/ JAMES PERAKIS
------------------------------------
James Perakis
Title: Chairman and Chief Executive
Officer
Arbor Software Corporation
By: /s/ JOHN DILLON
------------------------------------
John Dillon
Title: President and Chief Executive
Officer
Exhibit A-10
<PAGE> 171
EXHIBIT B
ARBOR STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 25, 1998 (the "Agreement"), between
ARBOR SOFTWARE CORPORATION, a Delaware corporation (the "Grantee"), and HYPERION
SOFTWARE CORPORATION, a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, the Grantor and HSC Merger Corp., a Delaware
corporation and a wholly owned subsidiary of the Grantee ("Sub"), are entering
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of Sub with and into the Grantor;
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, the Grantee has requested that the Grantor grant to the Grantee an
option to purchase 3,789,000 shares of Common Stock, par value $0.01 per share,
of the Grantor (the "Common Stock"), upon the terms and subject to the
conditions hereof; and
WHEREAS, in order to induce the Grantee to enter into the Merger Agreement,
the Grantor is willing to grant the Grantee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments; Payment of Spread.
(a) Contemporaneously herewith the Grantee, Sub and the Grantor are
entering into the Merger Agreement. Subject to the other terms and
conditions set forth herein, the Grantor hereby grants to the Grantee an
irrevocable option (the "Option") to purchase up to 3,789,000 shares of
Common Stock (the "Shares") at a cash purchase price equal to the lowest of
(i) $38.125 per Share, (ii) the average closing price of the Common Stock
on the Nasdaq National Market for the five consecutive trading days
beginning on and including the day that the Merger is publicly announced,
or (iii) the average closing price of the Common Stock on the Nasdaq
National Market for the five consecutive trading days immediately preceding
the public announcement of an Alternative Transaction (as defined in the
Merger Agreement) involving Grantor giving rise to the right to exercise
this Option pursuant to Section 2 below (the "Purchase Price"). The Option
may be exercised by the Grantee, in whole or in part, at any time, or from
time to time, following the occurrence of one of the events set forth in
Section 2(c) hereof and prior to the termination of the Option in
accordance with the terms of this Agreement.
(b) In the event the Grantee wishes to exercise the Option, the
Grantee shall send a written notice to the Grantor (the "Stock Exercise
Notice") specifying a date (subject to the HSR Act (as defined below)) not
later than 10 business days and not earlier than the next business day
following the date such notice is given for the closing of such purchase.
In the event of any change in the number of issued and outstanding shares
of Common Stock by reason of any stock dividend, stock split, split-up,
recapitalization, merger or other change in the corporate or capital
structure of the Grantor, the number of Shares subject to this Option and
the purchase price per Share shall be appropriately adjusted to restore to
the Grantee its rights hereunder, including its right to purchase Shares
representing 19.9% of the capital stock of the Grantor entitled to vote
generally for the election of the directors of the Grantor which is issued
and outstanding immediately prior to the exercise of the Option at an
aggregate purchase price equal to the Purchase Price multiplied by
3,789,000.
(c) If at any time the Option is then exercisable pursuant to the
terms of Section 1(a) hereof, the Grantee may elect, in lieu of exercising
the Option to purchase Shares provided in Section 1.(a) hereof, to send a
written notice to the Grantor (the "Cash Exercise Notice") specifying a
date not later than 20 business days and not earlier than 10 business days
following the date such notice is given on which date the Grantor shall pay
to the Grantee an amount in cash equal to the Spread (as hereinafter
defined) multiplied by all or such portion of the Shares subject to the
Option as Grantee shall specify. As used
Exhibit B-1
<PAGE> 172
herein "Spread" shall mean the excess, if any, over the Purchase Price of
the higher of (x) if applicable, the highest price per share of Common
Stock (including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by any person in an Alternative Transaction (as defined
in the Merger Agreement) (the "Alternative Purchase Price") or (y) the
closing price of the shares of Common Stock on the Nasdaq National Market
on the last trading day immediately prior to the date of the Cash Exercise
Notice (the "Closing Price"). If the Alternative Purchase Price includes
any property other than cash, the Alternative Purchase Price shall be the
sum of (i) the fixed cash amount, if any, included in the Alternative
Purchase Price plus (ii) the fair market value of such other property. If
such other property consists of securities with an existing public trading
market, the average of the closing prices (or the average of the closing
bid and asked prices if closing prices are unavailable) for such securities
in their principal public trading market on the five trading days ending
five days prior to the date of the Cash Exercise Notice shall be deemed to
equal the fair market value of such property. If such other property
consists of something other than cash or securities with an existing public
trading market and, as of the payment date for the Spread, agreement on the
value of such other property has not been reached, the Alternative Purchase
Price shall be deemed to equal the Closing Price. Upon exercise of its
right to receive cash pursuant to this Section 1(c), the obligations of the
Grantor to deliver Shares pursuant to Section 3 shall be terminated with
respect to such number of Shares for which the Grantee shall have elected
to be paid the Spread.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option or the Spread upon exercise of the Grantor's
rights under Section 1(c) above is subject only to the conditions that:
(a) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired or
been terminated; and
(c) A proposal for an Alternative Transaction involving Grantor shall
have been made prior to the date the Merger Agreement is terminated
pursuant to the terms thereof (the "Merger Termination Date") and one or
more of the following events shall have occurred on or after the date of
the making of such proposal: (1) the requisite vote of the stockholders of
Grantor in favor of the Merger Agreement and the Merger shall not have been
obtained at the Hyperion Stockholders' Meeting (as such term is defined in
the Merger Agreement) or any adjournment or postponement thereof; (2) the
Board of Directors of Grantor shall have withdrawn or modified its
recommendation of the Merger Agreement or the Merger; (3) the Board of
Directors of Grantor shall have recommended to the stockholders of Grantor
an Alternative Transaction (as defined in the Merger Agreement); (4) a
tender offer or exchange offer for 15% or more of the outstanding shares of
Grantor Common Stock shall have been commenced (other than by Grantee or an
affiliate of Grantee) and the Board of Directors of Grantor shall have
recommended that the stockholders of Grantor tender their shares in such
tender or exchange offer; or (5) for any reason Grantor shall have failed
to call and hold the Hyperion Stockholders' Meeting (as defined in the
Merger Agreement) by the Outside Date (as defined in the Merger Agreement)
and Grantor is not at such time otherwise entitled to terminate the Merger
Agreement pursuant to Section 8.01(g) thereof.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Stock Exercise Notice or Cash Exercise Notice, as the case may
be, at 10:00 A.M., local time, at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California, or, if the conditions set forth in Section 2(a) or 2(b) have not
then been satisfied, on the second business day following the satisfaction of
such conditions, or at such other time and place as the parties hereto may agree
(the "Closing Date"). On the Closing Date, (i) in the event of a closing
pursuant to Section 1(b) hereof, the Grantor will deliver to the Grantee a
certificate or certificates, duly endorsed (or accompanied by duly executed
stock powers), representing the Shares in the denominations designated by the
Grantee in its Stock
Exhibit B-2
<PAGE> 173
Exercise Notice and the Grantee will purchase such Shares from the Grantor at
the price per Share equal to the Purchase Price or (ii) in the event of a
closing pursuant to Section 1(c) hereof, the Grantor will deliver to the Grantee
cash in an amount determined pursuant to Section 1(c) hereof. Any payment made
by the Grantee to the Grantor, or by the Grantor to the Grantee, pursuant to
this Agreement shall be made by certified or official bank check or by wire
transfer of immediately available federal funds to a bank designated by the
party receiving such funds.
(b) The certificates representing the Shares may bear an appropriate legend
relating to the fact that such Shares have not been registered under the
Securities Act of 1933, as amended (the "Securities Act").
4. Representations and Warranties of the Grantor. The Grantor represents
and warrants to the Grantee that (a) the Grantor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to enter into and
perform this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Grantor and this Agreement
has been duly executed and delivered by a duly authorized officer of the Grantor
and constitutes a valid and binding obligation of the Grantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles; (c)
the Grantor has taken all necessary corporate action to authorize and reserve
the Shares issuable upon exercise of the Option and the Shares, when issued and
delivered by the Grantor upon exercise of the Option, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights; (d)
except as otherwise required by the HSR Act, the execution and delivery of this
Agreement by the Grantor and the consummation by it of the transactions
contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of any charter or by-law, indenture,
mortgage, lien, lease, agreement, contract, instrument, order, law, rule,
regulation, judgment, ordinance, decree or restriction by which the Grantor or
any of its subsidiaries or any of their respective properties or assets is
bound; (e) no "fair price", "moratorium", "control share acquisition" or other
form of antitakeover statute or regulation (including, without limitation,
Section 203 of the Delaware General Corporation Law) is or shall be applicable
to the acquisition of Shares pursuant to this Agreement; and (f) the Grantor has
taken all corporate action necessary so that the grant and any subsequent
exercise of the Option by the Grantee will not result in the separation,
distribution, trigger or exercisability of rights under the Rights Agreement,
dated as of November 17, 1995, between the Grantor and American Stock Transfer &
Trust Company, as Rights Agent.
5. Representations and Warranties of the Grantee. The Grantee represents
and warrants to the Grantor that (a) the execution and delivery of this
Agreement by the Grantee and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Grantee and this Agreement has been duly executed and
delivered by a duly authorized officer of the Grantee and will constitute a
valid and binding obligation of Grantee; and (b) the Grantee is acquiring the
Option and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
6. Listing of Shares; HSR Act Filings; Governmental Consents; Directorship.
(a) Subject to applicable law and the rules and regulations of the Nasdaq
National Market, the Grantor will promptly file an application to list the
Shares on the Nasdaq National Market and will use its best efforts to obtain
approval of such listing and to effect all necessary filings by the Grantor
under the HSR Act; provided, however, that if the Grantor is unable to effect
such listing on the Nasdaq National Market by the Closing Date, the Grantor will
nevertheless be obligated to deliver the Shares upon the Closing Date. Each of
the parties hereto will use its best efforts to obtain consents of all third
parties and governmental authorities, if any, necessary to the consummation of
the transactions contemplated.
(b) Upon exercise by the Grantee of the Option, in whole or in part, for at
least 1,900,000 Shares (such number representing approximately 10% of the number
of outstanding shares of Common Stock on the date
Exhibit B-3
<PAGE> 174
hereof) the Grantee shall be entitled to designate one person to be appointed to
the Board of Directors of the Grantor. Within five business days of the giving
of notice by the Grantee to the Grantor of the name of such designee, the
Grantor, subject to the fiduciary obligations of the Board of Directors of the
Grantor, shall cause such designee to be appointed to the Board of Directors of
the Grantor. Thereafter, subject to the further provisions hereof, the Grantor's
nominating committee (or any other committee exercising a similar function)
shall recommend to the Board of Directors of the Grantor that such person
designated by the Grantee be included in the slate of nominees recommended by
the Board of Directors to the stockholders for election as directors at each
annual meeting of stockholders of the Grantor. In the event that the designee of
the Grantee shall cease to serve as a director for any reason, the Grantee shall
give notice to the Grantor of the name of a designee to fill such vacancy in
accordance with the second and third sentences of this Section 6(b). If any such
person has been designated by the Grantee and not approved by the Board of
Directors, the Grantee shall be permitted to designate a substitute designee for
such person in accordance with this Section 6(b). Notwithstanding the foregoing,
the Grantor shall not be required to nominate the designee of the Grantee, and
shall be entitled to request and receive the resignation of any designee of the
Grantee then serving on the Board of Directors of the Grantor, at any time that
the Grantee then beneficially owns less than 1,900,000 shares of Common Stock.
The Grantee and the Grantor agree to take such steps as may be necessary to give
effect to this Section 6(b) in a manner consistent with applicable law.
7. Covenants of the Grantee. For so long as, and at any time that, a
designee of the Grantee is a member of the Board of Directors of the Grantor,
the Grantee covenants and agrees that the Grantee will not enter into any
agreement or understanding with any person with respect to the voting of any
shares of Common Stock it may beneficially own, and shall vote all such shares
beneficially owned by it (unless the aggregate of all such shares of Common
Stock beneficially owned by the Grantee and its affiliates exceeds 50% of the
outstanding shares of Common Stock) in favor of the Grantor's nominees for
election of directors.
8. Right of First Refusal. If a Change in Control Event (as defined in
Section 8(e) below) has not then already occurred, if the Grantee, at any time
prior to the first anniversary of the Merger Termination Date, seeks to sell all
or any part of the Shares (i) in a transaction registered under the Securities
Act (other than in a registered public offering in which the underwriters are
instructed to achieve a broad public distribution) or (ii) in a transaction not
required to be registered under the Securities Act (other than in a transfer by
operation of law upon consummation of a merger), it shall give the Grantor (or a
designee of the Grantor) the opportunity, in the following manner, to purchase
such Shares:
(a) The Grantee shall give notice to the Grantor in writing of its
intent to sell Shares (a "Disposition Notice"), specifying the number of
Shares to be sold, the price and, if applicable, the material terms of any
agreement relating thereto For purposes of this Section 8, if the
Disposition Notice is given with respect to the sale of the Shares pursuant
to a tender or exchange offer, it shall be assumed that all Shares tendered
will be accepted for payment. The Disposition Notice may be given at any
time, including prior to the giving of any Stock Exercise Notice.
(b) The Grantor or its designee shall have the right, exercisable by
written notice given to the Grantee within five business days after receipt
of a Disposition Notice (or, if applicable, in the case of a proposed sale
pursuant to a tender or exchange offer for shares of Common Stock, by
written notice given to the Grantee at least two business days prior to the
then announced expiration date of such tender or exchange offer (the
"Expiration Date") if such Disposition Notice was given at least four
business days prior to such Expiration Date), to purchase all, but not less
than all, of the Shares specified in the Disposition Notice at the price
set forth in the Disposition Notice. If the purchase price specified in the
Disposition Notice includes any property other than cash, the purchase
price to be paid by the Grantor shall be an amount of cash equal to the sum
of (i) the cash included in the purchase price plus (ii) the fair market
value of such other property at the date of the Disposition Notice. If such
other property consists of securities with an existing public trading
market, the average of the last sales prices for such securities on the
five trading days ending five days prior to the date of the Disposition
Notice shall be used as the fair market value of such property. If such
other property consists of something other than cash or securities with an
existing public trading market and at the time of the closing referred to
in paragraph (c) below, agreement on the value of such other property has
not been reached, the average of the closing
Exhibit B-4
<PAGE> 175
prices for the Grantor's Common Stock on the five trading days ending five
days prior to the date of the Disposition Notice shall be used as the per
share purchase price; provided, however, that promptly after the closing,
the Grantee and the Grantor or its designee, as the case may be, shall
settle any additional amounts to be paid or returned as a result of the
determination of fair market value of such other property made by a
nationally recognized investment banking firm selected by the Grantor and
approved by the Grantee within 30 days of the closing. Such determination
shall be final and binding on all parties hereto. If, at the time of the
purchase of any Shares by the Grantor (or its designee) pursuant to this
Section 8, a tender or exchange offer is outstanding, then the Grantor (or
its designee) shall agree at the time of such purchase to promptly pay to
Grantee from time to time such additional amounts, if any, so that the
consideration received by Grantee with respect to each Share shall be equal
to the highest price paid for a share of Common Stock pursuant to such
tender or exchange, or pursuant to any other tender or exchange offer
outstanding at any time such tender or exchange offer is outstanding.
(c) If the Grantor exercises its right of first refusal hereunder, the
closing of the purchase of the Shares with respect to which such right has
been exercised shall take place within five business days after the notice
of such exercise (or, if applicable, in the case of a tender or exchange
offer, no later than one business day prior to the expiration date of the
offer if written notice was given within the time set forth in the
parenthetical in the first sentence of paragraph (b) above); provided,
however, that at any time prior to the closing of the purchase of Shares
hereunder, the Grantee may determine not to sell the Shares and revoke the
Disposition Notice and by so doing, cancel the Grantor's right of first
refusal with respect to the disposition in question. The Grantor (or its
designee) shall pay for the Shares in immediately available funds.
(d) If the Grantor does not exercise its right of first refusal
hereunder within the time specified for such exercise, the Grantee shall be
free for 90 days following the expiration of such time for exercise to sell
or enter into an agreement to sell the Shares specified in the Disposition
Notice, at the price specified in the Disposition Notice or any price in
excess thereof and otherwise on substantially the same terms set forth in
the Disposition Notice; provided, that if such sale is not consummated
within such 90-day period, then the provisions of this Section 8 will again
apply to the sale of such Shares.
(e) For purposes of the Agreement, a "Change in Control Event" shall
be deemed to have occurred if (i) any person has a acquired beneficial
ownership of more than 50% (excluding the Shares) of the outstanding shares
of Common Stock or (ii) the Grantor shall have entered into an agreement,
including without limitation an agreement in principle, providing for a
merger or other business combination involving the Grantor or the
acquisition of 20% or more of the assets of the Grantor and its
subsidiaries, taken as a whole.
9. Repurchase of Shares; Sale of Shares.
(a) If a Change in Control Event has not occurred prior to the first
anniversary date of the Merger Termination Date, then beginning on such
anniversary date, the Grantor shall have the right to purchase (the "Repurchase
Right") all, but not less than all, of the Shares at the greater of (i) the
Purchase Price, or (ii) the average of the closing prices for shares of Common
Stock on the five trading days ending five days prior to the date the Grantor
gives written notice of its intention to exercise the Repurchase Right. If the
Grantor does not exercise the Repurchase Right within 30 days following the
first anniversary of the Merger Termination Date, the Repurchase Right shall
terminate. In the event the Grantor wishes to exercise the Repurchase Right, the
Grantor shall send a written notice to the Grantee specifying a date (not later
than 10 business days and not earlier than the next business day following the
date such notice is given) for the closing of such purchase.
(b) At any time prior to the first anniversary of the Merger Termination
Date, the Grantee shall have the right to sell (the "Sale Right") to the Grantor
all, but no less than all, of the Shares at the greater of (i) the Purchase
Price or (ii) the average of the last sales prices for shares of Common Stock on
the five trading days ending five days prior to the date the Grantee gives
written notice of its intention to exercise the Sale Right. If the Grantee does
not exercise the Sale Right prior to the first anniversary of the Merger
Termination Date, the Sale Right shall terminate. In the event the Grantee
wishes to exercise the Sale Right, the Grantee shall send
Exhibit B-5
<PAGE> 176
a written notice to the Grantor specifying a date (not later than 20 business
days and not earlier than 10 business days following the date such notice is
given) for the closing of such sale.
10. Registration Rights.
(a) In the event that the Grantee shall desire to sell any of the Shares
within two years after the purchase of such Shares pursuant hereto, and such
sale requires, in the opinion of counsel to the Grantee, which opinion shall be
reasonably satisfactory to the Grantor and its counsel, registration of such
Shares under the Securities Act, the Grantor will cooperate with the Grantee and
any underwriters in registering such Shares for resale, including, without
limitation, promptly filing a registration statement that complies with the
requirements of applicable federal and state securities laws and entering into
an underwriting agreement with such underwriters upon such terms and conditions
as are customarily contained in underwriting agreements with respect to
secondary distributions; provided that the Grantor shall not be required to have
declared effective more than two registration statements hereunder and shall be
entitled to delay the filing or effectiveness of any registration statement for
up to 120 days if the offering would, in the judgment of the Board of Directors
of the Grantor, require premature disclosure of any material corporate
development or otherwise interfere with or adversely affect any pending or
proposed offering of securities of the Grantor or any other material transaction
involving the Grantor.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 10, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
numbers as the Grantee may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 90 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and prospectus
as amended or supplemented as may reasonably be requested. The Grantor shall
bear the cost of the registration, including, but not limited to, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel and accountants for the Grantor, except that the Grantee shall pay the
fees and disbursements of its counsel, the underwriting fees and selling
commissions applicable to the shares of Common Stock sold by the Grantee. The
Grantor shall indemnify and hold harmless Grantee, its affiliates and its
officers and directors from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in, omissions or alleged omissions from, each registration statement filed
pursuant to this paragraph; provided, however, that this provision does not
apply to any loss, liability, claim, damage or expense to the extent it arises
out of any untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Grantor by the Grantee, its affiliates
and its officers expressly for use in any registration statement (or any
amendment thereto) or any preliminary prospectus filed pursuant to this
paragraph. The Grantor shall also indemnify and hold harmless each underwriter
and each person who controls any underwriter within the meaning of either the
Securities Act or the Securities Exchange Act of 1934 against any and all
losses, claims, damages, liabilities and expenses arising out of or based upon
any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this paragraph; provided, however, that
this provision does not apply to any loss, liability, claim, damage or expense
to the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Grantor by the
underwriters expressly for use in any registration statement (or any amendment
thereto) or any preliminary prospectus filed pursuant to this paragraph.
11. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as defined in Section 11(c) below) exceed $30
million and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) deliver to the Grantor for cancellation Shares
previously purchased by Grantee, (ii) pay cash or other consideration to the
Grantor or (iii) undertake any combination thereof, so that Grantee's Total
Profit shall not exceed $30 million after taking into account the foregoing
actions.
Exhibit B-6
<PAGE> 177
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of Shares as would, as of the date of the Stock
Exercise Notice, result in a Notional Total Profit (as defined in Section 11(d)
below) of more than $30 million and, if exercise of the Option otherwise would
exceed such amount, the Grantee, at its discretion, may increase the Purchase
Price for that number of Shares set forth in the Stock Exercise Notice so that
the Notional Total Profit shall not exceed $30 million; provided, that nothing
in this sentence shall restrict any exercise of the Option permitted hereby on
any subsequent date at the Purchase Price set forth in Section 1(a) hereof.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by Grantee
pursuant to Section 8.03(e) of the Merger Agreement and Section 1(c) hereof,
(ii) (x) the amount received by Grantee pursuant to the Grantor's repurchase of
Shares pursuant to Sections 8 or 9 hereof, less (y) the Grantee's purchase price
for such Shares, and (iii) (x) the net cash amounts received by Grantee pursuant
to the sale of Shares (or any other securities into which such Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's
purchase price for such Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of the Stock Exercise Notice
assuming that this Option were exercised on such date for such number of Shares
and assuming that such Shares, together with all other Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
12. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
13. Specific Performance. The Grantor acknowledges that if the Grantor
fails to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees that
the Grantee shall have the right, in addition to any other rights it may have,
to specific performance of this Agreement. Accordingly, if the Grantee should
institute an action or proceeding seeking specific enforcement of the provisions
hereof, the Grantor hereby waives the claim or defense that the Grantee has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists. The Grantor
further agrees to waive any requirements for the securing or posting of any bond
in connection with obtaining any such equitable relief.
14. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or delivered
by certified mail, return receipt requested, or if sent by facsimile
transmission, upon receipt of oral confirmation that such transmission has been
received, to the person at the address set forth below, or such other address as
may be designated in writing hereafter, in the same manner, by such person:
If to the Grantor:
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Attn: Secretary
Telecopy: (203) 461-7795
Exhibit B-7
<PAGE> 178
With a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: John A. Burgess, Esq.
Hal J. Leibowitz, Esq.
Telecopy: (617) 526-5000
If to the Grantee:
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Attn: General Counsel
Telecopy: (408) 543-4788
With a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attn: Robert V. Gunderson, Jr., Esq.
Steven M. Spurlock, Esq.
Telecopy: (650) 321-2800
15. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successors in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other than
the Grantor or the Grantee, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
16. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings, oral
or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but may be changed only by an agreement in
writing signed by the party against whom any waiver, change, amendment,
modification or discharge may be sought.
17. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto, except that the Grantee may assign its rights and obligations
hereunder to any of its direct or indirect wholly owned subsidiaries, but no
such transfer shall relieve the Grantee of its obligations hereunder if such
transferee does not perform such obligations.
18. Headings. The section headings herein are for convenience only and
shall not affect the construction of this Agreement.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable Delaware principles of conflicts of
law).
21. Termination. The right to exercise the Option granted pursuant to this
Agreement shall terminate at the earlier of (i) the Effective Time (as defined
in the Merger Agreement), (ii) the date on which Grantee realizes a Total Profit
of $30 million and (iii) 90 days after the Merger Termination Date (the date
referred to in clause (iii) being hereinafter referred to as the "Option
Termination Date"); provided that if the Option
Exhibit B-8
<PAGE> 179
cannot be exercised or the Shares cannot be delivered to Grantee upon such
exercise because the conditions set forth in Section 2(a) or Section 2(b) hereof
have not yet been satisfied, the Option Termination Date shall be extended until
thirty days after such impediment to exercise has been removed; and provided,
further, that, if at any time the Grantee seeks to exercise the Option by
delivery of a Stock Exercise Notice but is unable to do so with respect to all
of the Shares subject to the Option at the Purchase Price because of the
limitation on profit contained in Section 11(b) hereof, the Option Termination
Date shall be extended for an additional 180 days from the date of such Stock
Exercise Notice (but in no event shall the Option Termination Date be more than
270 days after the Merger Termination Date).
All representations and warranties contained in this Agreement shall
survive delivery of and payment for the Shares.
22. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
23. Public Announcement. The Grantee will consult with the Grantor and the
Grantor will consult with the Grantee before issuing any press release with
respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or by the National Association of Securities Dealers, Inc.
[Remainder of page intentionally left blank.]
Exhibit B-9
<PAGE> 180
IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.
ARBOR SOFTWARE CORPORATION
By: /s/ JOHN DILLON
------------------------------------
Title: President and Chief Executive
Officer
HYPERION SOFTWARE CORPORATION
By: /s/ JAMES PERAKIS
------------------------------------
Title: Chairman and Chief Executive
Officer
Exhibit B-10
<PAGE> 181
EXHIBIT C -- DIRECTOR AND OFFICER DESIGNEES
C-1 -- Hyperion Designees
James A. Perakis
Gary G. Greenfield
Harry S. Gruner
Aldo Papone
C-2 -- Arbor Designees
John M. Dillon
Mark Perry
Jeffrey R. Rodek
C-3 -- Directors Classes
Class I Directors (terms ending at the
1999 Annual Meeting of Stockholders)
Gary G. Greenfield
Mark Perry
Class II Directors (terms ending at the
2000 Annual Meeting of Stockholders)
Harry S. Gruner
Aldo Papone
Jeffrey R. Rodek
Class III Directors (terms ending at the
2001 Annual Meeting of Stockholders)
John M. Dillon
James A. Perakis
C-4 -- Officers
Chairman: James A. Perakis
President and Chief Executive Officer: John M. Dillon
Chief Financial Officer: Stephen V. Imbler
Exhibit C-1
<PAGE> 182
EXHIBIT D-1
HYPERION AFFILIATE AGREEMENT
AFFILIATE AGREEMENT
, 1998
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of May 25, 1998 (the "Agreement")
has been entered into by and among Hyperion Software Corporation, a Delaware
corporation ("Hyperion"), Arbor Software Corporation, a Delaware corporation
("Arbor"), and HSC Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Arbor (the "Sub"). The Agreement provides for the merger of the
Sub with and into Hyperion (the "Merger"). In accordance with the Agreement,
shares of common stock, $.01 par value per share, of Hyperion (the "Hyperion
Common Stock") shall be converted into shares of common stock, $.001 par value
per share, of Arbor (the "Arbor Common Stock"), as described in the Agreement.
The undersigned has been advised that as of the date of this agreement the
undersigned may be deemed to be an "affiliate" of Hyperion, as the term
"affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
Rules and Regulations of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and/or as such term is used in, and for purposes of, Accounting Series
Releases Nos. 130 and 135, as amended, of the Commission.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agrees as follows:
1. Pooling Requirements. The undersigned will not within the 30 day
period prior to the Effective Time (as defined in the Agreement), sell,
transfer, pledge, hypothecate or otherwise dispose of, or reduce the
undersigned's interest in or risk relating to, any shares of Hyperion
Common Stock or Arbor Common Stock owned by the undersigned. In addition,
the undersigned will not sell, transfer, pledge, hypothecate or otherwise
dispose of, or reduce the undersigned's interest in or risk relating to,
any Arbor Common Stock issued to the undersigned pursuant to the Merger, or
any other shares of Arbor capital stock, until after such time as Arbor has
published (within the meaning of Accounting Series Release No. 135, as
amended, of the Commission) financial results covering at least 30 days of
combined operations of Hyperion and Arbor.
2. Rule 145. The undersigned will not offer, sell, pledge,
hypothecate, transfer or otherwise dispose of, or reduce its interest in or
risk relating to, any of the shares of Arbor Common Stock issued to the
undersigned in the Merger unless at such time either: (i) such transaction
is permitted pursuant to the provisions of Rule 145 under the Securities
Act; (ii) the undersigned shall have furnished to Arbor an opinion of
counsel, reasonably satisfactory to Arbor, to the effect that such
transaction is otherwise exempt from the registration requirements of the
Securities Act; or (iii) a registration statement under the Securities Act
covering the proposed offer, sale, pledge, hypothecation, transfer or other
disposition shall be effective under the Securities Act.
3. Legend.
(a) The undersigned understands that all certificates representing
Arbor Common Stock delivered to the undersigned pursuant to the Merger
shall bear a legend in substantially the form set forth below, until the
earlier to occur of (i) one of the events referred to in Section 2 above
or (ii) the date on which the undersigned requests removal of such
legend, provided, that such request
Exhibit D-1-1
<PAGE> 183
occurs at least two years from the Effective Date (as defined in the
Merger Agreement) and that the undersigned is not at the time of such
request, and has not been during the three months period preceding to
such request, an affiliate of Arbor.
"The shares represented by this certificate were issued in a
transaction to which Rule 145 of the Securities Act of 1933 applies and
may only be transferred in accordance with the provisions of such rule.
In addition, the shares represented by this certificate may only be
transferred in accordance with the terms of an affiliate agreement dated
, 1998 between the initial holder hereof and Arbor
Software Corporation, a copy of which agreement may be inspected by the
holder of this certificate at the principal offices of Arbor Software
Corporation, or furnished by Arbor Software Corporation to the holder of
this certificate upon written request, without charge."
(b) Arbor in its discretion may cause stop transfer orders to be
placed with its transfer agent with respect to the certificates for the
shares of Arbor Common Stock that are required to bear the foregoing
legend.
4. General Provisions. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
giving effect to principles of conflicts of laws. This agreement shall be
binding on the undersigned's successors and assigns, including his or her
heirs, executors and administrators.
Exhibit D-1-2
<PAGE> 184
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for Hyperion.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Accepted:
HYPERION SOFTWARE CORPORATION
By:
- -----------------------------------------------------
Name:
- -------------------------------------------------
Title:
- ---------------------------------------------------
Dated:
- --------------------------------------------------
ARBOR SOFTWARE CORPORATION
By:
- -----------------------------------------------------
Name:
- -------------------------------------------------
Title:
- ---------------------------------------------------
Dated:
- --------------------------------------------------
Exhibit D-1-3
<PAGE> 185
EXHIBIT D-2
ARBOR AFFILIATE AGREEMENT
AFFILIATE AGREEMENT
, 1998
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of May 25, 1998 (the "Agreement")
has been entered into by and among Hyperion Software Corporation, a Delaware
corporation ("Hyperion"), Arbor Software Corporation, a Delaware corporation
("Arbor"), and HSC Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Arbor (the "Sub"). The Agreement provides for the merger of the
Sub with and into Hyperion (the "Merger"). In accordance with the Agreement,
shares of common stock, $.01 par value per share, of Hyperion (the "Hyperion
Common Stock") shall be converted into shares of common stock, $.001 par value
per share, of Arbor (the "Arbor Common Stock"), as described in the Agreement.
The undersigned has been advised that as of the date of this agreement the
undersigned may be deemed to be an "affiliate" of Arbor, as the term "affiliate'
is defined under the Rules and Regulations of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended,
and/or as such term is used in, and for purposes of, Accounting Series Releases
Nos. 103 and 135, as amended, of the Commission.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agrees as follows:
1. Pooling Requirements. The undersigned will not within the 30 day
period prior to the Effective Time (as defined in the Agreement), sell,
transfer, pledge, hypothecate or otherwise dispose of, or reduce the
undersigned's interest in or risk relating to, any shares of Hyperion
Common Stock or Arbor Common Stock owned by the undersigned. In addition,
the undersigned will not sell, transfer, pledge, hypothecate or otherwise
dispose of, or reduce the undersigned's interest in or risk relating to any
shares of Arbor capital stock, until after such time as Arbor has published
(within the meaning of Accounting Series Release No. 135, as amended, of
the Commission) financial results covering at least 30 days of combined
operations of Hyperion and Arbor.
2. General Provisions. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
giving effect to principles of conflicts of laws. This agreement shall be
binding on the undersigned's successors and assigns, including his heirs,
executors and administrators.
Exhibit D-2-1
<PAGE> 186
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for Arbor.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Accepted:
HYPERION SOFTWARE CORPORATION
By:
- --------------------------------------
Name:
- --------------------------------------
Title:
- --------------------------------------
Dated:
- --------------------------------------
ARBOR SOFTWARE CORPORATION
By:
- --------------------------------------
Name:
- --------------------------------------
Title:
- --------------------------------------
Dated:
- --------------------------------------
Exhibit D-2-2
<PAGE> 187
APPENDIX B
WRITTEN OPINION OF MORGAN STANLEY & CO. INCORPORATED
MAY 25, 1998
Board of Directors
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Members of the Board:
We understand that Arbor Software Corporation ("Arbor"), Hyperion Software
Corporation ("Hyperion"), and HSC Merger Corp. ("Acquisition Sub"), a
wholly-owned subsidiary of Arbor, propose to enter into an Agreement and Plan of
Merger, dated as of May 25, 1998 (the "Merger Agreement"), which provides, among
other things, for the merger (the "Merger") of Acquisition Sub with and into
Hyperion. Pursuant to the Merger, Hyperion will become a wholly-owned subsidiary
of Arbor and each issued and outstanding share of common stock, par value $0.01
per share, of Hyperion (the "Hyperion Common Stock"), other than shares held in
treasury or held by Arbor or any affiliate of Arbor, shall be converted into the
right to receive 0.95 shares (the "Exchange Ratio") of common stock, par value
$0.001 per share, of Arbor (the "Arbor Common Stock"), subject to adjustment in
certain circumstances. The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
shares of Arbor Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Arbor and Hyperion, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Arbor and Hyperion prepared by the
managements of Arbor and Hyperion, respectively;
(iii) discussed the past and current operations and financial
condition and the prospects of Arbor, including information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Arbor;
(iv) discussed the past and current operations and financial condition
and the prospects of Hyperion, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Hyperion;
(v) reviewed the pro forma impact of the Merger on the earnings per
share of Arbor;
(vi) reviewed the reported prices and trading activity for the Arbor
Common Stock and the Hyperion Common Stock;
(vii) compared the financial performance of Arbor and Hyperion and the
prices and trading activity of the Arbor Common Stock and the Hyperion
Common Stock with that of certain other publicly-traded companies and their
securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed and discussed with the senior managements of Arbor and
Hyperion the strategic rationale for the Merger and certain alternatives to
the Merger;
(x) participated in discussions and negotiations among representatives
of Arbor and Hyperion and their financial and legal advisors;
(xi) reviewed the Merger Agreement and certain related agreements; and
(xii) performed such other analysis and considered such other factors
as we have deemed appropriate.
B-1
<PAGE> 188
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the internal financial statements and/or other
financial and operating data and information and discussions relating to the
strategic, financial and operational benefits anticipated from the Merger
provided by Arbor and Hyperion, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance and prospects of Arbor and
Hyperion, respectively. We have relied upon the assessment by the managements of
Arbor and Hyperion of their ability to retain key employees of both Arbor and
Hyperion. We have also relied upon, without independent verification, the
assessment by the managements of Arbor and Hyperion of the strategic and other
benefits expected to result from the Merger. We have also relied upon, without
independent verification, the assessment by the managements of Arbor and
Hyperion of Arbor's and Hyperion's technologies and products, the timing and
risks associated with the integration of Arbor and Hyperion, and the validity
of, and risks associated with Arbor's and Hyperion's existing and future
products and technologies. We have not made any independent valuation or
appraisal of the assets, liabilities or technology of Arbor or Hyperion, nor
have we been furnished with any such appraisals. We have assumed that the Merger
will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles, will be treated
as a tax-free reorganization and/or exchange pursuant to the Internal Revenue
Code of 1986, as amended, and will be consummated in accordance with the terms
set forth in the Merger Agreement. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to an acquisition, business
combination or other extraordinary transaction involving Arbor.
We have acted as financial advisor to the Board of Directors of Arbor in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Arbor and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Arbor and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by Arbor in respect of the Merger with the Securities and Exchange
Commission. In addition, this opinion does not in any manner address the prices
at which the Arbor Common Stock will actually trade at any time and we express
no recommendation or opinion as to how the holders of Arbor Common Stock should
vote at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of Arbor Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
------------------------------------
Charles R. Cory
Managing Director
B-2
<PAGE> 189
APPENDIX C
- --------------------------------------------------------------------------------
Goldman, Sachs & Co. Y 85 Broad Street Y New York, New York 10004
Tel: 212-902-1000
LOGO
- --------------------------------------------------------------------------------
May 25, 1998
Board of Directors
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Shares"), of Hyperion Software Corporation (the "Company") of
the exchange ratio of 0.95 shares of Common Stock, par value $0.001 per share
(the "Arbor Common Stock"), of Arbor Software Corporation ("Arbor") to be
received for each Share (the "Exchange Ratio") pursuant to the Agreement and
Plan of Merger, dated as of May 25, 1998, among Arbor, HSC Merger Corp., a
wholly-owned subsidiary of Arbor, and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Arbor for its own account and for the accounts of
customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended June 30, 1997; Annual Reports to
Stockholders and Annual Reports on Form 10-K of Arbor for the two fiscal years
ended March 31, 1997; the Registration Statement on Form S-1, dated November 6,
1995, relating to the
New York Y London Y Tokyo Y Boston Y Chicago Y Dallas Y Frankfurt Y George Town
Y Hong Kong Y Houston Y Los Angeles Y Memphis
Miami Y Milan Y Montreal Y Osaka Y Paris Y Philadelphia Y San Francisco Y
Singapore Y Sydney Y Toronto Y Vancouver Y Zurich
C-1
<PAGE> 190
initial public offering of Arbor Common Stock, which included audited financial
statements for the three fiscal years ended March 31, 1995; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company and
Arbor; certain other communications from the Company and Arbor to their
respective stockholders; and certain internal financial analyses and forecasts
for the Company and Arbor prepared by the management of the Company. We also
have held discussions with members of the senior managements of the Company and
Arbor regarding the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the Shares and the Arbor Common Stock, compared certain financial and stock
market information for the Company and Arbor with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent transactions in the computer software
industry and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Arbor or any of their subsidiaries and we have not
been furnished with any such evaluation or appraisal. We have assumed, with your
consent, that the transaction contemplated by the Agreement will be accounted
for as a pooling of interests under generally accepted accounting principles.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders of Shares.
Sincerely,
LOGO
GOLDMAN, SACHS & CO.
C-2
<PAGE> 191
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with the DGCL, the Registrant's Restated Certificate of
Incorporation contains a provision to limit the personal liability of the
directors of the Registrant for violations of their fiduciary duty. This
provision eliminates each director's liability to the Registrant or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Article IX of the Registrant's Restated Certificate of Incorporation and
Article VII, Section 6 of Registrant's Amended and Restated Bylaws provide for
indemnification of the officers and directors of the Registrant to the fullest
extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated as of May 25, 1998 among
Hyperion Software Corporation, the Registrant and HSC Merger
Corp. (included as Appendix A to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
3.1* -- Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2+ -- Restated Certificate of Incorporation of the Registrant to
be filed upon approval by the stockholders of Registrant
pursuant to the Arbor Merger Proposal contained in Part I of
this Registration Statement.
3.3* -- Amended and Restated Bylaws of the Registrant as currently
in effect.
</TABLE>
II-1
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
3.4 + -- Amended and Restated Bylaws of the Registrant to be
effective upon approval by the stockholders of Registrant
pursuant to the Arbor Merger Proposal contained in Part I of
this Registration Statement.
4.1* -- Specimen certificate of the Registrant's Common Stock.
5.1 + -- Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
8.1 -- Tax Opinion of Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
8.2 -- Tax Opinion of Hale and Dorr LLP.
23.1 -- Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (Reference is made to Exhibits 5.1 and 8.1).
23.2 -- Consent of Hale and Dorr LLP (Reference is made to Exhibit
8.2).
23.3 -- Consent of Price Waterhouse LLP.
23.4 -- Consent of Ernst & Young LLP.
23.5 -- Consent of Morgan Stanley & Co. Incorporated (Reference is
made to Exhibit 99.3).
23.6 -- Consent of Goldman, Sachs & Co.
24.1 -- Power of Attorney (included on page II-4).
99.1+ -- Form of Registrant's Proxy Card.
99.2+ -- Form of Hyperion's Proxy Card.
99.3 -- Opinion of Morgan Stanley & Co. Incorporated dated as of May
25, 1998 (included as Appendix B to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
99.4 -- Opinion of Goldman, Sachs & Co. dated as May 25, 1998
(included as Appendix C to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
</TABLE>
- ---------------
* Incorporated by reference to such exhibit as filed in the Registrant's
Registration Statement on Form S-1, filed on November 6, 1995 (File No.
33-97098), as amended.
+ To be filed by Amendment.
(b) Financial Statement Schedules
Not Applicable
ITEM 22. UNDERTAKINGS
Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
Registrant undertakes that every prospectus (i) that is filed pursuant to
the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has
II-2
<PAGE> 193
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-3
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on June 18, 1998.
ARBOR SOFTWARE CORPORATION
By: /s/ JOHN M. DILLON
------------------------------------
John M. Dillon
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints John M. Dillon, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement on Form
S-4, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirmed all that said attorney-in-fact and agent,
or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ JOHN M. DILLON President, Chief Executive June 18, 1998
- -------------------------------------------------------- Officer and Chairman of the
John M. Dillon Board (Principal Executive
Officer)
/s/ STEPHEN V. IMBLER Senior Vice President and June 18, 1998
- -------------------------------------------------------- Chief Financial Officer
Stephen V. Imbler (Principal Financial and
Accounting Officer)
/s/ MARK W. PERRY Director June 18, 1998
- --------------------------------------------------------
Mark W. Perry
/s/ JEFFREY R. RODEK Director June 18, 1998
- --------------------------------------------------------
Jeffrey R. Rodek
/s/ ANN L. WINBLAD Director June 18, 1998
- --------------------------------------------------------
Ann L. Winblad
</TABLE>
II-4
<PAGE> 195
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 --Agreement and Plan of Merger dated as of May 25, 1998
among Hyperion Software Corporation, the Registrant and HSC
Merger Corp. (included as Appendix A to the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement).
3.1* --Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2+ --Restated Certificate of Incorporation of the Registrant to
be filed upon approval by the stockholders of Registrant
pursuant to the Arbor Merger Proposal contained in Part I of
this Registration Statement.
3.3* --Amended and Restated Bylaws of the Registrant as currently
in effect.
3.4+ --Amended and Restated Bylaws of the Registrant to be
effective upon approval by the stockholders of Registrant
pursuant to the Arbor Merger Proposal contained in Part I of
this Registration Statement.
4.1* --Specimen certificate of the Registrant's Common Stock.
5.1+ --Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
8.1 --Tax Opinion of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP.
8.2 --Tax Opinion of Hale and Dorr LLP.
23.1 --Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (Reference is made to Exhibits 5.1 and 8.1).
23.2 --Consent of Hale and Dorr LLP (Reference is made to Exhibit
8.2).
23.3 --Consent of Price Waterhouse LLP.
23.4 --Consent of Ernst & Young LLP.
23.5 --Consent of Morgan Stanley & Co. Incorporated (Reference is
made to Exhibit 99.3).
23.6 --Consent of Goldman, Sachs & Co.
24.1 --Power of Attorney (included on page II-4).
99.1+ --Form of Registrant's Proxy Card.
99.2+ --Form of Hyperion's Proxy Card.
99.3 --Opinion of Morgan Stanley & Co. Incorporated dated as of
May 25, 1998 (included as Appendix B to the Joint
Proxy/Prospectus included in Part I of this Registration
Statement).
99.4 --Opinion of Goldman, Sachs & Co. dated as of May 25, 1998
(included as Appendix C to the Joint Proxy/Prospectus
included in Part I of this Registration Statement).
</TABLE>
- ---------------
* Incorporated by reference to such exhibit as filed in the Registrant's
Registration Statement on Form S-1, filed on November 6, 1995 (File No.
33-97098), as amended.
+ To be filed by Amendment.
<PAGE> 1
(Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP Letterhead)
EXHIBIT 8.1
June 18, 1998
Arbor Software Corporation
1344 Crossman Avenue
Sunnyvale, CA 94089
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Securities
and Exchange Commission Registration Statement on Form S-4 and related Exhibits
thereto (the "Registration Statement") relating to the Agreement and Plan of
Merger (the "Merger Agreement") among Arbor Software Corporation, a Delaware
corporation ("Arbor"), its wholly-owned subsidiary, HSC Merger Corp., a Delaware
corporation ("Sub"), and Hyperion Software Corporation, a Delaware corporation
("Hyperion") dated as of May 25, 1998. Pursuant to the Merger Agreement, Sub
will merge with and into Hyperion (the "Merger"), and Hyperion will become a
wholly-owned subsidiary of Arbor.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Arbor in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined and are
relying (or will rely) upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all schedules and exhibits thereto):
1. The Merger Agreement (including Exhibits);
2. Representations made to us by Hyperion in a letter of
approximately even date;
3. Representations made to us by Arbor and Sub in a letter
of approximately even date;
5. The Registration Statement; and
6. Such other instruments and documents related to the
formation, organization and operation of Arbor, Hyperion and Sub or to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed
that:
<PAGE> 2
Arbor Software Corporation
June 18, 1998
Page 2
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. Any representation or statement made "to the knowledge of" or
otherwise similarly qualified is correct without such qualification and all
statements and representations, whether or not qualified, will remain true
through the Effective Time. As to all matters in which a person or entity making
a representation has represented that such person or entity either is not a
party to, does not have, or is not aware of any plan, intention, understanding
or agreement to take an action, there is in fact no plan, intention,
understanding or agreement and such action will not be taken;
3. The Merger will be consummated pursuant to the Merger
Agreement and will be effective under the laws of the state of Delaware;
4. No Hyperion shareholder has guaranteed or will guarantee any
Hyperion indebtedness outstanding during the period immediately prior to the
Merger, and at all relevant times, including as of the Effective Time of the
Merger, (i) no outstanding indebtedness of Hyperion, Arbor or Sub has or will
represent equity for tax purposes; (ii) no outstanding equity of Hyperion, Arbor
or Sub has or will represent indebtedness for tax purposes; and (iii) no
outstanding security, instrument, agreement or arrangement that provides for,
contains, or represents either a right to acquire Hyperion stock or to share in
the appreciation thereof constitutes or will constitute "stock" for purposes of
Section 368(c) of the Code; and
5. Counsel for Arbor and Hyperion will, pursuant to Sections
7.03(d) and 7.02(d) of the Agreement, each deliver an opinion to the effect
that, for federal income tax purposes, the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code.
6. After the Merger, Hyperion will hold "substantially all" of
its and Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the
Code and the regulations promulgated thereunder and will continue its historic
business or use a significant portion of its historic assets in a business;
7. To the extent any expenses relating to the Merger (or the
"plan of reorganization" within the meaning of Treas. Reg. Section
1.368-1(c) with respect to the Merger) are funded directly or indirectly by a
party other than the incurring party, such expenses will be within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses
paid on behalf of Hyperion shareholders will not exceed one percent (1%) of the
total consideration
<PAGE> 3
Arbor Software Corporation
June 18, 1998
Page 3
that will be issued in the Merger to Hyperion shareholders in exchange for their
shares of Hyperion;
Based on our examination of the foregoing items and subject to
the assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Merger Agreement (and without any waiver, breach or amendment
of any provisions thereof), for federal income tax purposes, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is
subject to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Merger
as a reorganization under Section 368(a) of the Code, and does not address any
other federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger). We express no opinion regarding the tax
consequences of the Merger to shareholders of Hyperion that are subject special
tax rules, and we express no opinion regarding the tax consequences of the
Merger arising in connection with the ownership of options or warrants for
Hyperion stock.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Merger Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger Agreement
are not consummated in accordance with the terms of such Merger Agreement and
without waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate through the Effective Time and at all relevant times
thereafter. In the event any one of the statements, representations, warranties
or assumptions upon which we have relied to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
<PAGE> 4
Arbor Software Corporation
June 18, 1998
Page 4
4. This opinion has been delivered to you solely for the purpose
of being included as an exhibit to the Registration Statement; it may not be
relied upon for any other purpose (including, without limitation, satisfying any
conditions in the Agreement) or by any other person or entity, and may not be
made available to any other person or entity without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the captions
"Legal Matters" and "Certain Federal Income Tax Considerations." This consent is
not to be construed as an admission that we are a person whose consent is
required to be filed with the Registration Statement under the provisions of the
Securities Act of 1933.
Very truly yours,
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE> 1
EXHIBIT 8.2
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
June 18, 1998
Hyperion Software Corporation
900 Long Ridge Road
Stamford, CT 06902
Re: Merger pursuant to Agreement and Plan of Merger
among Arbor Software Corporation, HSC Merger Corp.
and Hyperion Software Corporation
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of
a registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of May 25, 1998 (the "Merger Agreement"), by and among
Arbor Software Corporation, a Delaware corporation ("Arbor"), HSC Merger Corp.,
a Delaware corporation and wholly owned subsidiary of Arbor ("Sub"), and
Hyperion Software Corporation, a Delaware corporation ("Hyperion"). Pursuant to
the Merger Agreement, Sub will merge with and into Hyperion (the "Merger").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement and the exhibits thereto or in the
letters delivered to Hale and Dorr LLP by Arbor and Hyperion containing certain
representations of Arbor and Hyperion relevant to this opinion (the
"Representation Letters"). All section references, unless otherwise indicated,
are to the United States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Hyperion in the Merger, and for purposes
of rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
For purposes of this opinion, we also have made the following additional
assumptions:
1. All parties to the Merger Agreement and to any other documents
examined by us have acted, and will act, in accordance with the terms of such
Merger Agreement and
<PAGE> 2
Hyperion Software Corporation
June 18, 1998
Page 2
documents and the Merger will be consummated at the Effective Time pursuant to
the terms and conditions set forth in the Merger Agreement without the waiver or
modification of any such terms and conditions;
2. All representations contained in the Merger Agreement, as well as
those representations contained in the Representation Letters, are, and at the
Effective Time will be, true and complete in all material respects, and any
representation made in any of the documents referred to herein "to the best of
the knowledge and belief" (or similar qualification) of any person or party is
correct without such qualification;
3. As to all matters for which a person or entity has represented that
such person or entity is not a party to, does not have, or is not aware of, any
plan, intention, understanding, or agreement, there is no such plan, intention,
understanding, or agreement. We have not attempted to verify independently such
representations, but in the course of our representation, nothing has come to
our attention that would cause us to question the accuracy thereof;
4. No Hyperion shareholder has guaranteed or will guarantee any Hyperion
indebtedness outstanding during the period immediately prior to the Merger, and
at all relevant times, including as of the Effective Time of the Merger, (i) no
outstanding indebtedness of Hyperion, Arbor or Sub has or will represent equity
for tax purposes; (ii) no outstanding equity of Hyperion, Arbor or Sub has or
will represent indebtedness for tax purposes; and (iii) no outstanding security,
instrument, agreement or arrangement that provides for, contains, or represents
either a right to acquire Hyperion stock or to share in the appreciation thereof
constitutes or will constitute "stock" for purposes of Section 368(c) of the
Code;
5. Counsel for Arbor and Hyperion will, pursuant to Sections 7.03(d) and
7.02(d) of the Agreement, each deliver an opinion to the effect that, for
federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code;
6. After the Merger, Hyperion will hold "substantially all" of its and
Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the Code and
the regulations promulgated thereunder and will continue its historic business
or use a significant portion of its historic assets in a business; and
7. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treasury Regulation Section 1.368-1(c)
with respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses paid on
behalf of Hyperion shareholders will not exceed one percent (1%) of the
<PAGE> 3
Hyperion Software Corporation
June 18, 1998
Page 3
total consideration that will be issued in the Merger to Hyperion shareholders
in exchange for their shares of Hyperion.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Hyperion that are subject to special tax rules, and we express no opinion
regarding the tax consequences of the Merger arising in connection with the
ownership of options or warrants for Hyperion stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the opinion that the
Merger will constitute a reorganization within the meaning of Section 368(a).
In rendering this opinion, we have assumed that Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP has delivered, and has not withdrawn, an
opinion that is substantially similar to this one. No opinion is expressed as to
any federal income tax consequence of the Merger except as specifically set
forth herein, and this opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
This opinion is intended solely for the purpose of inclusion as
an exhibit to the Registration Statement. It may not be relied upon for any
other purpose or by any other person or entity, and may not be made available to
any other person or entity without our prior written consent. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement and
further consent to the use of our name in the Registration Statement in
connection with references to this opinion and the tax consequences of the
Merger. In giving this consent, however, we do not hereby admit that we are in
the category
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Hyperion Software Corporation
June 18, 1998
Page 4
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
HALE AND DORR LLP
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Arbor Software Corporation of our report dated April 23, 1998, except as
to Note 12 which is as of May 25, 1998, which appears in Arbor Software
Corporation's Annual Report on Form 10-K for the year ended March 31, 1998. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
June 18, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 (Registration No.333-_____) of Arbor Software
Corporation and related Joint Proxy Statement/Prospectus of Arbor Software
Corporation and Hyperion Software Corporation for the registration of 18,172,966
shares of the common stock of Arbor Software Corporation and to the
incorporation by reference therein of our report dated July 17, 1997, with
respect to the consolidated financial statements and schedules of Hyperion
Software Corporation included in its Annual Report (Form 10-K) for the year
ended June 30, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Stamford, Connecticut
June 18, 1998
<PAGE> 1
EXHIBIT 23.6
[Goldman, Sachs & Co. letterhead]
June 18, 1998
Hyperion Software Corporation
900 Long Ridge Road
Stamford, Connecticut
Re: Joint Proxy Statement/Prospectus of Arbor Software
Corporation and Hyperion Software Corporation and
Registration Statement on Form S-4 of Arbor Software
Corporation as filed on June 18, 1998
Gentlemen:
Reference is made to our opinion letter dated May 25, 1998, with respect to
the fairness from a financial point of view to the holders of the outstanding
shares of Common Stock, par value $0.01 per share (the "Shares"), of Hyperion
Software Corporation ("Hyperion") of the exchange ratio of 0.95 shares of Common
Stock, par value $.001 per share, of Arbor Software Corporation ("Arbor") to be
received for each Share pursuant to the Agreement and Plan of Merger, dated as
of May 25, 1998 (the "Merger Agreement"), among Arbor, HSC Merger Corp., a
wholly-owned subsidiary of Arbor, and Hyperion.
The foregoing opinion letter is provided for the information and assistance
of the Board of Directors of Hyperion in connection with its consideration of
the transaction contemplated by the Merger Agreement and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it to
be filed with, included in or referred to in whole or in part in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent.
We understand that Hyperion has determined to include our opinion in the
above-referenced Joint Proxy Statement/Prospectus and Registration Statement. In
that regard, we hereby consent to the reference to the opinion of our Firm under
the captions "Summary -- The Merger" and "The Merger and Related Transactions --
Material Contacts and Board Deliberations -- Reasons for the Merger; Hyperion's
Reasons for the Merger -- Opinion of Financial Advisor to Hyperion" and the
inclusion of the foregoing opinion as Appendix C to the Joint Proxy
Statement/Prospectus included in the above mentioned Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
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(GOLDMAN, SACHS & CO.)
