<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box: [_] Confidential, for Use of the
[X] Preliminary Proxy Statement Commission Only (as permitted by
[_] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
BORLAND INTERNATIONAL, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------------
<PAGE>
[LOGO OF BORLAND INTERNATIONAL, INC.]
BORLAND INTERNATIONAL, INC.
100 BORLAND WAY
SCOTTS VALLEY, CALIFORNIA 95066
JULY 24, 1997
Re: 1997 Annual Meeting
Dear Borland Stockholders:
On behalf of the Board of Directors, I cordially invite you to attend the
1997 Annual Meeting of Stockholders of Borland International, Inc. (the
"Company"). The Annual Meeting will be held on Thursday, September 5, 1997, at
10:00 a.m., at the Hotel Sofitel, located at 223 Twin Dolphin Drive, Redwood
City, California.
The actions expected to be taken at the Annual Meeting are described in
detail in the attached Proxy Statement and Notice of Annual Meeting of
Stockholders. In addition, we will report to you on the Company's progress
during the year and receive your questions and comments concerning the
Company.
Your vote is important regardless of how many shares you own. Please take a
few minutes now to review the proxy statement and to sign and date your proxy
card and return it in the envelope provided. You may attend the meeting and
vote in person even if you have previously returned your proxy card.
To assist us in our preparation for the meeting, please mark your proxy card
in the space provided if you plan to attend the meeting. No admittance tickets
will be required.
We are gratified by our stockholders' continued interest in the Company and
pleased that in the past so many of you have voted your shares either in
person or by proxy. We hope that you will continue to do so and urge you to
return your proxy card as soon as possible.
I look forward to seeing you at the Annual Meeting.
Very truly yours,
DELBERT W. YOCAM
Chairman of the Board and Chief
Executive Officer
<PAGE>
[LOGO OF BORLAND INTERNATIONAL, INC.]
BORLAND INTERNATIONAL, INC.
100 BORLAND WAY
SCOTTS VALLEY, CALIFORNIA 95066
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 5, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Borland International, Inc., a Delaware corporation (the
"Company"), will be held on Thursday, September 5, 1997 at 10:00 a.m. at the
Hotel Sofitel, 223 Twin Dolphin Drive, Redwood City, California, for the
following purposes:
1. To elect one Class II director to serve a three-year term expiring upon
the 2000 Annual Meeting of Stockholders or upon the election and
qualification of a duly elected successor.
2. To approve the Company's 1997 Stock Option Plan, including the
reservation of 1,600,000 shares of Common Stock thereunder.
3. To approve the Company's 1997 Employee Stock Purchase Plan, including
the reservation of 200,000 shares of Common Stock thereunder.
4. To approve the issuance of shares of the Company's Common Stock upon (i)
the conversion of up to 1,470 shares of the Company's Series B
Convertible Preferred Stock (the "Series B Shares") and (ii) the
exercise of warrants ("Warrants") for the purchase of up to 588,000
shares of the Company's Common Stock.
5. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the year ending March 31, 1998.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
These items are fully discussed in the following pages, which are made part
of this Notice. Only stockholders of record on the books of the Company at the
close of business on July 9, 1997 are entitled to notice of and to vote at the
Annual Meeting and any adjournments or postponements thereof.
By Order of the Board of Directors
HOBART McK. BIRMINGHAM
Vice President, General Counsel, and
Secretary
Scotts Valley, California
July 24, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO MARK, SIGN, AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER
ATTENDING THE MEETING MAY VOTE IN PERSON, EVEN THOUGH HE OR SHE HAS RETURNED A
PROXY.
YOUR VOTE IS IMPORTANT.
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE.
<PAGE>
BORLAND INTERNATIONAL, INC.
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board"), of Borland International, Inc., a Delaware corporation ("Borland" or
the "Company") for use in voting at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Hotel Sofitel, 223 Twin Dolphin Drive,
Redwood City, California on Thursday, September 5, 1997, at 10:00 a.m., and at
any adjournment or postponement thereof, for the purposes set forth in this
Proxy Statement and the foregoing Notice of Annual Meeting. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians to forward to beneficial owners of Common Stock of the Company
("Common Stock") held in their names. The cost of solicitation of proxies,
including expenses in connection with preparing and mailing this Proxy
Statement will be borne by the Company. The Company has retained Georgeson &
Company Inc. to assist it in connection with the solicitation, at an estimated
fee of $8,500 plus reimbursement of out-of-pocket expenses. In addition, the
Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram, and personal solicitation by
directors, officers or other regular employees of the Company. No additional
compensation will be paid to directors, officers or other regular employees
for such services. This Proxy Statement and the accompanying form of proxy
will be mailed on or about July 24, 1997, together with the Company's 1997
Annual Report to Stockholders, to all holders of Common Stock entitled to vote
at the Annual Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Only stockholders of record at the close of business on July 9, 1997 will be
entitled to notice of, and to vote at, the Annual Meeting. As of July 9, 1997,
the Company had outstanding [ ] shares of Common Stock and 495 shares of
Series B Preferred Stock which were convertible into [ ] shares of Common
Stock on such date. On each proposal that will come before the Annual Meeting,
each share of Common Stock is entitled to one vote and each share of Series B
Preferred Stock is entitled to one vote for each share of Common Stock into
which such share of Series B Preferred Stock is convertible. A majority of the
votes represented by outstanding shares of Common Stock and Series B Preferred
Stock will constitute a quorum at the Annual Meeting. For purposes of stating
the vote required for approval of the proposals to be considered at the Annual
Meeting, shares of Common Stock into which the shares of Series B Preferred
Stock are convertible are treated as outstanding shares of Common Stock.
Shares that are voted "FOR", "AGAINST" or "ABSTAIN" in a matter are treated as
being present at the meeting for purposes of establishing the Quorum, but only
shares voted "FOR" or "AGAINST" are treated as shares "represented and voting"
at the Annual Meeting (the "Votes Cast") with respect to such matter.
Accordingly, abstentions and broker non-votes will be counted for purpose of
determining the presence or absence of the Quorum for the transaction of
business, but will not be counted for purposes of determining the number of
Votes Cast with respect to a proposal.
Any stockholder giving a proxy has the power to revoke it at any time before
it is exercised. A stockholder may revoke a proxy by filing an instrument of
revocation or a duly executed proxy bearing a later date with the Secretary of
the Company at its principal executive office. A stockholder may also revoke a
proxy by attendance at the Annual Meeting and election to vote in person.
The Company's principal executive office is located at 100 Borland Way,
Scotts Valley, California 95066 and the telephone number is (408) 431-1000.
STOCKHOLDER PROPOSALS
Stockholders of the Company who wish to present proper proposals at the
Company's 1998 Annual Meeting of Stockholders must submit their proposals in
writing to the Secretary of the Company no later than March 26, 1998 and must
otherwise comply with the requirements of Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") in order to be included
in the proxy statement and form of proxy relating to that meeting.
1
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. One class of directors
is elected each year for a three-year term. The nominee for the Class II
director is Delbert W. Yocam. The Class II director elected in 1997 will serve
for a term of three years which expires at the Company's 2000 Annual Meeting
of Stockholders or when his successor is elected and qualified or upon his
earlier resignation or removal. It is intended that the persons named as
Proxies will vote for Mr. Yocam for election to the Board of Directors as a
Class II director.
Mr. Yocam is at present available for election. The affirmative vote of the
holders of a majority of the Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting will be required to elect Mr. Yocam. If
Mr. Yocam is elected by the Company's stockholders at the Annual Meeting, the
Board of Directors will consist of six directors, of whom Messrs. Hara,
Heller, Lewis, Miller and Saal's principal occupations are outside the
Company.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEE
BIOGRAPHICAL INFORMATION
Certain biographical information about the Company's directors is set forth
below:
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL
MEETING
DELBERT W. YOCAM, age 53. Mr. Yocam has been the Chairman of the Board
and Chief Executive Officer of the Company since December 1996. From
November 1994 to December 1996 he served as an independent consultant. From
1992 to 1994, he served as President, Chief Operating Officer and a
director of Tektronix, Inc., a measurement, color printing, video and
networking company based in Wilsonville, OR. From 1989 to 1992, Mr. Yocam
served as an independent consultant. Prior to this, Mr. Yocam served in a
variety of executive management positions for ten years at Apple Computer,
Inc., a personal computer company. He served as President of Apple Pacific
from 1988 to 1989; as Executive Vice President and Chief Operating Officer
from 1986 to 1988; as Executive Vice President of Product Operations from
1985 to 1986; as Executive Vice President and General Manager of the Apple
II group from 1983 to 1985 and prior to managing the Apple II group, he was
Vice President of Operations and Vice President of Manufacturing. Mr. Yocam
is a member of the board of directors of Adobe Systems Inc., a desktop
publishing and application software company; Raster Graphics, Inc., a large
format color printing company and Xircom, Inc., a network access company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
GEORGE HARA, age 44. Mr. Hara has served as a director of the Company
since April 1990. Mr. Hara is managing partner of DEFTA Partners and Accel
Japan, L.P., venture capital firms with which he has been affiliated since
1985. He is the founder of Data Control Ltd., a computer network provider,
for which he served as President until March 31, 1997. Mr. Hara is also a
director of Futuretel, a MPEG editing system manufacturer; Pixera, a 3D
digital camera manufacturer and Base Technologies, a systems integrator
company.
STEPHEN J. LEWIS, age 39. Mr. Lewis has served as a director of the
Company since October 1993. Mr. Lewis has been a managing director of
Generation Ventures, L.L.C., a China focused venture capital firm since
November 1994. Mr. Lewis was a managing director of SCM International Ltd.,
an international investment bank from 1993 to 1994. Mr. Lewis was employed
with Booz-Allen & Hamilton, Inc., a management consulting and technology
firm from 1981 to 1993, most recently serving as a Vice President and
Partner in the operations management practice. Mr. Lewis is also a director
of Invision Interactive, Inc., a multimedia sound company.
2
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
DAVID HELLER, age 52. Mr. Heller has served as a director of the Company
since April 1984. Mr. Heller is a founder, a director and the President of
Pacific Technology Capital Corporation, a financial advisory and investment
banking firm; a director of Tie Rack West, a clothing accessory company; a
director of Power Computing Corporation, a computer manufacturing company
and a director of America West Golf Manufacturing, Inc., a golf club
manufacturing company.
WILLIAM F. MILLER, age 71. Mr. Miller has served as a director of the
Company since January 1996. Mr. Miller is the Herbert Hoover Professor
Emeritus, Graduate School of Business, Stanford University and President
Emeritus of SRI International. He is also Professor Emeritus of Computer
Science, School of Engineering. In 1990, Dr. Miller retired after 11 years
as President and CEO of SRI International. Until recently he served on the
board of directors of Wells Fargo Bank and Co.; Varian Associates, Pacific
Gas and Electric Company; First Interstate Bancorp and Fireman's Fund
Insurance Company. Mr. Miller serves on the board of several private
companies and non-profit organizations.
HARRY J. SAAL, age 53. Dr. Saal has served as a director of the Company
since January 1996. Dr. Saal is chairman of Network General Corporation, a
network management and analysis company. Prior to founding Network General,
Dr. Saal founded Nestar Systems, Inc., a local area network systems
company. Dr. Saal is also chairman of Imaging Technologies Corporation, a
designer of controllers for laser printers and related devices. He is also
a director of GlobalNet Systems, Ltd., an internet service provider, and
serves on the board of several non-profit organizations.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
During the fiscal year ended March 31, 1997, the Board of Directors held
fourteen meetings. The Board of Directors has a standing Audit Committee and
an Organization and Compensation Committee.
The Audit Committee recommends the independent public accountants to the
Board of Directors. The independent public accountants meet with the Audit
Committee, with and without the presence of the Company's management, to
review and discuss various matters including the Company's financial
statements, the report of the independent public accountants on the results,
scope and approach of their work, and their recommendations concerning
financial practices and procedures. During fiscal year 1997, the Audit
Committee consisted of three nonemployee directors, Messrs. Hara, Heller and
Lewis. The Audit Committee met four times during fiscal 1997.
The Organization and Compensation Committee (the "Compensation Committee")
administers the Company's stock option and stock purchase plans, approves
salaries, bonuses and other compensation arrangements for the Company's
officers, and approves loans to, or loan guarantees for, the Company's
officers and employees. During fiscal 1997, the Compensation Committee
consisted of two nonemployee directors, Messrs. Heller and Lewis. The
Compensation Committee met fifteen times and took action by unanimous written
consent three times during fiscal 1997.
No incumbent director attended fewer than 75% of the aggregate of (i) the
total number of meetings of the Board which such director was eligible to
attend during the fiscal year and (ii) the total number of meetings held by
any committee of the Board upon which such director served.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Each Nonemployee
Director receives an annual retainer of $20,000 payable in four equal
quarterly installments. In addition, each Nonemployee Director receives $500
for attending each meeting of the Board of Directors, $250 for attending each
Committee Meeting of the Board of Directors on which he serves and $1,000
annually for serving as the chairman of a particular Committee of the Board of
Directors. A Nonemployee Director who serves as Chairman of the Board of
Directors of the Company receives an additional $20,000 annual retainer and a
Nonemployee Director who serves as Chairman of the Board of Directors of
3
<PAGE>
Borland Company, Ltd. (Japan) receives an additional $10,000 annual retainer.
Such retainers are payable in equal quarterly installments. In addition to
annual director's fees for serving as a director of the Company, the following
individuals received additional compensation as follows: Mr. Hara received
$10,000 in director fees from Borland Company, Ltd. (Japan) during fiscal year
1997; Mr. Saal received a special bonus of $5,000 in recognition of the
additional responsibilities which he assumed on behalf of the Company.
In addition, Nonemployee Directors receive stock options under the
Nonemployee Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan provides that upon their initial election or appointment to
the Board of Directors, Nonemployee Directors are automatically issued non
statutory options to purchase 30,000 shares of the Company's Common Stock and
at every Annual Meeting of the stockholders of the Company each then-serving
Nonemployee Director will receive an additional option to purchase 7,500
shares. All options granted under the Directors' Plan have a ten-year term and
an exercise price equal to 100% of the fair market value of the underlying
stock on the date of grant. The option may not be exercised until the
Nonemployee Director has served as a member of the Board of Directors for one
year from the date the option is granted. In addition the Director's Plan
provides a further option of 30,000 shares to a Nonemployee Director upon his
or her election as Chairman of the Board and upon such person being re-elected
to the Board of Directors or continuing as a member of the Board as of the
adjournment of the Annual Meeting, he or she shall automatically receive a
further option for an additional 7,500 shares.
On April 26, 1996, Mr. Hara was granted an option to purchase 15,000 shares
of the Company's Common Stock at $16.75, the fair market value of the
underlying stock on the date of the grant, for his role as Chairman of the
Board of Directors of Borland Company, Ltd. (Japan). On September 5, 1996,
pursuant to the Directors' Plan options were granted to Messrs. Hara, Heller,
Lewis, Miller and Saal to purchase 7,500 shares of the Company's Common Stock
at an exercise price of $ 7.5625 per share, the fair market value of the
underlying stock on the date of the grant. Mr. Miller, as Nonemployee Chairman
of the Board, was automatically granted an option to purchase an additional
7,500 shares of the Company's Common Stock at an exercise price of $7.5625 per
share, the fair market value of the underlying stock on the date of the grant.
On October 24, 1996, pursuant to a special option grant to Nonemployee
Directors, options were granted to Messrs. Hara, Heller, Lewis, Miller and
Saal to purchase 30,000 shares of the Company's Common Stock at an exercise
price of $4.875 per share, the fair market value of the underlying stock on
the date of grant.
4
<PAGE>
PROPOSAL 2
ADOPTION OF THE 1997 STOCK OPTION PLAN
At the Annual Meeting, the stockholders will be asked to approve the Borland
International, Inc. 1997 Stock Option Plan (the "Option Plan"). The Option
Plan authorizes the issuance of up to 1,600,000 shares of the Company's Common
Stock (subject to adjustment for certain changes in the capital structure of
the Company).
The Option Plan is intended to replace the Company's 1992 Stock Option Plan,
1993 Stock Option Plan and Nonemployee Directors Stock Option Plan
(collectively, the "Prior Plans") once all the options under the Prior Plans
have been exhausted or are no longer subject to grant. Under the Prior Plans,
as of June 17, 1997, options to purchase an aggregate of 10,000,100 shares of
Common Stock were outstanding, 9,658,018 shares had been issued upon the
exercise of previously granted options, and only 441,982 shares remained
available for future grants, a number that the Board of Directors has
determined to be insufficient to meet the Company's current and anticipated
needs. The Board of Directors believes that the additional shares authorized
by the Option Plan are necessary to enable it to maintain an adequate equity
incentive program.
In addition to enabling the Company to continue to provide necessary
incentives, the Option Plan is designed to preserve the Company's ability to
deduct in full for federal income tax purposes the compensation recognized by
its executive officers in connection with options granted under the plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
sets a limit of $1 million on the amount of compensation paid to each of the
Company's chief executive officer and four other most highly compensated
executive officers that the Company may deduct as an expense for federal
income tax purposes. In combination with other types of compensation received
by these employees, it is possible that their option-related compensation
could exceed this limit in a particular year, however, Section 162(m) exempts
certain "performance-based compensation" from this limit. To permit
compensation attributable to options granted under the Option Plan to qualify
as performance-based compensation, the Option Plan limits the number of shares
for which options may be granted in any fiscal year to any employee, including
the Company's executive officers, to 500,000, provided that an additional one-
time award for up to 1,500,000 shares may be granted to any newly-hired
employee. These grant limits are subject to appropriate adjustment in the
event of certain changes in the Company's capital structure.
The Board of Directors adopted the Option Plan on June 18, 1997, subject to
and effective upon the date (the "Effective Date") of stockholder approval.
Competition for highly qualified individuals in the Company's industry is
intense and the Board of Directors believes that in order to attract the best
candidates successfully, the Company must continue to offer a competitive
equity incentive program. It expects that the Option Plan will be an important
factor in attracting and retaining the high caliber employees, directors and
consultants essential to the success of the Company and believes that it will
serve an important role in motivating employees to contribute to the Company's
growth and profitability. The proposed Option Plan is intended to ensure that
the Company will continue to have available a reasonable number of shares to
meet these goals.
SUMMARY OF THE OPTION PLAN
The following summary of the Option Plan is qualified in its entirety by the
specific language of the Option Plan, a copy of which is available to any
stockholder upon written request to the Company's Investor Relations
Department.
General. The purpose of the Option Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract, retain and
reward the Company's employees, directors and consultants and by motivating
such persons to contribute to the Company's growth and profitability. The
Option Plan provides for the grant to employees of incentive stock options
within the meaning of section 422 of the Code and the grant to employees,
directors and consultants of nonstatutory stock options.
Shares Subject to Plan. A maximum of 1,600,000 of the authorized but
unissued or reacquired shares of Common Stock of the Company may be issued
under the Option Plan. However, in order to comply with the
5
<PAGE>
requirements of the exemption under Section 162(m) of the Code for
performance-based compensation, the Option Plan provides that no employee may
be granted in any fiscal year of the Company options which in the aggregate
are for more than 500,000 shares, except that the Company may make an
additional one-time grant to any newly-hired employee of an option for up to
1,500,000 shares (the "Grant Limits"). Appropriate adjustments will be made to
the shares subject to the Option Plan, the Grant Limits, the automatic
nonemployee director grants discussed below and to outstanding options upon
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of
the Company. If any outstanding option expires, terminates or is canceled, or
if shares acquired pursuant to an option are repurchased by the Company, the
expired or repurchased shares are returned to the Option Plan and again become
available for grant.
Administration. The Option Plan will be administered by the Board of
Directors or a duly appointed committee of the Board, which, in the case of
options intended to qualify for the performance-based compensation exemption
under Section 162(m) of the Code, must be comprised solely of two or more
"outside directors" within the meaning of Section 162(m) (hereinafter referred
to collectively as the "Board"). Subject to the provisions of the Option Plan,
the Board determines the persons to whom options are to be granted, the number
of shares to be covered by each option, whether an option is to be an
incentive stock option or a nonstatutory stock option, the timing and terms of
exercisability and vesting of each option, the purchase price and the type of
consideration to be paid to the Company upon the exercise of each option, the
time of expiration of each option, and all other terms and conditions of the
options. The Board may amend, modify, extend, cancel, renew, or grant a new
option in substitution for, any option, waive any restrictions or conditions
applicable to any option, and accelerate, continue, extend or defer the
exercisability or vesting of any option, including with respect to the period
following an optionee's termination of service with the Company. The Option
Plan provides, subject to certain limitations, for indemnification by the
Company of any director, officer or employee against all reasonable expenses,
including attorneys' fees, incurred in connection with any legal action
arising from such person's action or failure to act in administering the plan.
The Option Plan permits the Board to delegate to an officer the authority to
grant one or more options for not more than an aggregate of 250,000 shares in
any fiscal year to any person eligible under the plan who is not an officer or
a director of the Company, subject to guidelines established by the Board. The
Board will interpret the Option Plan and options granted thereunder, and all
determinations of the Board will be final and binding on all persons having an
interest in the Option Plan or any option.
Eligibility. Options may be granted under the Option Plan to employees,
directors and consultants of the Company or of any present or future parent or
subsidiary corporations of the Company. In addition, options may be granted to
prospective service providers in connection with written employment offers,
provided that no shares may be purchased prior to such person's commencement
of service. As of June 17, 1997, the Company had approximately 721 employees,
including 4 executive officers, 6 directors and 10 consultants who would be
eligible under the Option Plan. While any eligible person may be granted a
nonstatutory stock option, only employees may be granted incentive stock
options.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the plan. The
exercise price of each incentive stock option may not be less than the fair
market value of a share of the Common Stock on the date of grant, while the
exercise price of a nonstatutory stock option may not be less than 85% of such
fair market value. However, any incentive stock option granted to a person who
at the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company (a "Ten Percent Stockholder") must have
an exercise price equal to at least 110% of the fair market value of a share
of Common Stock on the date of grant. As of June 17, 1997, the closing price
of the Company's Common Stock, as reported on the Nasdaq National Market, was
$7.215 per share.
The Option Plan provides that the option exercise price may be paid in cash,
by check, or in cash equivalent, by the assignment of the proceeds of a sale
or loan with respect to some or all of the shares being acquired upon
6
<PAGE>
the exercise of the option, to the extent legally permitted, by tender of
shares of Common Stock owned by the optionee having a fair market value not
less than the exercise price or by means of a promissory note if the optionee
is an employee, by such other lawful consideration as approved by the Board,
or by any combination of these. Nevertheless, the Board may restrict the forms
of payment permitted in connection with any option grant. No option may be
exercised until the optionee has made adequate provision for federal, state,
local and foreign taxes, if any, relating to the exercise of the option.
Options will become vested and exercisable at such times or upon such events
and subject to such terms, conditions, performance criteria or restrictions as
specified by the Board. The maximum term of an incentive stock option granted
under the Option Plan is ten years, provided that an incentive stock option
granted to a Ten Percent Stockholder must have a term not exceeding five
years. Unless his or her service is terminated for cause, an optionee's option
generally will remain exercisable for three months following termination of
service, provided that if termination results from the optionee's death or
disability, the option generally will remain exercisable for twelve months
following the optionee's termination of service. In any event the option must
be exercised no later than its expiration date. The Board, in its discretion,
may provide for longer or shorter post-service exercise periods in particular
instances.
Incentive stock options are nontransferable by the optionee other than by
will or by the laws of descent and distribution, and are exercisable during
the optionee's lifetime only by the optionee. Nonstatutory stock options
granted under the Option Plan may be assigned or transferred to the extent
permitted by the Board and set forth in the optionee's option agreement.
Automatic Grant of Nonemployee Director Options. In addition to authorizing
the Board to grant options to employees, directors and consultants on a
discretionary basis, the Option Plan provides for the nondiscretionary,
automatic grant of options to directors who, at the time of grant, are not
employees of the Company or of any parent or subsidiary corporation of the
Company (a "Nonemployee Director"). Each person first elected or appointed as
a Nonemployee Director on or after the Effective Date will be granted
automatically on the date of such initial election or appointment an option to
purchase 30,000 shares of Common Stock (an "Initial Option"). In addition, on
the date of each Annual Meeting of the stockholders, each Nonemployee Director
remaining in office will be granted automatically an option to purchase 7,500
shares of Common Stock (an "Annual Option"). The exercise price per share of
each Nonemployee Director option will equal the fair market value of a share
of Common Stock on the date of grant, generally the closing price reported on
the Nasdaq National Market. Unless earlier terminated under the terms of the
Option Plan, Nonemployee Director options will expire ten years after grant.
Initial Options will become exercisable in full on their first anniversary,
while Annual Options will become exercisable in full on the day preceding the
first Annual Meeting of the stockholders following the date of grant.
Nonemployee Directors options will remain exercisable for six months following
the director's termination of service unless such termination results from the
director's death or disability, in which case the option will remain
exercisable for twelve months, provided that in no event may the option be
exercised after its expiration date.
Change in Control. The Option Plan provides that in the event of (i) a sale
or exchange by the stockholders in a single or series of related transactions
of more than 50% of the Company's voting stock, (ii) a merger or consolidation
in which the Company is a party, (iii) the sale, exchange or transfer of all
or substantially all of the assets of the Company, or (iv) a liquidation or
dissolution of the Company wherein, upon any such event, the stockholders of
the Company immediately before such event do not retain immediately after such
event direct or indirect beneficial ownership of more than 50% of the total
combined voting power of the voting stock of the Company, its successor, or
the corporation to which the assets of the Company were transferred (a "Change
in Control"), the surviving, continuing, successor or purchasing corporation
or parent corporation thereof may either assume the Company's rights and
obligations under the outstanding options or substitute substantially
equivalent options for such corporation's stock. The Option Plan authorizes
the Board to provide in any option agreement under the plan for acceleration
of the vesting and exercisability of options upon such circumstances in
connection with a Change in Control and to such extent as the Board determines
in its
7
<PAGE>
discretion. To the extent that the outstanding options are not assumed,
replaced or exercised prior to the Change in Control, they will terminate.
Termination or Amendment. The Option Plan will continue in effect until the
earlier of its termination by the Board or the date on which all shares
available for issuance under the plan have been issued and all restrictions on
such shares under the terms of the plan and the agreements evidencing options
granted under the plan have lapsed, provided that all incentive stock options
must be granted within ten years of the date on which the Board adopted the
Option Plan. The Board may terminate or amend the Option Plan at any time.
However, without stockholder approval, the Board may not amend the Option Plan
to increase the total number of shares of Common Stock issuable thereunder,
change the class of persons eligible to receive incentive stock options, or
effect any other change that would require stockholder approval under any
applicable law, regulation or rule. No termination or amendment may adversely
affect an outstanding option without the consent of the optionee, unless the
amendment is required to preserve an option's status as an incentive stock
option or is necessary to comply with any applicable law, regulation or rule.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Option Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a long-term capital gain or loss equal to the difference, if any,
between the sale price and the purchase price of the shares. If an optionee
satisfies such holding periods upon a sale of the shares, the Company will not
be entitled to any deduction for federal income tax purposes. If an optionee
disposes of shares within two years after the date of grant or within one year
from the date of exercise (a "disqualifying disposition"), the difference
between the fair market value of the shares on the determination date (see
discussion under "Nonstatutory Stock Options" below) and the option exercise
price (not to exceed the gain realized on the sale if the disposition is a
transaction with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any gain in
excess of that amount will be a capital gain. If a loss is recognized, there
will be no ordinary income, and such loss will be a capital loss. A capital
gain or loss will be long-term if the optionee's holding period is more than
12 months. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by the
Company for federal income tax purposes, except to the extent such deduction
is limited by applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is an adjustment in
computing the optionee's alternative minimum taxable income and may be subject
to an alternative minimum tax which is paid if such tax exceeds the regular
tax for the year. Special rules may apply with respect to certain subsequent
sales of the shares in a disqualifying disposition, certain basis adjustments
for purposes of computing the alternative minimum taxable income on a
subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no
taxable income as the result of the grant of such an option. Upon exercise of
a nonstatutory stock option, the optionee normally recognizes ordinary income
in the amount of the difference between the option exercise price and the fair
market value of the shares on the determination date (as defined below). If
the optionee is an employee, such ordinary income generally is subject to
withholding of income and employment taxes. The "determination date" is the
date on which the option is exercised unless the shares are subject to a
substantial
8
<PAGE>
risk of forfeiture and are not transferable, in which case the determination
date is the earlier of (i) the date on which the shares are transferable or
(ii) the date on which the shares are not subject to a substantial risk of
forfeiture. If the determination date is after the exercise date, the optionee
may elect, pursuant to section 83(b) of the Code, to have the exercise date be
the determination date by filing an election with the Internal Revenue Service
no later than 30 days after the date the option is exercised. Upon the sale of
stock acquired by the exercise of a nonstatutory stock option, any gain or
loss, based on the difference between the sale price and the fair market value
on the determination date, will be taxed as capital gain or loss. A capital
gain or loss will be long-term if the optionee's holding period following the
determination date is more than 12 months. No tax deduction is available to
the Company with respect to the grant of a nonstatutory stock option or the
sale of the stock acquired pursuant to such grant. The Company generally
should be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of a nonstatutory stock
option, except to the extent such deduction is limited by applicable
provisions of the Code or the regulations thereunder.
NEW PLAN BENEFITS
No options will be granted under the Option Plan prior to its approval by
the stockholders of the Company. With the exception of the automatic grant of
options to Nonemployee Directors, future grants under the Option Plan will be
made at the discretion of the Board, and, accordingly, are not yet
determinable. In addition, benefits under the Option Plan will depend on a
number of factors, including the fair market value of the Company's Common
Stock on future dates and the exercise decisions made by the optionees.
Consequently it is not possible to determine the benefits that might be
received by optionees receiving discretionary grants under the Option Plan.
The following table sets forth the options that would be granted during the
current fiscal under the Option Plan if approved by the stockholders to the
Nonemployee Directors currently holding office. The term of all options
granted under the Option Plan to Nonemployee Directors is ten (10) years from
date of grant.
NONEMPLOYEE DIRECTORS' STOCK OPTION GRANTS
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR NUMBER OF SHARES TO BE GRANTED
IDENTITY OF GROUP AT 1997 ANNUAL MEETING(1)
--------------------- ------------------------------
<S> <C>
George Hara................................. 7,500
David Heller................................ 7,500
Stephen J. Lewis............................ 7,500
William F. Miller........................... 7,500
Harry J. Saal............................... 7,500
All current nonemployee directors as a group
(5 persons)................................ 37,500
</TABLE>
- --------
(1) The exercise price for the options to be granted on the date of the 1997
Annual Meeting will be determined on the date of the 1998 Annual Meeting.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of
the Company is present, either in person or by proxy, is required for approval
of this proposal. Abstentions and broker non-votes will each be counted as
present for purposes of determining the presence of a quorum. The Board of
Directors believes that adoption of the proposed Option Plan is in the best
interests of the Company and the stockholders for the reasons stated above.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
9
<PAGE>
PROPOSAL 3
APPROVAL OF THE COMPANY'S 1997 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the stockholders will be asked to approve the Borland
International, Inc. 1997 Employee Stock Purchase Plan (the "Purchase Plan")
The Purchase Plan authorizes the issuance of up to 200,000 shares of the
Company's Common Stock (subject to adjustment for certain changes in the
capital structure of the Company).
The Purchase Plan is intended to replace the Company's 1990 Employee Stock
Purchase Plan (the "1990 Plan"). As of June 17, 1997, of the aggregate of
850,000 shares of Common Stock authorized for issuance under the 1990 Plan,
774,233 shares had been issued and 75,767 shares remained available for future
employee purchases.
The Board of Directors believes that the Purchase Plan benefits the Company
and its stockholders by providing its employees with an opportunity through
payroll deductions to purchase shares of Common Stock that is helpful in
attracting, retaining, and motivating valued employees. To provide an adequate
reserve of shares to permit the Company to continue offering employees a stock
purchase opportunity, the Board of Directors has adopted the Purchase Plan,
subject to and effective upon the date (the "Effective Date") of stockholder
approval.
SUMMARY OF THE PURCHASE PLAN
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to
any stockholder upon request.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each optionee in the Purchase
Plan is granted at the beginning of each offering under the plan (an
"Offering") the right to purchase through accumulated payroll deductions up to
a number of shares of the Common Stock of the Company (a "Purchase Right")
determined on the first day of the Offering. The Purchase Right is
automatically exercised on each purchase date during the Offering unless the
participant has withdrawn from participation in the Purchase Plan prior to
such date.
Shares Subject to Plan. A maximum of 200,000 of the Company's authorized but
unissued or reacquired shares of Common Stock may be issued under the Purchase
Plan, subject to appropriate adjustment in the event of any stock dividend,
stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
or in the event of any merger, sale of assets or other reorganization of the
Company. If any Purchase Right expires or terminates, the shares subject to
the unexercised portion of such Purchase Right will again be available for
issuance under the Purchase Plan.
Administration. The Purchase Plan is administered by the Board of Directors
or a duly appointed committee of the Board (hereinafter referred to as the
"Board"). Subject to the provisions of the Purchase Plan, the Board determines
the terms and conditions of Purchase Rights granted under the plan. The Board
will interpret the Purchase Plan and Purchase Rights granted thereunder, and
all determinations of the Board will be final and binding on all persons
having an interest in the Purchase Plan or any Purchase Right. The Purchase
Plan provides, subject to certain limitations, for indemnification by the
Company of any director, officer or employee against all reasonable expenses,
including attorneys' fees, incurred in connection with any legal action
arising from such person's action or failure to act in administering the plan.
Eligibility. Any employee of the Company or of any present or future parent
or subsidiary corporation of the Company designated by the Board for inclusion
in the Purchase Plan is eligible to participate in an Offering under the plan
so long as the employee is customarily employed for at least 20 hours per week
and more than five months in any calendar year. However, no employee who owns
or holds options to purchase, or who, as a result of participation in the
Purchase Plan, would own or hold options to purchase, five percent or more of
the
10
<PAGE>
total combined voting power or value of all classes of stock of the Company or
of any parent or subsidiary corporation of the Company is eligible to
participate in the Purchase Plan. As of June 17, 1997, approximately 721
employees, including 4 executive officers, would be eligible to participate in
the Purchase Plan were it then in effect.
Offerings. The Purchase Plan is implemented through two series of Offerings,
the terms of which are referred to herein as "Offering Periods." A twelve-
month "Annual Offering Period" will generally begin on or about December 1 of
each year, and a six-month "Half-Year Offering Period" will generally begin on
or about June 1 of each year. An employee may not participate simultaneously
in more than one Offering. Generally, each Annual Offering Period is comprised
of two six-month "Purchase Periods" ending on or about the last day of May and
November of each year, while each Half-Year Offering Period is comprised of a
single Purchase Period. However, the Board may establish a different term for
one or more Offerings or different commencement or ending dates for any
Offering Period or Purchase Period. If the Purchase Plan is approved by the
stockholders, the initial Annual Offering Period will commence on October 1,
1997, immediately following the end of the current offering under the 1990
Plan, and will end on November 30, 1998.
Participation and Purchase of Shares. Participation in an Offering under the
Purchase Plan is limited to eligible employees who authorize payroll
deductions prior to the first day of an Offering Period (the "Offering Date").
Payroll deductions may not exceed 15% (or such other rate as the Board
determines) of an employee's compensation on any payday during the Offering
Period. An employee who becomes a participant in the Purchase Plan will
automatically participate in each subsequent Offering Period beginning
immediately after the last day of the Offering Period in which he or she is a
participant until the employee withdraws from the Purchase Plan, becomes
ineligible to participate, or terminates employment.
Subject to any uniform limitations or notice requirements imposed by the
Company, a participant may increase or decrease his or her rate of payroll
deductions or withdraw from the Purchase Plan at any time during an Offering.
Upon withdrawal, the Company will refund without interest the participant's
accumulated payroll deductions not previously applied to the purchase of
shares. Once a participant withdraws from an Offering, that participant may
not again participate in the same Offering. If the fair market value of a
share of Common Stock on the Offering Date of the current Offering in which
employees are participating is greater than such fair market value on the
Offering Date of a new Offering, then, unless a participant elects otherwise,
each participant will be automatically withdrawn from the current Offering
after purchasing shares and enrolled in the new Offering.
Subject to certain limitations, each participant in an Offering is granted a
Purchase Right for a number of whole shares determined by dividing (i)
$2,083.33 multiplied by the number of months in the Offering Period by (ii)
the fair market value of a share of Common Stock on the Offering Date.
However, the maximum number of shares a participant may purchase in any
Offering Period is equal to 208.33 multiplied by the number of months in the
Offering Period. As a further limitation, no participant may purchase shares
of Common Stock under the Purchase Plan or any other employee stock purchase
plan of the Company having a fair market value exceeding $25,000 in any
calendar year (measured by the fair market value of the Company's Common Stock
on the first day of the Offering Period in which the shares are purchased).
Purchase Rights are nontransferable and may only be exercised by the
participant.
On the last day of each Purchase Period (a "Purchase Date"), the Company
issues to each participant in the Offering the number of shares of the
Company's Common Stock determined by dividing the amount of payroll deductions
accumulated for the participant during the Purchase Period by the purchase
price, limited in any case by the number of shares subject to the
participant's Purchase Right for that Offering. The price at which shares are
sold under the Purchase Plan is established by the Board but may not be less
than 85% of the lesser of the fair market value per share of Common Stock on
the Offering Date or on the Purchase Date. The fair market value of the Common
Stock on any relevant date generally will be the closing price per share as
reported on the Nasdaq National Market. On June 17, 1997, the closing price
per share of Common Stock was $7.125. Any payroll deductions under the
Purchase Plan not applied to the purchase of shares will be returned to the
11
<PAGE>
participant without interest, unless the amount remaining is less than the
amount necessary to purchase a whole share of Common Stock, in which case the
remaining amount may be applied to the next Purchase Period.
Change in Control. The Purchase Plan provides that, in the event of (i) a
sale or exchange by the stockholders in a single or series of related
transactions of more than 50% of the Company's voting stock, (ii) a merger or
consolidation in which the Company is a party, (iii) the sale, exchange or
transfer of all or substantially all of the assets of the Company, or (iv) a
liquidation or dissolution of the Company wherein, upon any such event, the
stockholders of the Company immediately before such event do not retain
immediately after such event direct or indirect beneficial ownership of more
than 50% of the total combined voting power of the voting stock of the
Company, its successor, or the corporation to which the assets of the Company
were transferred (a "Change in Control"), the surviving, continuing, successor
or purchasing corporation or parent corporation thereof may assume the
Company's rights and obligations under the Purchase Plan. However, if such
corporation elects not to assume the outstanding Purchase Rights, the Purchase
Date of the then current Purchase Period will be accelerated to a date before
the Change in Control specified by the Board. Any Purchase Rights that are not
assumed or exercised prior to the Change in Control will terminate.
Termination or Amendment. The Purchase Plan will continue until terminated
by the Board or until all of the shares reserved for issuance under the plan
have been issued. The Board may at any time amend or terminate the Purchase
Plan, except that the approval of the Company's stockholders is required
within twelve months of the adoption of any amendment increasing the number of
shares authorized for issuance under the Purchase Plan, or changing the
definition of the corporations which may be designated by the Board as
corporations the employees of which may participate in the Purchase Plan.
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in
the Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Generally, there are no tax consequences to an employee of either becoming a
participant in the Purchase Plan or purchasing shares under the Purchase Plan.
The tax consequences of a disposition of shares vary depending on the period
such stock is held before its disposition. If a participant disposes of shares
within two years after the Offering Date or within one year after the Purchase
Date on which the shares are acquired (a "disqualifying disposition"), the
participant recognizes ordinary income in the year of disposition in an amount
equal to the difference between the fair market value of the shares on the
Purchase Date and the purchase price. Such income may be subject to
withholding of tax. Any additional gain or resulting loss recognized by the
participant from the disposition of the shares is a capital gain or loss. If
the participant disposes of shares at least two years after the Offering Date
and at least one year after the Purchase Date on which the shares are
acquired, the participant recognizes ordinary income in the year of
disposition in an amount equal to the lesser of (i) the difference between the
fair market value of the shares on the date of disposition and the purchase
price or (ii) 15% of the fair market value of the shares on the Offering Date.
Any additional gain recognized by the participant on the disposition of the
shares is a capital gain. If the fair market value of the shares on the date
of disposition is less than the purchase price, there is no ordinary income,
and the loss recognized is a capital loss. If the participant owns the shares
at the time of the participant's death, the lesser of (i) the difference
between the fair market value of the shares on the date of death and the
purchase price or (ii) 15% of the fair market value of the shares on the
Offering Date is recognized as ordinary income in the year of the
participant's death.
If the exercise of a Purchase Right does not constitute an exercise pursuant
to an "employee stock purchase plan" under section 423 of the Code, the
exercise of the Purchase Right will be treated as the exercise of a
nonstatutory stock option. The participant would therefore recognize ordinary
income on the Purchase Date equal to the excess of the fair market value of
the shares acquired over the purchase price. Such income is subject to
withholding of income and employment taxes. Any gain or loss recognized on a
subsequent sale of the shares, as measured by the difference between the sale
proceeds and the sum of (i) the purchase price for such shares
12
<PAGE>
and (ii) the amount of ordinary income recognized on the exercise of the
Purchase Right, will be treated as a capital gain or loss, as the case may be.
A capital gain or loss will be long-term if the participant holds the shares
for more than 12 months and short-term if the participant holds the shares for
12 months or less. Both long-term and short-term capital gains are at present
generally subject to the same tax rates as ordinary income, except that long-
term capital gains are currently subject to a maximum tax rate of 28%.
If the participant disposes of the shares in a disqualifying disposition the
Company should be entitled to a deduction equal to the amount of ordinary
income recognized by the participant as a result of the disposition, except to
the extent such deduction is limited by applicable provisions of the Code or
the regulations thereunder. In all other cases, no deduction is allowed the
Company.
NEW PLAN BENEFITS
Because benefits under the Purchase Plan will depend on employees' elections
to participate and the fair market value of the Company's Common Stock at
various future dates, it is not possible to determine the benefits that will
be received by executive officers and other employees if the Purchase Plan is
approved by the stockholders. Nonemployee directors are not eligible to
participate in the Purchase Plan.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and entitled to vote at the Annual Meeting of Stockholders, at which a
quorum representing a majority of all outstanding shares of Common Stock of
the Company is present, either in person or by proxy, is required for approval
of this proposal. Abstentions and broker non-votes will each be counted as
present for purposes of determining the presence of a quorum.
The Board of Directors believes that the opportunity to purchase shares
under the Purchase Plan is important to attracting and retaining qualified
employees essential to the success of the Company, and that stock ownership is
important to providing such persons with an incentive to perform in the best
interest of the Company and its stockholders.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
13
<PAGE>
PROPOSAL 4
APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION OF SERIES B CONVERTIBLE
PREFERRED STOCK AND EXERCISE OF WARRANTS
At the Annual Meeting, the stockholders will be asked to approve the
issuance of shares of the Company's Common Stock upon (i) the conversion of up
to 1,470 shares of the Company's Series B Convertible Preferred Stock (the
"Series B Shares") and (ii) the exercise of warrants (the "Warrants") for the
purchase of up to 588,000 shares of the Company's Common Stock (the "Warrant
Shares"). The affirmative vote of the holders of a majority of the shares of
the Company's Common Stock present or represented and voting on the proposal
will be required to approve the issuance of such Common Stock. The Board of
Directors recommends that the stockholders vote for approval of this proposal.
General. On June 30, 1997, the Company completed the initial closing (the
"Initial Closing") of a privately placed equity financing pursuant to a series
of subscription agreements (the "Financing Agreements") with 22 investors (the
"Investors"). The Financing Agreements contemplate several closings which are
subject to various conditions. At the Initial Closing the Company raised
proceeds of approximately $25 million through the sale of 495 Series B Shares
and Warrants to purchase up to 198,000 shares of the Company's Common Stock.
After the satisfaction of certain holding periods, each Series B Share is
convertible, at the option of its holder, into shares of Common Stock of the
Company based upon a conversion price equal to the lower of the lowest closing
market price of the Company's Common Stock during the seven trading days
before the conversion date or $6.94. The Warrants have an exercise price of
$8.67 per share. Subject to various conditions, the Financing Agreements
provide for the issuance of an additional 55 Series B Shares and Warrants to
purchase 22,000 shares of the Company's Stock which is to be made at a second
closing and on the same terms applicable at the Initial Closing.
Subject to various additional conditions, including, but not limited to,
stockholder approval of this proposal, the Company has the option ("Company
Put Option") to require the Investors to purchase additional Series B Shares
and Warrants and the Investors have the right to require that the Company sell
to them additional Series B Shares and Warrants ("Investor Call Options"). The
maximum number of additional Series B Shares and Warrants which the Company
may require the Investors to purchase is 500 Series B Shares, for an
additional purchase price of approximately $25 million, and Warrants to
purchase 200,000 shares of the Company's Common Stock. Assuming that the
Company exercises its right to sell the maximum number of shares under the
Company Put Option, the maximum number of additional Series B Shares which the
Investors may require that the Company sell to them under the Investor Call
Options is 420 Series B Shares, for a purchase price of approximately $21
million, (220 Series B Shares, for a purchase price of approximately $11
million, if the Company does not exercise the Company Put Option) and the
number of shares subject to additional Warrants would be 168,000 (88,000 if
the Company does not exercise the Company Put Option). The Series B Shares and
Warrants issued upon exercise of the Company Put Option or the Investor Call
Options will have the same terms and rights as the Series B Shares and
Warrants issued at the Initial Closing except that the maximum conversion
price and exercise price, respectively, will be based upon the market price of
the Company's Common Stock at the time of the subsequent issuance of such
Series B Shares and Warrants.
Notwithstanding the above, in order to comply with the rules of the Nasdaq
Stock Market which require stockholder approval for issuances of 20% or more
of the Company's outstanding stock, the number of shares of the Company's
Common Stock issuable pursuant to this financing cannot exceed 20% of the
Company's outstanding Common Stock unless the Company obtains the approval of
the Company's stockholders.
After a review of the Company's current and forecasted working capital
position, the Board of Directors determined that it was appropriate to raise
additional funding. The Company intends such funding to be used, to the extent
required, (i) for ongoing operations, (ii) to pay for restructuring costs
which were accrued during prior quarters, but not yet paid, (iii) for
additional investment and acquisition of technology to the extent good
opportunities arise, (iv) to provide additional confidence to customers and
the Company's employees regarding the financial stability of the Company.
14
<PAGE>
TERMS OF THE SERIES B SHARES
The following is a summary of the rights, preferences and privileges of the
Series B Shares and the rights granted pursuant to the Financing Agreements:
Dividends. The Series B Shares are not entitled to any preference with
respect to any dividend payments that may be declared by the Board.
Voting Rights. The holders of the Series B Shares are entitled to that
number of votes as shall be equal to the number of shares of Common Stock into
which each Series B Share is convertible on the record date for any meeting of
stockholders. In addition, the approval of the holders of at least 66 2/3% of
the outstanding Series B Shares, voting separately as a class, is required for
approval of any amendment to the Company's Certificate of Incorporation which
adversely affects the powers, preferences or rights of the Series B Shares or
any amendment to or waiver of the terms of the Series B Shares.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the affairs of the Company, the holder of each Series B Share shall be
entitled to be paid $50,000 per share (the amount initially paid for such
shares) out of the assets of the Company. If the assets of the Company upon
such event are insufficient to make such payment in full, then the holders of
Series B Shares shall be entitled to pro rata distribution of all the assets
of the Company. After payment in full of the liquidation preference to the
holders of Series B Shares, such holders are entitled to no further
distributions.
Conversion. The Series B Shares are convertible into shares of Common Stock
at the election of the holder of such Series B Shares at a price (the
"Conversion Rate") equal to the lower of the market price at the original date
of issuance of such share (the "Initial Price") or the market price when a
holder of Series B Shares delivers notice of his election to convert such
shares ("Notification Date"). "Market price" is generally determined by the
closing price for the Company's Common Stock on the applicable date.
Subject to conditions specified below, the Investor(s) may convert, in
aggregate, up to a maximum of a specified percentage of the Series B Shares
according to the following schedule:
<TABLE>
<CAPTION>
DAYS FROM CLOSING % OF SHARES CONVERTIBLE
----------------- -----------------------
<S> <C>
1 through 45 0
46 through 90 20
91 through 135 40
136 through 180 60
181 through 225 80
greater than 225 100
</TABLE>
The above limitations on conversion would be eliminated (i) during any Forced
Conversion Period (as hereinafter defined) and/or (ii) for any conversions at
an effective Conversion Rate which is greater than Conversion Rate applicable
when the shares are originally issued, as adjusted in accordance with the
Certificate of Determination filed for the Series B Shares.
Any Series B Shares outstanding five years after the date such shares were
initially issued would automatically convert into shares of the Company's
Common Stock at the then applicable Conversion Rate.
Adjustments to Conversion Rate. The Conversion Rate is subject to
proportional adjustment upon any stock split, stock dividend or other similar
change to the capital stock of the Company. Upon an acquisition of the Company
involving a sale of all or substantially all of the assets of the Company and
upon a merger, consolidation or other corporate reorganization of the Company
which results in the transfer of more than 50% of the voting power of the
Company, the holders of the Series B Shares are treated as if they had
converted such shares immediately prior to the consummation of such
transaction.
15
<PAGE>
Mandatory Conversion. Following at least (i) 90 calendar days of
effectiveness of a registration statement to be filed by the Company with the
Securities and Exchange Commission (as described below) and (ii) 20
consecutive trading days during which the closing market price of the
Company's Common Stock is no less than twice the Initial Price, the Company
may elect to deliver a mandatory conversion notice to all holders of Series B
Shares ("Forced Conversion Notice"). Upon receipt of a Forced Conversion
Notice, each Investor would be required to convert any and all Series B Shares
held by such Investor within the 30 calendar days immediately following
receipt of such Forced Conversion Notice ("Forced Conversion Period").
A Forced Conversion Notice would be deemed null and void, however, if any
time during the Forced Conversion Period, (i) the Company's Common Stock
trades at a market price which is less than 85% of the closing market price on
the day such Forced Conversion Notice is delivered, (ii) the Company's Common
Stock is suspended from trading, (iii) the effectiveness of the Registration
Statement is suspended, and/or (iv) the Company is in material breach of the
Financing Agreements.
Redemption. Upon at least 20 trading days' written notice, the Company may
elect to redeem, on the date which is the second, third or fourth anniversary
of effectiveness of the Registration Statement, all of the Series B Shares
which remain outstanding on the date which is the second anniversary of
effectiveness of the Registration Statement, at 110% of par. Subject to
certain conditions, the Company also has a right to call for redemption if the
Conversion Rate is less than $6 per share.
Registration Rights. The Company is obligated to promptly (and in any event
prior to September 30, 1997) file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") to cover
the Company's Common Stock issuable upon the conversion of the Series B Shares
and exercise of the Warrants and/or the resale of such shares. The Company is
obligated to use its reasonable best efforts to have the Registration
Statement declared effective by the SEC and remain effective until the
Company's Common Stock subject to the Registration Statement may otherwise be
freely traded without registration. The Company is also obligated to list such
shares on the Nasdaq National Market and to take certain actions to comply
with applicable state securities laws and regulations.
TERMS OF THE WARRANTS
For each Series B Share purchased by an Investor, the Company is obligated
to grant to such Investor Warrants to purchase 400 shares of the Company's
Common Stock. The Warrants have a four year term and an exercise price equal
to 125% of the market price for the Company's Common Stock at the original
date of issuance of such Warrants. The terms of exercise of the Warrant are
subject to customary adjustments on stock splits, stock dividends, any merger
or acquisition involving the Company and similar transactions, such as to
permit the Investors to receive upon exercise of the Warrants that which they
would have received had they exercised the Warrants immediately prior to any
such transaction.
CLOSINGS AND OPTIONS
The first closing of the sale of Series B Shares and Warrants took place on
June 30, 1997. 495 Series B Shares and Warrants for the purchase of 198,000
shares of Common Stock were issued for aggregate proceeds of approximately $25
million. A second closing (the "Second Closing") is to occur pursuant to the
Financing Agreements within three (3) business days following the earlier of
(i) the date of effectiveness of the Registration Statement and (ii) the date
on which the Investors may, as a group, elect. At such closing the Investors
are to purchase for an additional payment of approximately $2.5 million, an
additional 55 Series B Shares and Warrants to purchase 22,000 shares of Common
Stock. If the Second Closing does not occur before June 30, 1998, each
Investor would not be required to deliver any additional funds to the Company
and the Company would nonetheless be obligated to deliver the 55 Series B
Shares and related Warrants.
Company Put Option. Beginning September 30, 1997 and ending March 31, 1998,
the Company may require that the Investors purchase up to 500 additional
Series B Shares, for a purchase price of approximately $25 million, and
related Warrants (pro rata per Investor) under the same terms and conditions
of the initial
16
<PAGE>
issuance of Series B Shares except that the initial conversion price for the
Series B Shares and the Warrant exercise price will be based upon the market
price at the time of such investment. The Company's ability to exercise such
option is subject to a number of conditions, including, among others: (i) the
Company has obtained the stockholder approval sought hereby; (ii) the
Company's representations and warranties set forth in the Financing Agreements
continue to be accurate; (iii) the Company's revenues from the period
beginning April 1, 1997 and ending September 30, 1997 are at least
$50,000,000; (iv) the Registration Statement has been effective for at least
30 consecutive calendar days; (v) the Company's Common Stock has not been
delisted from the Nasdaq National Market and/or suspended from trading; (vi)
there has been no change of control involving the Company; (vii) the market
price for the Company's Common Stock has been not less than $5.00 per share
during the 20 trading days immediately preceding such put; (viii) certain
tests are met regarding minimum average daily trading volume in the Company's
Common Stock.
Investor Call Options. At any time from June 30, 1998 through June 30, 2000,
each Investor has the right to require that the Company issue for every five
(5) unconverted Series B Shares held by such Investor at June 30, 1998 (or
such earlier date as there has been a mandatory conversion), up to an
additional two (2) Series B Shares along with a pro-rata share of Warrants.
Such right may be exercised only at such time(s) that the closing market price
of the Company's Common Stock is greater than $8.00 per share and is otherwise
subject to the same terms and conditions as apply to the Second Closing.
LIMITATIONS ON CONVERSION AND EXERCISE
The Financing Agreements provide that the number of shares of the Company's
Common Stock issuable upon conversion of the Series B Shares or exercise of
the Warrants cannot exceed 20% of the outstanding shares of the Company's
Common Stock without approval of the stockholders of the Company. Likewise,
the number of shares of Company Common Stock issuable from to time to any
Investor cannot exceed 5% or more of the Company's outstanding Common Stock.
EFFECT ON RIGHTS OF EXISTING SECURITY HOLDERS
There is no change to the rights, preferences or privileges of the holders
of the Company's Common Stock as a result of the transactions which are the
subject of the Financing Agreements. However, in addition to the dilutive
impact of the issuance of additional shares of capital stock, the Series B
Shares have a liquidation preference which entitles the holders thereof to
receive payment upon any dissolution or liquidation of the Company in
preference to the holders of Common Stock. The amount of such preference is
equal to $50,000 per share, the original purchase price for such shares.
Based upon closing trading price of the Company's Common Stock on June 30,
1997, approximately [3,765,000] shares of Common Stock would be issuable upon
conversion of all 495 Series B Shares and exercise of all 198,000 Warrants
issued at the Initial Closing. This represents approximately [10.1%] of the
number of outstanding shares of the Company's Common Stock as of such date. If
the Company does not exercise the Company Put Option and the Investors
exercise the Investors Call Options in full, the maximum number of shares of
Common Stock issuable based upon the closing trading price of the Company's
Common Stock as of June 30, 1997 would be [5,547,550], representing
approximately [14.7%] of the Company's outstanding Common Stock on June 30,
1997. Assuming that the stockholders of the Company approve this proposal and
the full exercise by the Company of the Company Put Option and the full
exercise by the Investors of the Investor Call Options, based upon the closing
trading of the Company's Common Stock on June 30, 1997, approximately
[11,178,778] shares of Common Stock would be issuable upon conversion of all
1,470 Series B Shares and exercise of all 588,000 Warrants, representing
approximately [30.1%] of the number of shares of the Company's Common Stock
outstanding as of June 30, 1997. The conversion ratio for the Series B Shares
is determined by the market price of the Company's Common Stock at the time of
conversion, therefore it is not possible at this time to determine the maximum
number of common shares issuable.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4
17
<PAGE>
PROPOSAL 5
APPOINTMENT OF AUDITORS
The Board of Directors has appointed Price Waterhouse LLP, independent
accountants, to audit the Company's consolidated financial statements for the
fiscal year ending March 31, 1998 and recommends that stockholders vote for
the ratification of such appointment. A representative of Price Waterhouse LLP
will be present at the Annual Meeting and will be available to respond to
stockholders' questions and to make a statement if he or she desires to do so.
The affirmative vote of the holders of a majority of the Company's Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Price Waterhouse LLP.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5
ADDITIONAL INFORMATION
EXECUTIVE OFFICERS
Officers are appointed annually by the Board of Directors and serve at the
discretion of the Board of Directors. Set forth below is information regarding
the current executive officers of the Company who are not directors of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Hobart McK. Birmingham.. 52 Vice President, General Counsel and Secretary
Kathleen M. Fisher...... 42 Vice President, Finance and Chief Financial Officer
David McGlaughlin....... 60 Vice President, International Sales and Operations
</TABLE>
Mr. Birmingham joined the Company in February 1997 as Vice President and
General Counsel, and was appointed Secretary in March 1997. Prior to joining
the Company, Mr. Birmingham served as Senior Director and Associate General
Counsel at Apple Computer, Inc. From 1988 to 1995 Mr. Birmingham was a partner
with the law firm of Graham & James. Additionally, Mr. Birmingham served as an
associate and partner (1979) with the law firm of Bronson, Bronson & McKinnon
from 1974 through 1988.
Ms. Fisher joined the Company in May 1997 as Vice President of Finance and
Chief Financial Officer. Prior to joining the Company, Ms. Fisher served as
Vice President of Finance, Treasurer, and Chief Financial Officer at Phoenix
Publishing Systems, Inc., a software publishing company. From 1993 to 1995 Ms.
Fisher was Vice President of Finance, Treasurer & Chief Financial Officer of
Glacier Water Services, Inc., a purified water manufacturer. Ms. Fisher also
served as Vice President of Finance & Business Development of Vitarel
Microelectronics, a multi-chip modules company form 1990 to 1993.
Mr. McGlaughlin joined the Company in October 1991 as Country Manager of
Borland Canada Software, Inc. In July 1994, Mr. McGlaughlin was appointed Vice
President of InterContinental Subsidiaries and, in December 1994, Vice
President of International Sales and Operations. Mr. McGlaughlin was
designated an executive officer of the Company in June 1995. Prior to joining
the Company Mr. McGlaughlin was President of Ashton-Tate Canada, a software
development company.
18
<PAGE>
SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
To the Company's knowledge, the following table sets forth information
regarding ownership of the Company's outstanding Common Stock on June 17, 1997
by (i) beneficial owners of more than five percent (5%) of the Company's
outstanding Common Stock; (ii) each current director and nominee for director;
(iii) each executive officer and former executive officer named in the Summary
Compensation Table (hereafter referred to as the "named executive officers");
and (iv) all current executive officers and directors as a group. Except as
indicated in the footnotes to this table, the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENT
---- ------------------ -------
<S> <C> <C>
Merrill Lynch & Co., Inc. (1)................... 4,691,463 14.9%
Delbert W. Yocam (2)(3)......................... 336,050 *
George Hara (2)(4).............................. 90,000 *
David Heller (2)(5)............................. 190,000 *
Stephen J. Lewis (2)(6)......................... 80,640 *
William F. Miller (2)(7)........................ 90,000 *
Harry J. Saal (2)(8)............................ 60,000 *
David McGlaughlin (2)(9)........................ 53,801 *
Paul Emery (10)(12)............................. 252,398 *
Whitney Lynn (11)(13)........................... 19,945 *
Gary A. Wetsel (11)(14)......................... 289,727 *
Michael Greenbaum (11)(15)...................... 52,414 *
William Jordan (11)(16)......................... 247 *
All directors and executive officers as a group
(17) (9 persons)............................... 900,491 2.4%
</TABLE>
- --------
* Less than 1%
(1) Information is based on a Schedule 13G filing dated February 11, 1997.
Number of shares which may be deemed beneficially owned includes shares
held by various funds related to or managed by Merrill Lynch & Co., Inc.
The address of Merrill Lynch & Co., Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281.
(2) The person indicated is an executive officer or director of the Company.
(3) Includes options exercisable within 60 days of June 17, 1997 to acquire
336,050 shares.
(4) Includes options exercisable within 60 days of June 17, 1997 to acquire
90,000 shares.
(5) Includes options exercisable within 60 days of June 17, 1997 to acquire
190,000 shares.
(6) Includes options exercisable within 60 days of June 17, 1997 to acquire
75,000 shares.
(7) Includes options exercisable within 60 days of June 17, 1997 to acquire
90,000 shares.
(8) Includes options exercisable within 60 days of June 17, 1997 to acquire
60,000 shares.
(9) Includes options exercisable within 60 days of June 17, 1997 to acquire
53,801 shares.
(10) Mr. Emery ceased to be an executive officer and full-time employee on
April 30, 1997.
(11) The person indicated ceased to be an executive officer and a full-time
employee of the Company during the fiscal year ended March 31, 1997.
(12) Includes options exercisable within 60 days of June 17, 1997 to acquire
250,000 shares.
(13) Includes options exercisable within 60 days of June 17, 1997 to acquire
19,945 shares.
(14) Includes options exercisable within 60 days of June 17, 1997 to acquire
289,727 shares.
(15) Includes options exercisable within 60 days of June 17, 1997 to acquire
52,414 shares.
(16) No options exercisable within 60 days of June 17, 1997.
(17) Includes options exercisable within 60 days of June 17, 1997 to acquire
894,851 shares.
19
<PAGE>
BOARD ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company,
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to compensation paid to such executive
officers for the fiscal year ended March 31, 1997. The information contained
in this report shall not be deemed "soliciting material" or to be "filed" with
the Securities and Exchange Commission (the "SEC") nor shall such information
be incorporated by reference into any future filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent that the
Company specifically incorporates it by reference into such filing.
The Company's executive compensation program is administered by the
Organization and Compensation Committee (the "Committee") of the Board of
Directors. The role of the Committee, which is comprised entirely of outside,
nonemployee directors, is to review and approve salaries and other
compensation of the directors and executive officers of the Company. In
addition, the Committee reviews and approves various other Company
compensation policies and matters and administers the Company's stock option
plans, including the review and approval of stock option grants to the
executive officers of the Company.
The Committee was confronted with significant challenges in fiscal 1997. The
Committee focused on the financial difficulties experienced by the Company and
the need to recruit new management in order to position the Company to have
the best chance at a successful turnaround. Adding to the dilemma of
recruiting new members of senior management were two continuing dynamics
affecting the technology sector as a whole. First, the tremendous acceleration
of initial public offerings in 1996 and 1997 created a vast number of new
public companies, significantly increasing the demand for senior management
talent industry wide. Second, the continued increases in stock market
valuations have resulted in increased expectations from management and have,
in turn, significantly increased the costs of recruiting management away from
positions in which they have substantial options or other benefits, all or
substantially all, of which, must be forfeited when they take a new position.
Given the above challenges, the Committee is extremely pleased with the new
senior management team which the Company has assembled.
Compensation Philosophy
In structuring the Company's compensation programs, the Committee's goals
are to align compensation with the Company's business objectives and
performance and to enable it to attract, retain and reward executive officers
and other key employees who contribute to the long-term success of the
Company. The Committee also seeks to link executive compensation with the
creation of long-term stockholder value. Consistent with these goals, the
Company's compensation programs include a combination of salary, bonus and
stock options. In particular, stock options are used to link executive
incentives and the creation of stockholder value.
As noted above, for fiscal 1997 the Company was faced with significant
challenges. In order to retain and attract new management many of the
compensation decisions were "market driven" based upon what the Committee
believed the Company had to offer in order to solidify the management team.
Base Salary. The base salary of most of the Company's current officers was
individually negotiated at the time each officer joined the Company or assumed
his or her current position. On an ongoing basis, the Committee intends to
review annually each executive officer's base salary. When reviewing base
salaries, the Committee intends to consider individual and corporate
performance, levels of responsibility, prior experience, breadth of knowledge
and competitive pay practices. The Committee believes current executive
salaries are in the appropriate range as compared to the salaries offered by
competitive companies.
Bonus. The Company's bonus plans provide for bonuses to be awarded to key
employees based on specific goals achieved by the Company and the level of
contribution to achievement of the goals by the key employees. The bonus plans
are designed such that bonuses when combined with salaries create total
compensation which is
20
<PAGE>
competitive with other companies against which the Company competes in hiring
and retaining key employees. Bonus awards depend on the extent to which
Company and individual performance objectives are achieved. The Company's
performance objectives include operating, strategic and financial goals
considered critical to the Company's short and long term goals.
Options. The purpose of the Company's Stock Option Plans is to provide
employees of the Company with an opportunity to share, along with stockholders
of the Company, in the long-term performance of the Company. The Committee
makes periodic grants of stock options to eligible employees, generally upon
commencement of employment or following a significant change in job
responsibilities. Stock options generally vest over a four year period and
expire ten years from the date of grant. The exercise price of options is
generally 100% of fair market value of the underlying stock on the date of
grant. In awarding stock options, the Committee considers individual
performance, overall contribution to the Company, retention, the number of
unvested stock options and the total number of stock options to be awarded.
Repricing. During the course of fiscal 1997, the Company implemented certain
repricings of existing options. The Committee is very much aware of the
general resistance in certain segments of the investor community to option
repricings. Although sensitive to such concerns, the Committee is forced to
deal with the stark reality that in the current environment, experienced
management and valuable employees have multiple opportunities available to
them. Stock options are one of the principal incentives for employees and if
such options have an exercise price above the current value of the Company's
stock, the value of such options as a motivating and retention factor is
substantially reduced. It is very difficult to retain employees when they are
presented with other employment opportunities with options which are not
"underwater." At the same time, in considering whether to reprice options, the
Company must weigh, on the one hand, the direct and indirect costs of
attracting and incentivizing replacement management and other employees, to,
on the other hand, the cost to the Company of the repriced options needed to
keep employees or management who might otherwise leave due to the lower option
incentives. On balance, the Committee believed the repricings to be in the
best interests of the stockholders of the Company.
21
<PAGE>
The following table sets forth historical information about the repricing
during the last ten years of stock options granted to the Company's executive
officers.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT REMAINING
OPTIONS TIME OF TIME OF NEW AT DATE OF
DATE OF REPRICED OR REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME REPRICING AMENDED(#)(1) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT(*)
---- --------- ------------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
David McGlaughlin....... 2/3/97 20,000 6.4375 7.00 6.4375 114 months
2/3/97 20,191 6.4375 9.00 6.4375 88 months
2/3/97 59,482 6.4375 6.875 6.4375 95 months
Paul Emery.............. 2/3/97 250,000 6.4375 7.6875 6.4375 115 months
Philippe Kahn........... 6/7/94 500,000(2) 9.00 39.625 9.00 97 months
6/7/94 50,000(2) 9.00 30.00 9.00 78 months
6/7/94 500,000 9.00 17.875 9.00 104 months
7/24/92 500,000 39.625 49.00 39.625 111 months
Robert H. Kohn.......... 2/3/97 191,500 6.4375 9.00 6.4375 88 months
2/3/97 25,000 6.4375 6.8750 6.4375 95 months
2/3/97 20,000 6.4375 7.0000 6.4375 114 months
6/7/94 30,000(2) 9.00 39.625 9.00 97 months
6/7/94 20,000(2) 9.00 30.00 9.00 78 months
6/7/94 100,000 9.00 17.875 9.00 104 months
7/24/92 30,000 39.625 49.00 39.625 111 months
12/21/88 140,000 1.13 2.14 1.13 101 months
12/21/88 46,311 1.13 1.84 1.13 109 months
12/21/88 53,689 1.13 1.87 1.13 108 months
Whitney Lynn............ 2/3/97 25,356 6.4375 6.5000 6.4375 116 months
2/3/97 14,644 6.4375 6.500 6.4375 44 months
Richard Schwartz........ 6/7/94 30,000(2) 9.00 39.625 9.00 97 months
6/7/94 40,000 9.00 17.875 9.00 104 months
6/7/94 40,000 9.00 16.875 9.00 72 months
7/24/94 30,000 39.625 49.00 39.625 111 months
12/21/88 100,000 1.13 1.87 1.13 108 months
Gary Wetsel............. 2/3/97 200,000 6.4375 6.8750 6.4375 95 months
2/3/97 235,000 6.4375 10.7500 6.4375 93 months
</TABLE>
- --------
(*) Option may terminate before their expiration date upon the termination of
optionee's status as an employee or consultant or upon the optionee's
death or disability.
(1) Unless otherwise noted, repriced options were granted on a one for one
basis.
(2) Repriced options were granted on a one for four basis.
Section 162(m) of the Internal Revenue Code (the "Code") imposes limitations
on the deductibility for federal income tax purposes of compensation over $1
million paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. Given the attention to the
overall challenges faced by the Company in recruiting and retaining key
management, the Compensation Committee has not yet established a policy for
determining which forms of incentive compensation awarded to its Named
Executive Officers shall be designed to qualify as
22
<PAGE>
"performance-based compensation" other than any options that may be granted
under the 1997 Stock Option Plan, if approved by the stockholders. The
Compensation Committee intends to continue to evaluate the effects of the
statute and any Treasury regulations and to comply with Code Section 162(m) in
the future to the extent consistent with the best interests of the Company.
CEO Compensation
The terms of employment for Mr. Yocam, the Company's Chief Executive
Officer, were the result of arms-length negotiations between the Company and
Mr. Yocam. The Board of Directors felt it imperative that the Company attract
a CEO with the vast experience and industry stature of Mr. Yocam in order to
provide stability around which a management team could be built and a
turnaround plan developed. The terms of Mr. Yocam's employment agreement are
described under "Employment Contracts, Termination of Employment and Change-
in-Control Arrangements". The Committee believes that Mr. Yocam's salary,
bonus and options are in the appropriate range as compared to the compensation
arrangements offered to qualified CEOs by companies in comparable situations
as the Company.
Conclusion
As a significant portion of the Company's compensation program is linked to
Company performance, the Committee believes that compensation is closely tied
to increases in long-term stockholder value.
Organization and Compensation
Committee
Stephen Lewis
David Heller
July 9, 1997
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As indicated above, the Compensation Committee during fiscal year 1997
consisted of David Heller and Stephen J. Lewis, neither of whom are, or have
been at any time, officers or employees of the Company. No executive officer
of the Company served as a member of a compensation committee or board of
directors of any other entity which has an executive officer serving as a
member of the Company's Board of Directors or Compensation Committee.
23
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning
compensation paid to or accrued for the Company's Chief Executive Officer,
each of the two other executive officers of the Company earning more than
$100,000 during fiscal 1997, and all persons serving or acting as Chief
Executive Officer of the Company during fiscal 1997, and its two most highly
compensated former executive officers (herein collectively referred to as the
"named executive officers" ) for the fiscal years ended March 31, 1995, 1996
and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ---------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)(1)
--------------------------- ---- --------- --------- --------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Delbert W. Yocam(2)(3).... 1997 110,769 3,864,184(4) 3,849,908(5) 1,100,000 --
President and Chief
Executive Officer
Whitney Lynn(2)(6)........ 1997 201,539 100,000(7) -- 40,000(8) --
Former Acting Chief
Executive Officer
Gary A. Wetsel(6)......... 1997 114,365 5,000 6,778(9) 435,000(8) 601,558(10)
Former President and 1996 285,538 99,300 -- -- 2,365
Chief Executive Officer 1995 100,000 245,000(11) -- 450,000(12) 577
David McGlaughlin(13)..... 1997 192,000 92,092 8,400(14) 99,673(8) --
Vice President, 1996 185,513 107,209 21,639(14) -- --
International Sales and
Operations
Paul Emery(2)(15)......... 1997 103,846 32,500 -- 250,000(8) 346
Former Vice President and
Chief Financial Officer
Michael Greenbaum(6)(13).. 1997 153,605 28,361(16) 539,949(17) 95,000 201,385(18)
Former Vice President, 1996 12,308 -- 10,000(19) 75,000 --
Corporate Marketing &
Business Development
William Jordan(6)(13)..... 1997 147,600 19,125 -- 20,000(20) 160,821(21)
Former Vice President, 1996 175,000 66,625 -- -- 947
Business Development
</TABLE>
- --------
(1) Unless otherwise noted, consists of the Company's matching payments under
its 401(k) Plan.
(2) The person indicated was not an executive officer of the Company during
fiscal years 1996 and 1995.
(3) Mr. Yocam was appointed as President and Chief Executive Officer
effective December 2, 1996.
(4) Includes a $3,744,184 one time sign-on bonus.
(5) Includes $3,827,364 advanced for the purchase of a residence.
(6) The person indicated ceased to be an officer and full-time employee of
the Company during the fiscal year ended on March 31, 1997.
(7) Consists of a $100,000 one time sign-on bonus.
24
<PAGE>
(8) Includes options amended on February 3, 1997 to reduce the exercise price
to the market closing price on such date. Excludes option for equal
number of shares that may be deemed canceled on such date as a
consequence of the repricing. See "Board Organization and Compensation
Committee Report on Executive Compensation" and "Ten Year Option
Repricings" table for additional information.
(9) Consists of car allowance.
(10) Includes severance payment of $600,000.
(11) Includes a $150,000 relocation bonus.
(12) Original option grant amended on February 3, 1997 to reduce exercise
price. See note (8) above.
(13) The person indicated was not an executive officer of the Company during
fiscal year 1995.
(14) The person indicated is a resident of Canada and an employee of the
Company's subsidiary, Borland Canada Software, Inc. Consists of car and
housing allowance.
(15) Mr. Emery ceased to be an executive officer of the Company on April 30,
1997.
(16) Includes a $25,000 one time sign-on bonus.
(17) Includes relocation assistance payments and interest paid on bridge loan.
(18) Includes severance payment of $200,000.
(19) Consists of a relocation bonus.
(20) In April 1997, the unexercised options terminated under the terms of the
option agreement, without receipt of consideration.
(21) Includes $160,417 in severance payments.
25
<PAGE>
Stock Option Grants in Fiscal Year 1997
The following table contains information concerning the grant of stock
options in fiscal year 1997 to the named executive officers and the potential
realizable value of such stock options at assumed annual rates of stock
appreciation over the terms of such stock options:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(*)
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
- ----------------------------------------------------------------------- -------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS/SARS IN FISCAL OR BASE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) PRICE($/SH) DATE(3) 5%($) 10%($)
---- ------------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Delbert W. Yocam........ 1,100,000(5)(6) 21.31% 5.50 11/14/06 3,804,813 9,642,142
Whitney Lynn............ 40,000(7)(8) 0.77% 6.4375 10/1/00 83,128 196,470
Gary A. Wetsel.......... 200,000(8)(9)(10) 3.84% 6.4375 1/6/05 607,871 1,452,981
235,000(8)(9)(10) 4.51% 6.4375 11/1/04 694,687 1,652,233
David McGlaughlin....... 20,000(6)(8)(11) 0.38% 6.4375 7/27/06 75,684 188,948
59,482(6)(8)(11) 1.14% 6.4375 1/6/05 180,787 432,131
20,191(6)(8)(11) 0.39% 6.4375 6/7/04 55,996 131,718
Paul Emery.............. 250,000(8)(12) 4.84% 6.4375 9/4/06 959,401 2,402,493
Michael Greenbaum....... 95,000(13) 1.84% 7.00 7/27/06 418,215 1,059,839
William Jordan.......... 20,000(14) 0.39% 7.00 7/27/06 88,045 223,124
</TABLE>
- --------
(*) No stock appreciation rights were granted to executive officers in fiscal
year 1997.
(1) The Company's option plans are currently administered by the Organization
and Compensation Committee (the "Committee") of the Board of Directors.
The Committee determines the eligibility of employees and consultants,
the number of shares to be granted, and the terms of such grants. All
options granted in fiscal year 1997 have an exercise price equal to the
fair market value on the date of grant and unless otherwise noted,
options vest over a four year period with 25% vesting on the first
anniversary of the grant date and 75% vesting daily over three years
thereafter or daily over a four year period.
(2) The Company granted options to purchase an aggregate of 5,161,244 shares
(excluding original options grants that may be deemed canceled as a
consequence of the repricing on February 3, 1997) to all employees and
consultants in fiscal 1997.
(3) Options may terminate before their expiration date upon the termination
of optionee's status as an employee or consultant or upon the optionee's
death or disability.
(4) Under rules promulgated by the SEC, the amounts in these two columns
represent the hypothetical gain that would exist for options in this
table based on assumed stock price appreciation from the date of grant
until the end of such options' ten-year term at assumed annual rates of
5% and 10%. Annual compounding results in total appreciation of 63% (at
5% per year) and 159% (at 10% per year). If the price of a share of the
Company's Common Stock were to increase at such rates from the price at
the end of fiscal 1997 ($7.125 per share) over the next 10 years, the
resulting stock price at 5% and 10% appreciation would be $11.61 and
$18.48, respectively. The 5% and 10% assumed annual rates of appreciation
do not represent the Company's estimate or projection of future stock
price growth.
26
<PAGE>
(5) From November 14, 1996 to November 14, 1997, the option vests at the rate
of 1,222 shares per day. On November 14, 1997, an additional 275,000
shares vest. From November 15, 1997 to May 14, 1999, the option vests at
the rate of 713 shares per day. See "Employment Contracts, Termination of
Employment and Changes-in-Control Arrangements" for additional
information.
(6) Upon an acquisition of the Company or a change in control the vesting of
all options will be accelerated and shall be exercisable in full.
(7) The options vested daily over one year and expired on July 1, 1997.
(8) Indicates options repriced on February 3, 1997. Options for an equal
number of shares with an exercise price in excess of $6.4375, which may
be deemed canceled as a consequence of the repricing, are not reflected
in the table. See "Board Organization and Compensation Committee Report
on Executive Compensation" and "Ten Year Option Repricings" table for
additional information.
(9) In October 1997, any unexercised options will be canceled under the terms
of the option agreement, without receipt of consideration.
(10) Upon an acquisition of the Company and such person is terminated within
six months thereafter (other than for cause) one-half of the unvested
shares will become fully vested.
(11) Includes an option for 20,000 shares originally granted in 1997 and
79,673 options granted in prior years that were repriced on February 3,
1997. The original option grants, that may be deemed canceled as a
consequence of the repricing, are excluded. See "Board Organization and
Compensation Committee Report on Executive Compensation" and "Ten Year
Option Repricings" table for additional information. Of the above, 79,482
shares vest daily over four years.
(12) Upon termination of employment on April 30, 1997, the options vested in
full. Any unexercised options will be canceled three months thereafter
under the terms of the option agreement, without receipt of
consideration.
(13) Consists of options granted in prior years that were repriced on February
3, 1997. See "Board Organization and Compensation Committee Report on
Executive Compensation" and "Ten Year Option Repricings" table for
additional information. In March 1998, any unexercised options will be
canceled under the terms of the option agreement, without receipt of
consideration.
(14) In April 1997, all unexercised options were canceled under the terms of
the option agreement, without receipt of consideration.
27
<PAGE>
1997 Aggregated Option Exercises and Fiscal Year-End Option Values
The following table set forth, with respect to the named executive officers,
certain information concerning the exercise of options during the last fiscal
year and the number and value of unexercised options held as of the end of
last fiscal year:
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED IN-
SHARES UNDERLYING UNEXERCISED THE-MONEY
ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS
NAME EXERCISE(#) REALIZED($) FY END(#) AT FY END($)(1)
---- ----------- ----------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Delbert W. Yocam........ 0 0 Exercisable 167,414 272,048
Unexercisable 932,586 1,515,452
Whitney Lynn............ 0 0 Exercisable 19,836 13,637
Unexercisable 20,164 13,863
Gary A. Wetsel.......... 0 0 Exercisable 247,192 169,945
Unexercisable 187,808 129,118
David McGlaughlin....... 0 0 Exercisable 42,461 29,192
Unexercisable 57,212 39,333
Paul Emery.............. 0 0 Exercisable 0 0
Unexercisable 250,000 171,875
Michael Greenbaum....... 0 0 Exercisable 36,352 2,008
Unexercisable 133,648 9,867
William Jordan.......... 14,731 9,597 Exercisable 37,682 0
Unexercisable 0 0
</TABLE>
- --------
(1) Market value of underlying securities based on the closing price of
Company's Common Stock on March 31, 1997 on the Nasdaq National Market
System of $ 7.1250 minus the exercise price.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In November 1996, the Company entered into a thirty-month at-will employment
agreement with Mr. Yocam, commencing on December 2, 1996, pursuant to which
the Company employed Mr. Yocam as its Chairman of the Board and Chief
Executive Officer. The term of the agreement may be extended by Mr. Yocam for
an additional 30 month period if he so elects between June 2, 1998 and
December 2, 1998. The employment agreement provides for a payment to Mr. Yocam
of a signing bonus in an amount calculated to net Mr. Yocam $2 million after
taxes, resulting in a gross payment by the Company of approximately
$3,744,184. One half of the signing bonus is non-refundable, and one half of
the bonus is refundable to the Company if Mr. Yocam voluntarily terminates his
employment without good reason before March 2, 1998 or if he fails to be
available for his duties as chairman and chief executive officer until such
date. The agreement also provides that Mr. Yocam will receive a base annual
salary of $360,000 during the term of the agreement and an annual performance
bonus ranging from 50% to 300% of base salary. The annual bonus for the first
sixteen months of Mr. Yocam's employment is guaranteed to be not less than
100% of base salary. The agreement also entitles Mr. Yocam to all standard
benefits available to other executives of the Company. The salary, bonus and
benefits elements of Mr. Yocam's compensation are guaranteed during the term
of the agreement unless he is terminated for cause or voluntarily terminates
his employment other than for good reason or upon a constructive termination.
Under the employment agreement and the accompanying nonstatutory stock
option agreement, Mr. Yocam has been granted an option to purchase 1,100,000
shares of the Company's Common Stock at a price of $5.50 per share under the
1992 Stock Option Plan. From November 14, 1996 to November 14, 1997, the
option vests
28
<PAGE>
at the rate of 1,222 shares per day. On November 14, 1997, an additional
275,000 shares vest. From November 15, 1997 to May 14, 1999, the option vests
at the rate of 713 shares per day. Vesting continues so long as Mr. Yocam
remains an employee, officer or director of the Company. The option becomes
completely vested if Mr. Yocam is terminated without cause, if he is
constructively terminated or if he voluntarily terminates his employment for
good reason. If Mr. Yocam voluntarily terminates his employment for any reason
within six months after a "change of control", then that number of shares
which would have vested over the 12 months following such termination of
employment become vested automatically. The agreement defines "change of
control" to include any transaction or series of transactions (i) in which any
person (excluding Mr. Yocam or a group including Mr. Yocam) obtains beneficial
ownership of ten percent (10%) or more of the Company's outstanding voting
securities or (ii) which results in a transfer of more than 50% of the voting
control of the Company.
The employment agreement further provided for a $2 million unsecured,
interest free loan to Mr. Yocam to assist with the purchase of a new residence
in California. By amendment to the agreement, the Company agreed to forgive
the entire loan balance as of February 28, 1997 and to pay all income and
other tax liabilities of Mr. Yocam associated with such forgiveness, resulting
in a gross payment by the Company of approximately $3,827,364. The agreement
also requires the Company to reimburse Mr. Yocam for all moving and other
relocation expenses in connection with relocating his residence to California
and temporary living expenses, up to a maximum of $200,000.
In September 1996, the Company entered into an agreement with Mr. Lynn
pursuant to which the Company would employ Mr. Lynn as Acting President and
Chief Executive Officer. The agreement entitled Mr. Lynn to an annual base
salary of $400,000, an annual performance bonus of up to 100% of base salary
and all standard benefits available to other executives of the Company. Mr.
Lynn received an advance of $100,000 of his annual performance bonus. The
agreement further provides for an option to purchase 40,000 share of the
Company's Common Stock, which vests daily over a one year period.
Mr. Lynn resigned as Acting President and Chief Executive Officer and full-
time employee of the Company, effective April 1, 1997. Pursuant to a
Confidential Termination of Employment Agreement and General Release, dated
January 22, 1997, Mr. Lynn received normal payment of wages, less all
appropriate deductions and his stock options continued to vest until April 1,
1997. Mr. Lynn is not entitled to any other compensation or benefits.
In July 1996, Mr. Wetsel resigned as President, Chief Executive Officer and
Director of the Company. In connection with his resignation, the Company
modified its employment agreement with Mr. Wetsel and paid Mr. Wetsel a one
time severance payment of $600,000. Pursuant to the modified agreement, the
Company employed Mr. Wetsel on a full time basis for three months following
July 1, 1996 with all compensation included within the one time severance
payment of $600,000. Thereafter, for the remaining nine months, the Company
employed Mr. Wetsel part-time at the rate of $5,555 per month. The part-time
employment ended on July 1, 1997 at which time his general employee benefits,
use of the Company's car and the vesting of stock options previously granted
ceased.
In July 1994, the Company entered into an agreement with Mr. McGlaughlin.
The agreement entitles Mr. McGlaughlin to $1,400 per month for a housing
allowance, $350 per month transportation allowance and payment of two round
trip airplane tickets (coach class) for Mr. McGlaughlin's spouse. Under the
agreement Mr. McGlaughlin is entitled to a severance package of payment of
twelve months at his base rate of pay and medical benefit coverage for such
period.
In September 1996, the Company entered into an agreement with Mr. Emery
pursuant to which the Company would employ Mr. Emery as its Vice President of
Finance and Chief Financial Officer. The agreement entitled Mr. Emery to an
annual base salary of $200,000, an annual performance bonus ranging from
$50,000 up to $100,000 and all standard benefits available to other executives
of the Company. Under the agreement Mr. Emery was granted an option to
purchase 250,000 share of the Company's Common Stock, which would have
29
<PAGE>
vested 25% on the anniversary of the grant date and 75% over the next three
years. The vesting of his options accelerated in full upon his termination of
employment on April 30, 1997. The agreement further provided that the Company
would guarantee a loan of up to $100,000 for the purpose of acquiring a
residence, such guarantee to be released within sixty months of the initial
hire date or within thirty days following any voluntary termination. Such
guarantee was never executed. Mr. Emery is entitled to his base salary for
twelve months following the termination of his employment on April 30, 1997.
In December 1996, Mr. Greenbaum resigned as Vice President, Corporate
Marketing and Business Development. In connection with his resignation, the
Company and Mr. Greenbaum entered into a Confidential Termination of
Employment Agreement and General Release dated January 10, 1997. Mr. Greenbaum
was paid a one time severance payment of $200,000 and received a quarterly
bonus of $12,500. The agreement further provided that Mr. Greenbaum would be
entitled to receive reimbursement of up to $15,000 for outplacement services
and it was agreed that the Company would pay Mr. Greenbaum's COBRA payments
for one year or until he obtained other medical coverage, whichever first
occurred. In addition, his options to purchase shares of the Company's Common
Stock vest until December 12, 1997. Mr. Greenbaum was not entitled to any
other compensation or benefits, except for reimbursement of relocation
expenses submitted to the Company on or before March 1, 1997.
In September 1996, the Company entered into an agreement with Mr. Jordan
which provided that in the event that his employment was terminated for any
reason, other than cause, between the first and second anniversary of the
agreement, he would be entitled to a severance benefit of eleven months base
salary. Mr. Jordan resigned as Vice President, Business Development in January
1997.
CERTAIN TRANSACTIONS WITH MANAGEMENT
During fiscal 1997, the Company entered into an employment agreement with
Mr. Yocam. See "Employment Contracts, Termination of Employment and Change-in-
Control Arrangements" for additional information.
Philippe Kahn resigned from the Company's Board of Directors in November
1996. At that time, the Company entered into an agreement with Mr. Kahn to
provide services to the Company through December 1997. For such services, the
Company transferred and assigned its ownership interest to two musical
recordings "Pacific High" and "Walkin' on the Moon" to Mr. Kahn and agreed to
the continued vesting of stock options previously granted to Mr. Kahn through
December 1997. During fiscal 1997, Mr. Kahn was paid $202,309 for accrued
bonuses payable under his prior employment agreement.
The Company adopted a Severance Plan in January 1997. The Plan covers, among
others, all executive officers who have not entered into an agreement with the
Company and provides that such officer is entitled to his or her base pay for
a period of twelve months, the continuation of health benefits and group term
life insurance for two months and $10,000 for outplacement services.
The Company also adopted a Stock Acceleration Program in January 1997 as
part of its efforts to retain and attract key executives. The Program provides
that in the event the Company is acquired or is subject to a change- in-
control, the vesting of all options held by covered optionees will be
accelerated and the options shall be exercisable in full. For these purposes,
an "acquisition of the Company" means a merger or other transaction in which
the Company or substantially all of its assets is sold or merged and as a
result of such transaction, the holders of the Company's Common Stock prior to
such transaction do not own or control a majority of the outstanding shares of
the successor corporation and a "change-in-control" means the election of
nominees constituting a majority of the Company's Board of Directors who were
not approved by a majority of the Company's Board of Directors prior to such
election or the acquisition by a third party of twenty percent (20%) or more
of the Company's outstanding shares without approval of a majority of the
Board of Directors of the Company in office prior to such acquisition.
30
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock from March 1992 to March 1997 compared to the CRSP
Total Return Index for Nasdaq Stock Market US Companies and the CRSP Total
Return Index for Nasdaq Computer and Data Processing Services Stocks.
The information contained in the performance graph shall not be deemed
"soliciting material" or to be "filed" with the Securities and Exchange
Commission nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
and Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference into such filing. The stock price
performance on the following graph is not necessarily indicative of future
stock price performance.
[PERFORMANCE GRAPH APPEARS HERE]
- --------
* The graph assumes that $100.00 was invested in the Company's Common Stock
and in each index on March 31, 1992. The total return for the Company's
Common Stock and the indices used assumes the reinvestment of dividends,
even though dividends have not been declared on the Company's Common Stock.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------
3/92 3/93 3/94 3/95 3/96 3/97
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Borland International, Inc............... BORL 100 41 27 17 34 13
Nasdaq Stock Market (U.S.)............... INAS 100 115 124 138 187 208
Nasdaq Computer & Data Processing........ INAD 100 112 114 154 219 240
</TABLE>
31
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the SEC and Nasdaq. Directors, executive officers,
and greater than ten percent holders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received or written
representations from certain reporting persons, the Company believes that,
during fiscal 1997, all filing requirements under Section 16(a) applicable to
its directors and executive officers were met.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. If any other matters are properly presented to the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise to act, in accordance with their best judgment on
such matters.
The Company's Annual Report for the year ended March 31, 1997 is being mailed
to the Company's stockholders herewith. A copy of the Company's 10-K Report for
fiscal year 1997, containing information on operations, filed with the
Securities and Exchange Commission, is available on request, please write to:
Investor Relations Department
Borland International, Inc.
100 Borland Way
Scotts Valley, CA 95066
The Board of Directors hopes that stockholders will attend the Annual
Meeting. Whether or not you plan to attend, you are urged to complete, sign,
and return the enclosed proxy in the accompanying envelope. A prompt response
will greatly facilitate arrangements for the Annual Meeting, and your
cooperation will be appreciated. Stockholders who attend the Annual Meeting may
vote their shares personally even though they have sent in their proxies.
By Order of the Board of Directors
HOBART McK. BIRMINGHAM, Secretary
Scotts Valley, CA
July 24, 1997
32
<PAGE>
AVAILABLE INFORMATION
Borland is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements (if required) and other information
with the Commission. The reports, proxy statements and other information filed
by Borland with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The shares of Borland Common Stock
are quoted on the Nasdaq National Market, and certain of Borland's reports,
proxy materials and other information may be available for inspection at the
offices of The Nasdaq Stock Market at 1735 "K" Street, N.W., Washington, D.C.
20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following information from documents filed with the Commission by
Borland (File No. 0-16096) are incorporated by reference in this
Prospectus/Proxy Statement:
1. Information reported under Items 7, 8, 9 and 14 (including the
Company's Consolidated Financial Statements), included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1997 (the "Borland
Form 10-K");
All documents filed by Borland pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement and prior
to the date of the Annual Meeting shall be deemed to be incorporated by
reference herein from the date of filing such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein (or in
any subsequently filed document which also is or is deemed to be incorporated
by reference herein) modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN APPENDICES
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE HEREIN)
ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM BORLAND, ATTN.: CORPORATE
SECRETARY, AT 100 BORLAND WAY, SCOTTS VALLEY, CALIFORNIA 95066-3249, (408)
431-1000. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY AUGUST 15, 1997.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATION AND THE
OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BORLAND. THIS PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY FROM ANY PERSON,
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION
OF AN OFFER OR PROXY SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL
NOT, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF BORLAND SINCE THE DATE OF THIS PROXY STATEMENT OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
33
<PAGE>
PROXY
BORLAND
100 BORLAND WAY
SCOTTS VALLEY, CA 95066
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints HOBART MCK. BIRMINGHAM and KATHLEEN M. FISHER as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all the shares of Common
Stock of Borland International, Inc. held of record by the undersigned on July
9, 1997, at the 1997 Annual Meeting of Stockholders to be held on September 5,
1997, and any adjournments or postponements thereof.
PLEASE MARK THIS PROXY AS INDICATED ON THE REVERSE SIDE TO VOTE ON ANY ITEM. IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS,
PLEASE SIGN THE REVERSE SIDE; NO BOXES NEED TO BE CHECKED.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
FOLD AND DETACH HERE
[X] Please mark
your votes
as this
This proxy when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted FOR Proposals 1, 2, 3, 4, and 5.
1. Election of Class II Director: FOR WITHHOLD
Nominee: Delbert W. Yocam Nominee AUTHORITY
WITHHELD FOR: (Write that nominee's [_] [_]
name in the space provided below).
- ---------------------------------------
FOR AGAINST ABSTAIN
2. To approve the 1997 Stock Option
Plan, including the reservation of [_] [_] [_]
1,600,000 shares of Common Stock
thereunder.
3. To approve the 1997 Employee Stock FOR AGAINST ABSTAIN
Purchase Plan, including the reservation
of 200,000 shares of common stock [_] [_] [_]
thereunder.
4. To approve the issuance of shares FOR AGAINST ABSTAIN
of the Company's Common Stock upon (i)
the conversion of up to 1,470 shares [_] [_] [_]
of the Company's Series B Convertible
Preferred Stock (the "Series B Shares")
and (ii) the exercise of warrants
("Warrants) for the purchase of up to
588,000 shares of the Company's Common
Stock.
3636
5. Ratification of the appointment of FOR AGAINST ABSTAIN
Price Waterhouse LLP as independent
auditors for the 1998 fiscal year. [_] [_] [_]
I plan to attend the meeting. [_]
Signature: Date:
----------------------------- ---------------------------
Signature: Date:
----------------------------- ---------------------------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
3737
