[LEGATO LOGO]
LEGATO SYSTEMS, INC.
3210 Porter Drive
Palo Alto, California 94304
April 11, 1997
TO THE STOCKHOLDERS OF LEGATO SYSTEMS, INC.
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Legato Systems, Inc. (the "Company"), which will be held at the Garden Court
Hotel, 520 Cowper Street, Palo Alto, California, on Thursday, May 15, 1997, at
9:00 a.m.
Details of the business to be conducted at the Annual Meeting are given
in the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
It is important that your shares be represented and voted at the
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does NOT deprive you of your right to
attend the Annual Meeting. If you decide to attend the Annual Meeting and wish
to change your proxy vote, you may do so automatically by voting in person at
the meeting.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company. We look
forward to seeing you at the Annual Meeting.
Sincerely,
Louis C. Cole
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
[LEGATO LOGO]
LEGATO SYSTEMS, INC.
3210 Porter Drive
Palo Alto, California 94304
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 15, 1997
The Annual Meeting of Stockholders (the "Annual Meeting") of Legato
Systems, Inc. (the "Company") will be held at the Garden Court Hotel, 520 Cowper
Street, Palo Alto, California, on Thursday, May 15, 1997, at 9:00 a.m. for the
following purposes:
1. To elect five directors of the Board of Directors to serve until the next
Annual Meeting or until their successors have been duly elected and
qualified;
2. To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the fiscal year ending December 31,
1997; and
3. To transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
The foregoing items of business are more fully described in the
attached Proxy Statement.
Only stockholders of record at the close of business on April 4, 1997
are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournments or postponements thereof. A list of such stockholders will be
available for inspection at the Company's headquarters located at 3210 Porter
Drive, Palo Alto, California, during ordinary business hours for the ten-day
period prior to the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert V. Gunderson, Jr.
Secretary
Palo Alto, California
April 11, 1997
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
<PAGE>
LEGATO SYSTEMS, INC.
3210 Porter Drive
Palo Alto, California 94304
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
To be held May 15, 1997
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Legato Systems, Inc., a Delaware
corporation (the "Company"), for the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Garden Court Hotel, 520 Cowper Street, Palo Alto,
California, on Thursday, May 15, 1997, at 9:00 a.m., and at any adjournment or
postponement of the Annual Meeting. These proxy materials were first mailed to
stockholders on or about April 11, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Company's Common Stock is the only type of security entitled to
vote at the Annual Meeting. On April 4, 1997, the record date for determination
of stockholders entitled to vote at the Annual Meeting, there were 17,237,703
shares of Common Stock outstanding. All share numbers in this Proxy Statement
have been adjusted to reflect the two-for-one stock split effected by the
Company on July 5, 1996 - hereinafter referred to as the "Stock Split". Each
stockholder of record on April 4, 1997 is entitled to one vote for each share of
Common Stock held by such stockholder on April 4, 1997. Shares of Common Stock
may not be voted cumulatively. All votes will be tabulated by the inspector of
election appointed for the meeting, who will separately tabulate affirmative and
negative votes, abstentions and broker non-votes.
Quorum Required
The Company's bylaws provide that the holders of a majority of the
Company's Common Stock issued and outstanding and entitled to vote at the Annual
Meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the presence
of a quorum.
Votes Required
Proposal 1. Directors are elected by a plurality of the affirmative
votes cast by those shares present in person, or represented by proxy, and
entitled to vote at the Annual Meeting. The five nominees for director receiving
the highest number of affirmative votes will be elected. Abstentions and broker
non-votes will not be counted toward a nominee's total. Stockholders may not
cumulate votes in the election of directors.
Proposal 2. Ratification of the appointment of Coopers & Lybrand L.L.P.
as the Company's independent public accountants for the fiscal year ending
December 31, 1997 requires the affirmative vote of a majority of those shares
present in person, or represented by proxy, and cast either affirmatively or
negatively at the Annual Meeting. Abstentions and broker non-votes will not be
counted as having been voted on the proposal.
Proxies
Whether or not you are able to attend the Company's Annual Meeting, you
are urged to complete and return the enclosed proxy, which is solicited by the
Company's Board of Directors and which will be voted as you direct on your proxy
when properly completed. In the event no directions are specified, such proxies
will be voted FOR the Nominees of the Board of Directors (as set forth in
Proposal No. 1) and Proposal No. 2 and in the discretion of the proxy holders as
to other matters that may properly come before the Annual Meeting. You may also
revoke or change your proxy at any time before the Annual Meeting. To do this,
send a written notice of revocation or another signed proxy with a later date to
the Secretary of the Company at the Company's principal executive offices before
the beginning of the Annual Meeting. You may also automatically revoke your
proxy by attending the Annual Meeting and voting in person. All shares
represented by a valid proxy received prior to the Annual Meeting will be voted.
Solicitation of Proxies
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing, and mailing of this Proxy Statement, the proxy,
and any additional soliciting material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram, or other means by directors, officers, employees or agents
of the Company. No additional compensation will be paid to these individuals for
any such services. The Company has also retained Beacon Hill Partners, Inc.
("Beacon Hill") to assist in the solicitation of proxies. Beacon Hill will
receive a fee for such services of approximately $2,500 plus out-of-pocket
expenses, which will be paid by the Company. Except as described above, the
Company does not presently intend to solicit proxies other than by mail.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The directors who are being nominated for reelection to the Board of
Directors (the "Nominees"), their ages as of April 4, 1997, their positions and
offices held with the Company and certain biographical information are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form FOR the Nominees listed below unless otherwise instructed. In
the event any Nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. As of the date
of this Proxy Statement, the Board of Directors is not aware of any Nominee who
is unable or will decline to serve as a director. The five (5) Nominees
receiving the highest number of affirmative votes of the shares entitled to vote
at the Annual Meeting will be elected directors of the Company to serve until
the next Annual Meeting or until their successors have been duly elected and
qualified.
Nominees Age Positions and Offices Held with the Company
- ---------------------- ------ --------------------------------------------
Louis C. Cole 53 Chairman of the Board, President
and Chief Executive Officer
Eric A. Benhamou (1) 41 Director
Kevin A. Fong (1)(2) 43 Director
David N. Strohm (2) 48 Director
Phillip E. White 54 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mr. Cole joined the Company as President, Chief Executive Officer and a
Director in June 1989. Since April 1995, Mr. Cole has also served as Chairman of
the Board. Before joining the Company, from March 1987 until July 1988, Mr. Cole
served as Executive Vice President responsible for all operating divisions of
Novell, Inc., a publicly held manufacturer of computer networking and software
products. Mr. Cole holds a B.S. in mathematics and education from Pennsylvania
State University at Edinboro.
Mr. Benhamou has been a Director of the Company since March 1993. Mr.
Benhamou has been President and Chief Executive Officer of 3Com Corporation
("3Com"), a publicly held computer network products company, since September
1990, and has been Chairman of the Board of 3Com since July 1994. From April
1990 until September 1990, Mr. Benhamou served as Chief Operating Officer of
3Com. Mr. Benhamou currently serves as a director of Cypress Semiconductor, a
publicly held semiconductor company. Mr. Benhamou holds a Diplome d'Ingenieur
from Ecole Nationale Superieure d'Arts et Metiers in Paris, France, and an M.S.
in electrical engineering from Stanford University.
Mr. Fong has been a Director of the Company since December 1988. Mr. Fong
joined Mayfield Fund ("Mayfield"), a venture capital firm, in 1988 and has been
a general partner of several venture capital funds affiliated with Mayfield
since 1990. Mr. Fong currently serves as a director of Prism Solutions, Inc., a
publicly held data warehousing company, as well as several privately held
companies. Mr. Fong holds a B.S. in electrical engineering from the University
of California at Berkeley, and an M.S. in electrical engineering and an M.B.A.
from Stanford University.
Mr. Strohm has been a Director of the Company since December 1988. Mr.
Strohm joined Greylock Management Corporation ("Greylock"), a venture capital
management company, in 1980 and is a general partner of several venture capital
funds affiliated with Greylock. Mr. Strohm currently serves as a director of
Banyan Systems, Inc., a manufacturer of networking software products, Forte
Software, Inc., a multi-tier client/server application development company, and
MDL Information Systems, Inc., a commercial supplier of chemical information
management software, chemical information databases, and related services to the
pharmaceutical, agrochemical and chemical industries, all publicly held, as well
as several privately held technology companies. Mr. Strohm holds a B.A. from
Dartmouth College and an M.B.A. from Harvard University.
Mr. White has been a Director of the Company since May 1995. Mr. White has
been President, Chief Executive Officer and a director of Informix Corporation,
a publicly held database software company, since January 1989. From March 1986
to December 1988, Mr. White served as President and Chief Operating Officer of
Wyse Technology, Inc., a publicly held personal computer manufacturing company.
Mr. White currently serves as a director of Adaptec, Inc., a publicly held
manufacturer and retailer of peripheral adapters. In addition, Mr. White is a
member of the Board of Trustees of Illinois Wesleyan University. Mr. White holds
a B.A. from Illinois Wesleyan University and an M.B.A. from the University of
Illinois, Urbana.
Board of Directors Meetings and Committees
During the fiscal year ended December 31, 1996, the Board of Directors
held six meetings and acted by written consent on two occasions. For the fiscal
year, each of the directors during the term of their tenure attended or
participated in at least 75% of the aggregate of (i) the total number of
meetings or actions by written consent of the Board of Directors and (ii) the
total number of meetings held by all Committees of the Board of Directors on
which each such director served. The Board of Directors has two standing
committees: the Audit Committee and the Compensation Committee.
During the fiscal year ended December 31, 1996, the Audit Committee of
the Board of Directors held one meeting. The Audit Committee reviews, acts on
and reports to the Board of Directors with respect to various auditing and
accounting matters, including the selection of the Company's accountants, the
scope of the annual audits, fees to be paid to the Company's accountants, the
performance of the Company's accountants and the accounting practices of the
Company. The members of the Audit Committee are Messrs. Benhamou and Fong.
During the fiscal year ended December 31, 1996, the Compensation
Committee of the Board of Directors met six (6) times. The Compensation
Committee reviews the performance of the executive officers of the Company and
reviews the compensation programs for other key employees, including salary and
cash bonus levels and option grants under the 1995 Stock Option/Stock Issuance
Plan. The members of the Compensation Committee are Messrs.
Fong and Strohm.
Director Compensation
Except for grants of stock options, directors of the Company generally
do not receive compensation for services provided as a director. The Company
also does not pay compensation for committee participation or special
assignments of the Board of Directors.
Non-employee Board members are eligible for option grants pursuant to
the provisions of the Automatic Option Grant Program under the Company's 1995
Stock Option/Stock Issuance Plan. Under the Automatic Option Grant Program, each
individual who first becomes a non-employee Board member after the date of the
Company's initial public offering will be granted an option to purchase 24,000
shares on the date such individual joins the Board, provided such individual has
not been in the prior employ of the Company. In addition, at each Annual
Stockholders Meeting, beginning with the 1996 Annual Meeting, each individual
who has served as a non-employee Board member for at least six months prior to
such Annual Meeting will receive an additional option grant to purchase 6,000
shares of Common Stock, whether or not such individual has been in the prior
employ of the Company. The option price for each option grant under the
Automatic Option Grant Program will be equal to the fair market value per share
of Common Stock on the automatic grant date and each automatic option grant will
be immediately exercisable for all of the option shares. The shares purchasable
under the option will be subject to repurchase at the original exercise price in
the event the optionee's Board service should cease prior to full vesting. With
respect to each initial grant, the repurchase right shall lapse and the optionee
vest in four (4) equal annual installments from the grant date. Each annual
grant shall vest in two equal and successive annual installments. The option
will remain exercisable for a 12-month period following the optionee's
termination of service as a Board member for any reason. The option shares will
become fully vested in the event of a Corporate Transaction or a Change in
Control (as such terms are defined in the 1995 Stock Option/Stock Issuance
Plan). The option shares will become fully vested in the event of the optionee's
cessation of Board service by reason of death or permanent disability. Upon the
occurrence of a hostile tender offer, the optionee will have a thirty (30) day
period in which to surrender to the Company each automatic option that has been
in effect for at least six (6) months in return for a cash distribution from the
Company in an amount per canceled option share (whether or not the optionee is
otherwise vested in those shares) equal to the excess of (i) the highest
reported price per share of Common Stock paid in the tender offer over (ii) the
option exercise price payable per share.
Directors who are also employees of the Company are eligible to receive
options and be issued shares of Common Stock directly under the 1995 Stock
Option/Stock Issuance Plan and are also eligible to participate in the Company's
Employee Stock Purchase Plan and, if an executive officer of the Company, the
Executive Bonus Plan.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED HEREIN.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 1997, certain
information with respect to shares beneficially owned by (i) each person who is
known by the Company to be the beneficial owner of more than five percent of the
Company's outstanding shares of Common Stock, (ii) each of the Company's
directors and the executive officers named in the Summary Compensation Table and
(iii) all current directors and executive officers as a group. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within sixty (60) days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
such acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<TABLE>
<S> <C> <C>
Shares Beneficially Owned (1) (2)
----------------------------------
Number Percentage
Beneficial Owner of Shares of Class
- -------------------------------------------- ----------------------------------
Putnam Investment Management 2,556,891 14.90%
One Post Office Square, 12th Floor
Boston, MA 02109
Pilgrim Baxter & Associates.............. 1,885,880 10.99%
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Louis C. Cole (3) ....................... 1,031,908 5.94%
3210 Porter Drive
Palo Alto, CA 94304
Nora M. Denzel........................... 0 *
Stephen L. Ruvolo (4) ................... 54,000 *
John A. Siegel (5) ...................... 78,215 *
Kent D. Smith (6) ....................... 190,250 1.10%
Gilbert C. Wai (7) ...................... 131,000 *
Stephen C. Wise.......................... 2,000 *
Eric A. Benhamou (8) .................... 88,000 *
Kevin A. Fong (9) ....................... 89,788 *
David N. Strohm (9) ..................... 119,934 *
Phillip E. White (10) ................... 60,000 *
All current directors and executive officers
as a group (9 persons) (11) ........ 1,712,880 9.58%
<FN>
- -----------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. To the Company's knowledge, the entities named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options that may be exercised within sixty (60)
days after February 28, 1997.
(3) Includes options exercisable into 209,225 shares of Common Stock and
821,846 shares held by The Louis and Jolene Cole 1988 Revocable Trust,
dated November 7, 1988 (the "Cole Trust"), of which Mr. Cole is a trustee.
(4) Includes options exercisable into 54,000 shares of Common Stock.
(5) Includes options exercisable into 76,320 shares of Common Stock.
(6) Includes options exercisable into 182,250 shares of Common Stock.
(7) Includes options exercisable into 131,000 shares of Common Stock.
(8) Includes options exercisable into 80,000 shares of Common Stock.
(9) Includes options exercisable into 30,000 shares of Common Stock.
(10) Includes options exercisable into 60,000 shares of Common Stock.
(11) Includes options exercisable into 722,475 shares of Common Stock.
</FN>
</TABLE>
<PAGE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Company's Board of Directors
(the "Compensation Committee") has the exclusive authority to establish the
level of base salary payable to the Chief Executive Officer ("CEO") and certain
other executive officers of the Company and to administer the Company's 1995
Stock Option/Stock Issuance Plan and Employee Stock Purchase Plan. In addition,
the Committee has the responsibility for approving the individual bonus programs
to be in effect for the CEO and certain other executive officers and other key
employees each fiscal year.
For the 1996 fiscal year, the process utilized by the
Committee in determining executive officer compensation levels was based on the
subjective judgment of the Committee. Among the factors considered by the
Committee were the recommendations of the CEO with respect to the compensation
of the Company's key executive officers. However, the Committee made the final
compensation decisions concerning such officers.
General Compensation Policy. The Committee's fundamental policy is to
offer the Company's executive officers competitive compensation opportunities
based upon overall Company performance, their individual contribution to the
financial success of the Company and their personal performance. It is the
Committee's objective to have a substantial portion of each officer's
compensation contingent upon the Company's performance, as well as upon his or
her own level of performance. Accordingly, each executive officer's compensation
package consists of: (i) base salary, (ii) cash bonus awards and (iii) long-term
stock-based incentive awards.
Base Salary. The base salary for each executive officer is set on the basis
of personal performance.
In preparing the performance graph for this Proxy Statement, the
Company has selected the Hambrecht & Quist Software Sector Index. The companies
included in the Company's informal survey are not necessarily those included in
the H&Q Index, because they were determined not to be competitive with the
Company for executive talent or because compensation information was not
available.
Annual Cash Bonuses. Each executive officer has an established target.
The annual pool of bonuses for executive officers is determined on the basis of
the Company's achievement of the financial performance targets established at
the start of the fiscal year and personal objectives established for each
executive. Actual bonuses paid reflect an individual's accomplishment of both
corporate and functional objectives.
Long-Term Incentive Compensation. During fiscal 1996, the Committee, in
its discretion, made option grants to Messrs. Cole, Smith and Wai under the 1995
Stock Option/Stock Issuance Plan. Generally, a significant grant is made in the
year that an officer commences employment and no grant is made in the second
year. Thereafter, option grants may be made at varying times and in varying
amounts in the discretion of the Committee. Generally, the size of each grant is
set at a level that the Committee deems appropriate to create a meaningful
opportunity for stock ownership based upon the individual's position with the
Company, the individual's potential for future responsibility and promotion, the
individual's performance in the recent period and the number of unvested options
held by the individual at the time of the new grant. The relative weight given
to each of these factors will vary from individual to individual at the
Committee's discretion.
Each grant allows the officer to acquire shares of the Company's common
stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a two
to five year period, contingent upon the executive officer's continued
employment with the Company, and the vesting schedule is adjusted to reflect
existing grants to ensure a meaningful incentive in each year following the year
of grant. Accordingly, the option will provide a return to the executive officer
only if he or she remains in the Company's employ, and then only if the market
price of the Company's Common Stock appreciates over the option term.
CEO Compensation. The annual base salary for Mr. Cole, the Company's
President and Chief Executive Officer, was established by the Committee on
January 22, 1996. The Committee's decision was made primarily on the basis of
Mr. Cole's personal performance of his duties.
The remaining components of the Chief Executive Officer's 1996 fiscal
year incentive compensation were entirely dependent upon the Company's financial
performance and provided no dollar guarantees. The bonus paid to the Chief
Executive Officer for the fiscal year was based on the same incentive plan for
all other officers. Specifically, a target incentive was established at the
beginning of the year using an agreed-upon formula based on Company revenue and
profit. Each year, the annual incentive plan is reevaluated with a new
achievement threshold and new targets for revenue and profit. The option grant
made to the Chief Executive Officer during the 1996 fiscal year was intended to
reflect his years of service with the Company and to place a significant portion
of his total compensation at risk, because the options will have no value unless
there is appreciation in the value of the Company's common stock over the option
term.
Tax Limitation. As a result of federal tax legislation enacted in 1993,
a publicly-held company such as the Company will not be allowed a federal income
tax deduction for compensation paid to certain executive officers to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will be in effect for all fiscal years of the Company beginning after the
Company's initial public offering. The stockholders approved the Company's 1995
Stock Option/Stock Issuance Plan, which includes a provision that limits the
maximum number of shares of Common Stock for which any one participant may be
granted stock options per calendar year. Accordingly, any compensation deemed
paid to an executive officer when he exercises an outstanding option under the
1995 Stock Option/Stock Issuance Plan with an exercise price equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation that will not be subject to the $1 million
limitation. Since it is not expected that the cash compensation to be paid to
the Company's executive officers for the 1996 fiscal year will exceed the $1
million limit per officer, the Committee will defer any decision on whether to
limit the dollar amount of all other compensation payable to the Company's
executive officers to the $1 million cap.
Compensation Committee
Kevin A. Fong
David N. Strohm
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was
formed in September 1992, and the members of the Compensation Committee are
Messrs. Fong and Strohm. Neither of these individuals was at any time during
1996, or at any other time, an officer or employee of the Company. No executive
officer of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
<PAGE>
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder
return on the Company's Common Stock between July 6, 1995 (the date the
Company's Common Stock commenced public trading) and December 31, 1996 with the
cumulative total return of (i) the CRSP Total Return Index for the Nasdaq Stock
Market (U.S. Companies) (the "Nasdaq Stock Market-U.S. Index") and (ii) the
Hambrecht & Quist Software Sector Index (the "H&Q Software Sector Index"), over
the same period. This graph assumes the investment of $100.00 on July 6, 1995 in
the Company's Common Stock, the Nasdaq Stock Market-U.S. Index and the H&Q
Software Sector Index, and assumes the reinvestment of dividends, if any.
The comparisons shown in the graph below are based upon historical
data. The Company cautions that the stock price performance shown in the graph
below is not indicative of, nor intended to forecast, the potential future
performance of the Company's Common Stock. Information used in the graph was
obtained from Hambrecht & Quist LLC, a source believed to be reliable, but the
Company is not responsible for any errors or omissions in such information.
Comparison of Cumulative Total Return Among Legato Systems, Inc.,
the Nasdaq Stock Market-U.S. Index and the H&Q Software Sector Index
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
7/6/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Legato Systems, Inc. $100.00 $98.15 $114.81 $139.81 $203.70 $351.85 $241.67
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market-U.S. Index $100.00 $111.13 $112.48 $117.74 $127.35 $131.88 $138.36
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
H&Q Software Sector Index $100.00 $108.06 $107.75 $117.59 $128.21 $131.88 $130.97
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company effected its initial public offering of Common Stock on
July 5, 1995 at a price of $9.50 per share (as adjusted to reflect the Stock
Split). The graph above, however, commences with the closing price of $13.50 per
share (as adjusted to reflect the Stock Split) on July 6, 1995 - the date the
Company's Common Stock commenced public trading.
Notwithstanding anything to the contrary set forth in any of the
Company's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate this Proxy Statement or future filings made by the Company under
those statutes, the Compensation Committee Report and Stock Performance Graph
shall not be deemed filed with the Securities and Exchange Commission and shall
not be deemed incorporated by reference into any of those prior filings or into
any future filings made by the Company under those statutes.
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following Summary Compensation Table sets forth the compensation
earned by the Company's Chief Executive Officer and the two other most highly
compensated executive officers who were serving as such at the end of 1996 and
two individuals who ceased to be executive officers during the fiscal year
(collectively, the "Named Officers"), each of whose aggregate compensation for
1996 exceeded $100,000 for services rendered in all capacities to the Company
and its subsidiaries for that fiscal year.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Long-Term
Compensation
Number of
Securities
Annual Compensation Underlying All Other
----------------------------------
Name and Principal Position Year Salary(1) Bonus Options Compensation(2)
--------------------------- ---- --------- ----- ------- ---------------
Louis C. Cole 1996 $ 200,004 $ 100,520 50,000 $ 2,864
Chairman of the Board, President 1995 $ 197,504 $ 137,264 200,000 $ 2,022
and Chief Executive Officer 1994 $ 175,000 $ 6,547 0 $ 149
Stephen L. Ruvolo 1996 $ 102,000 $ 162,553(3) 0 $ 1,785
General Manager, International Operations $ 102,000 $ 115,168(3) 0 $ 893
1995
1994 $ 13,535(4) $ 7,481(3) 100,000 $ 74
John A. Siegel 1996 $ 120,000 $ 13,509 0 $ 2,188
Vice President, Corporate Services 1995 $ 118,524 $ 28,901 40,000 $ 1,094
1994 $ 107,842 $ 4,035 20,000 $ 48
Kent D. Smith 1996 $ 162,000 $ 73,301 20,000 $ 1,907
Executive Vice President, 1995 $ 122,123(5) $ 79,990 200,000 $ 954
Customer Operations 1994 $ 0 $ 0 0 $ 0
Gilbert C. Wai 1996 $ 156,000 $ 55,314 16,000 $ 1,069
Sr. Vice President, Product Development1995$ 155,250 $ 84,570 0 $ 535
1994 $ 28,504(6) $ 0 140,000 $ 43
- ----------
<FN>
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) Represents life insurance premiums paid by the Company.
(3) Represents commissions.
(4) Mr. Ruvolo commenced employment on November 14, 1994.
(5) Mr. Smith commenced employment on March 31, 1995.
(6) Mr. Wai commenced employment on October 24, 1994.
</FN>
</TABLE>
<PAGE>
The following table contains information concerning the stock option
grants made to each of the Named Officers for 1996. No stock appreciation rights
were granted to these individuals during such year.
<TABLE>
Option Grants in Last Fiscal Year
<S> <C> <C> <C> <C> <C> <C>
Individual Grants(1) Potential Realizable
------------------------------------------------------
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees Price Expiration for Option Term(2)
Name Granted in 1996 Per Share Date 5% 10%
---- ------- ------- --------- ---- -- ---
Louis C. Cole......... 50,000(3) 7.44% $11.84 1/21/06 $372,431 $943,814
Stephen L. Ruvolo..... 0 0% $0 -- $0 $0
John A. Siegel........ 0 0% $0 -- $0 $0
Kent D. Smith......... 20,000(3) 2.98% $11.84 1/21/06 $148,973 $377,526
Gilbert C. Wai........ 16,000(3) 2.38% $11.84 1/21/06 $119,178 $302,021
- ----------
<FN>
(1) Each of the options listed in the table was granted on January 22, 1996. The
exercise price for each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise. The plan administrator has the
discretionary authority to reprice the options through the cancellation of
those options and the grant of replacement options with an exercise price
based on the fair market value of the option shares on the regrant date. The
options have a maximum term of 10 years measured from the option grant date,
subject to earlier termination in the event of the optionee's cessation of
service with the Company. Under each of the options, the option shares will
vest upon an acquisition of the Company by merger or asset sale, unless the
acquiring company assumes the options.
(2) There can be no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the option
grants made to the executive officers.
(3) The options listed in the table become exercisable for 25% of the shares
after one year of service from the designated vesting date and in equal
monthly installments over the next 3 years.
</FN>
</TABLE>
<PAGE>
The following table sets forth information concerning option exercises
in 1996 and option holdings as of the end of the 1996 fiscal year with respect
to each of the Named Officers. No stock appreciation rights were outstanding at
the end of that year.
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of
Value Realized Securities Underlying Value of Unexercised
Shares (Market Price at Unexercised Options in-the-Money Options
Acquired on Exercise Less at FY-End (1) at FY-End (2)
------------- -------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- --------------- ----------- ------------- ----------- -------------
Louis C. Cole...... 94,000 $2,843,070 213,600 50,000 $6,333,500 $1,039,050
Stephen L. Ruvolo.. 46,000 $1,408,000 54,000 0 $1,667,250 $0
John A. Siegel..... 60,000 $1,732,188 76,320 0 $2,323,455 $0
Kent D. Smith...... 24,000 $604,500 176,000 20,000 $5,192,000 $415,620
Gilbert C. Wai..... 8,000 $264,125 131,000 16,000 $4,044,625 $332,496
<FN>
(1) The options granted before July 5, 1995 are immediately exercisable for all
the option shares, but any shares purchased thereunder will be subject to
repurchase by the Company at the original exercise price paid per share
upon the optionee's cessation of service to the Company prior to vesting in
such shares. As of December 31, 1996, the repurchase right had lapsed as to
49,225 option shares for Mr. Cole, 6,083 option shares for Mr. Ruvolo,
41,028 option shares for Mr. Siegel, 63,500 option shares for Mr. Smith and
66,833 option shares for Mr. Wai.
(2) Based on the fair market value of the Company's Common Stock at year end
($32.625) per share less the exercise price payable for such shares.
</FN>
</TABLE>
Bonus Plan. In 1996, the Company instituted a bonus program pursuant to
which bonuses will be paid to executive officers based on individual and Company
performance targets. In addition, all non-executive employees will receive
year-end bonuses if the Company meets its performance targets.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
None of the Company's executive officers have employment or severance
agreements with the Company, and their employment may be terminated at any time
at the discretion of the Board of Directors.
The Compensation Committee has the authority under the 1995 Stock
Option/Stock Issuance Plan to accelerate the exercisability of outstanding
options, or to accelerate the vesting of the shares of Common Stock subject to
outstanding options, held by the Chief Executive Officer and the Company's other
executive officers. Such acceleration may be conditioned on the optionee's
termination of employment (whether involuntarily or through a forced
resignation) and may be conditioned upon the occurrence of a merger,
reorganization or consolidation or upon a hostile take-over of the Company
effected through a tender offer or through a change in the majority of the Board
as a result of one or more contested elections for Board membership.
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the appointment of
Coopers & Lybrand L.L.P. as the Company's independent public accountants for the
fiscal year ending December 31, 1997. The affirmative vote of the holders of a
majority of shares present or represented by proxy and voting at the Annual
Meeting will be required to ratify the appointment of Coopers & Lybrand L.L.P.
In the event the stockholders fail to ratify the appointment, the Board
of Directors will reconsider its selection. Even if the appointment is ratified,
the Board of Directors, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors feels that such a change would be in the Company's and its
stockholders' best interests.
Coopers & Lybrand L.L.P. has audited the Company's financial statements
for its last eight fiscal years. Its representatives are expected to be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF COOPERS & LYBRAND L.L.P. TO SERVE AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The members of the Board of Directors, the executive officers of the
Company and persons who hold more than 10% of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, which require them to file reports
with respect to their ownership of the Company's Common Stock and their
transactions in such Common Stock. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their 1996 fiscal year
transactions in the Common Stock and their Common Stock holdings and (ii) the
written representations received from one or more of such persons that no annual
Form 5 reports were required to be filed by them for the 1996 fiscal year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its executive officers, Board members
and greater than ten-percent stockholders.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF
THE COMPANY'S FORM 10-K REPORT FOR FISCAL YEAR 1996, INCLUDING THE FINANCIAL
STATEMENTS, SCHEDULE AND LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO LEGATO
SYSTEMS, INC., 3210 PORTER DRIVE, PALO ALTO, CALIFORNIA 94304, ATTN: RICK RUIZ,
CORPORATE FINANCE.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals that are intended to be presented at the 1998
Annual Meeting that are eligible for inclusion in the Company's proxy statement
and related proxy materials for that meeting under the applicable rules of the
Securities and Exchange Commission must be received by the Company not later
than January 15, 1998 in order to be included. Such stockholder proposals should
be addressed to Legato Systems, Inc., 3210 Porter Drive, Palo Alto, California
94304, Attn: Rick Ruiz, Corporate Finance.
OTHER MATTERS
The Board knows of no other matters to be presented for stockholder
action at the Annual Meeting. However, if other matters do properly come before
the Annual Meeting or any adjournments or postponements thereof, the Board
intends that the persons named in the proxies will vote upon such matters in
accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Robert V. Gunderson, Jr.
Secretary
Palo Alto, California
April 11, 1997
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE ANNUAL MEETING. IF
YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU
MAY DO SO AUTOMATICALLY BY VOTING IN PERSON AT THE MEETING.
- --------------------------------------------------------------------------------
THANK YOU FOR YOUR ATTENTION TO THIS MATTER. YOUR PROMPT RESPONSE WILL GREATLY
FACILITATE ARRANGEMENTS FOR THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
<PAGE>
LEGATO SYSTEMS, INC.
PROXY PROXY
This Proxy is solicited on behalf of the Board of Directors
for the Annual Meeting of Stockholders to be held on May 15, 1997
The undersigned appoints Louis C. Cole and Stephen C. Wise, or either of
them, proxies for the undersigned, each with full power of substitution, to
attend the Annual Meeting of Stockholders of Legato Systems, Inc. to be held on
May 15, 1997 at 9:00 a.m., Pacific Daylight Time, and at any adjournments or
postponements of the Annual Meeting, and hereby authorizes them to represent and
to vote as specified in this Proxy all the Common Stock of the Company that the
undersigned would be entitled to vote if personally present. This Proxy when
properly executed will be voted in accordance with your indicated directions. If
no direction is made, this Proxy will be voted FOR the election of Directors and
FOR proposal 1.
The Board of Directors recommends a vote FOR the election of Directors and
FOR proposal 2.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(Continued and to be signed on reverse side.)
LEGATO SYSTEMS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Election of Directors--
Nominees: L. Cole, F. Benhamou, K. Fong, D. Strohm, P. White
For____ Withheld_____ For All (Except Nominees written below_____
2. Ratification of Coopers & Lybrand. L.L.P. as Independent Accountants for
fiscal year 1997. For____ Withheld_____ Abstain_____
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Annual Meting.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and of the Proxy Statement
Dated:____________________________, 1997
Signature(s)
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title of such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
