def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement. |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)). |
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Definitive Proxy Statement. |
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Soliciting Material Pursuant to §240.14a-12. |
ARCSIGHT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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ARCSIGHT,
INC.
5 Results Way
Cupertino, California 95014
August 13,
2010
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of ArcSight, Inc. to be held at the Gaylord
National Hotel and Convention Center, 201 Waterfront Street,
National Harbor, Maryland, on September 20, 2010 at
1:30 p.m. Eastern Time. At the annual meeting, you will be
asked to vote upon two proposals: the election of three
Class III directors to serve until the third succeeding
annual meeting and the ratification of our independent
registered public accounting firm for our fiscal year ending
April 30, 2011.
Accompanying this letter is the formal notice of annual meeting,
proxy statement and proxy card relating to the annual meeting,
as well as our annual report for the fiscal year ended
April 30, 2010. The proxy statement contains important
information concerning the matters to be voted upon at the
annual meeting. We hope you will take the time to study it
carefully.
All stockholders of record at the close of business on the
record date, which is August 1, 2010, are entitled to vote
at the annual meeting, and your vote is very important
regardless of how many shares you own. Regardless of whether you
plan to attend the annual meeting, we urge you to submit your
proxy as soon as possible. Instructions on the proxy card will
tell you how to submit your proxy over the Internet, by
telephone or by returning your proxy card in the enclosed
postage-paid envelope. If you plan to attend the annual meeting
and vote in person, and your shares are held in the name of a
broker or other nominee as of the record date, you must bring
with you a proxy or letter from the broker or nominee to confirm
your ownership of such shares.
Sincerely,
Thomas J. Reilly
President and Chief Executive Officer
ARCSIGHT,
INC.
5 Results Way
Cupertino, California 95014
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on September 20, 2010
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders of
ArcSight, Inc., a Delaware corporation, will be held at the
Gaylord National Hotel and Convention Center, 201 Waterfront
Street, National Harbor, Maryland, on September 20, 2010 at
1:30 p.m. Eastern Time. At the annual meeting, our
stockholders will be asked to consider and vote upon:
1. The election of three Class III directors to serve
on our board of directors, each to serve until our annual
meeting of stockholders to be held in 2013 and until his
successor is elected and qualified, or until his death,
resignation or removal.
2. Ratification of the appointment of Ernst &
Young LLP as our independent registered public accounting firm
for the fiscal year ending April 30, 2011.
3. Transaction of such other business as may properly come
before the annual meeting or before any adjournments or
postponements thereof.
Only stockholders of record of our common stock at the close of
business on August 1, 2010 are entitled to notice of, and
to vote at, the annual meeting or any adjournments or
postponements thereof.
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL
MEETING, YOU ARE URGED TO SUBMIT YOUR PROXY OVER THE INTERNET,
BY TELEPHONE OR BY COMPLETING, DATING AND SIGNING THE ENCLOSED
PROXY CARD AND MAILING IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE ANNUAL
MEETING IN PERSON. YOU CAN WITHDRAW YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED.
By Order of the Board of Directors,
Trâm T. Phi
Vice President, General Counsel and Secretary
Cupertino, California
August 13, 2010
IMPORTANT
NOTICE
PLEASE
VOTE YOUR SHARES PROMPTLY
TABLE OF
CONTENTS
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ARCSIGHT,
INC.
5 Results Way
Cupertino, California 95014
PROXY
STATEMENT
This proxy statement is being furnished to the stockholders of
ArcSight, Inc., a Delaware corporation, in connection with the
solicitation of proxies by our board of directors for use at the
annual meeting of stockholders to be held at the Gaylord
National Hotel and Convention Center, 201 Waterfront Street,
National Harbor, Maryland, on September 20, 2010 at
1:30 p.m. Eastern Time, and at any adjournments or
postponements thereof. At the annual meeting, holders of our
common stock will be asked to vote upon: (i) the election
of three Class III directors to serve until the annual
meeting of stockholders to be held in 2013; (ii) the
ratification of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending
April 30, 2011; and (iii) any other business that
properly comes before the annual meeting, or any adjournments or
postponements thereof.
This proxy statement and the accompanying proxy card are
first being mailed to stockholders on or about August 13,
2010. The address of our principal executive offices is 5
Results Way, Cupertino, California 95014.
VOTING
RIGHTS AND PROXIES
Record
Date; Outstanding Shares; Quorum
Only holders of record of our common stock at the close of
business on the record date, which is August 1, 2010, will
be entitled to notice of and to vote at the annual meeting. As
of the close of business on the record date, there were
34,452,675 shares of our common stock outstanding and
entitled to vote, held of record by 42 stockholders.
Pursuant to our bylaws, a majority of the outstanding shares of
common stock, present in person or by proxy, will constitute a
quorum for the transaction of business. Each of our stockholders
is entitled to one vote for each share of common stock held as
of the record date. For ten days prior to the annual meeting, a
complete list of stockholders entitled to vote at the annual
meeting will be available for examination by any stockholder,
for any purpose germane to the meeting, during ordinary business
hours at our principal executive offices at 5 Results Way,
Cupertino, California 95014.
Voting of
Proxies; Revocation of Proxies; Votes Required
Stockholders are requested to complete, date, sign and return
the accompanying proxy card in the enclosed postage-paid
envelope. All properly executed, returned and unrevoked proxies
will be voted in accordance with the instructions indicated
thereon. Executed but unmarked proxies will be voted FOR each
director nominee listed on the proxy card and FOR the
ratification of our independent registered public accounting
firm for the fiscal year ending April 30, 2011. The
board of directors does not know of, and does not intend to
bring, any business before the annual meeting other than that
referred to in this proxy statement and specified in the notice
of annual meeting. As to any other business that may properly
come before the annual meeting, including any motion made for
adjournment or postponement of the annual meeting (including for
purposes of soliciting additional votes), the proxy card will
confer discretionary authority on the proxies (who are persons
designated by the board of directors) to vote all shares covered
by the proxy card in their discretion.
Any stockholder who has given a proxy may revoke it at any time
before it is exercised at the annual meeting by (i) filing
a written notice of revocation with, or delivering a duly
executed proxy bearing a later date to, the Corporate Secretary
of ArcSight, 5 Results Way, Cupertino, California 95014, or
(ii) attending the annual meeting and voting in person
(although attendance at the annual meeting will not, by itself,
revoke a proxy). If you hold shares through a brokerage firm,
bank or other agent, you must contact that brokerage firm, bank
or other agent to revoke any prior voting instructions.
1
Director elections are determined by a plurality of shares of
common stock represented in person or by proxy and voting at the
annual meeting. Approval of our independent registered public
accounting firm for the fiscal year ending April 30, 2011
requires the affirmative vote of a majority of the shares of
common stock represented in person or by proxy, and entitled to
vote on the matter.
Effect of
Abstentions
If an executed proxy is returned and the stockholder has
specifically abstained from voting on any matter, the shares
represented by such proxy will be considered present at the
annual meeting for purposes of determining a quorum and for
purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. As such, an abstention
will have the effect of a vote against ratification of our
independent registered public accounting firm, Ernst &
Young LLP, for the fiscal year ending April 30, 2011.
Effect of
Broker Non-Votes
If an executed proxy is returned by a broker, bank or other
agent holding shares in street name that indicates that the
broker does not have discretionary authority as to certain
shares to vote on a proposal (broker non-votes),
such shares will be considered present at the annual meeting for
purposes of determining a quorum on all proposals, but will not
be considered to be entitled to vote on and thus will have no
effect on the outcome of such proposal.
Voting
Electronically via the Internet or by Telephone
General
Information for All Shares Voted via the Internet or by
Telephone
Stockholders whose shares are registered in their own name may
choose to grant a proxy to vote their shares either via the
Internet or by telephone. The laws of Delaware, under which we
are incorporated, specifically permits electronically
transmitted proxies, provided that each such proxy contains or
is submitted with information from which the inspector of
elections can determine that such proxy was authorized by the
stockholder.
The Internet and telephone voting procedures set forth below, as
well as on the enclosed proxy card, are designed to authenticate
stockholders identities, to allow stockholders to grant a
proxy to vote their shares and to confirm that
stockholders voting instructions have been properly
recorded. Stockholders granting a proxy to vote via the Internet
should understand that there may be costs associated with
electronic access, such as usage charges from Internet access
providers and telephone companies, which must be borne by the
stockholder.
For
Shares Registered in Your Name
Stockholders of record may go to
http://www.proxyvoting.com/ARST
to grant a proxy to vote their shares by means of the Internet.
They will be required to provide the control number contained on
their proxy cards. The voter will then be asked to complete an
electronic proxy card. Any stockholder using a touch-tone
telephone may also grant a proxy to vote shares by calling
1-866-540-5760 and following the recorded instructions.
You may use the Internet to vote your proxy 24 hours a day,
seven days a week, until 11:59 p.m. Eastern Time
(8:59 p.m. Pacific Time) on September 19, 2010. You
may use a touch-tone telephone to vote your proxy 24 hours
a day, seven days a week, until 11:59 p.m. Eastern Time
(8:59 p.m. Pacific Time) on September 19, 2010.
Submitting your proxy via the Internet or by telephone will not
affect your right to vote in person should you decide to attend
the annual meeting.
For
Shares Registered in the Name of a Broker or
Bank
Most beneficial owners whose shares are held in street name
receive voting instruction forms from their banks, brokers or
other agents, rather than our proxy card.
If on the record date your shares were held, not in your name,
but rather in an account at a brokerage firm, bank or other
agent, then you are the beneficial owner of shares held in
street name and these proxy materials have been
forwarded to you by your broker, bank or other agent. The
broker, bank or other agent holding your account is considered
to be the stockholder of record for purposes of voting at the
annual meeting.
2
As a beneficial owner, you have the right to direct your broker,
bank or other agent on how to vote the shares in your account.
You are also invited to attend the annual meeting. However,
since you are not the stockholder of record, you may not vote
your shares in person at the meeting unless you request and
obtain a valid proxy issued in your name from your broker, bank
or other agent.
Solicitation
of Proxies and Expenses
We will bear the cost of the solicitation of proxies from our
stockholders in the enclosed form. Our directors, officers and
employees, without additional compensation, may solicit proxies
by mail, telephone, letter, facsimile, electronically or in
person. Following the original mailing of the proxies and other
soliciting materials, we will request that brokers, custodians,
nominees and other record holders forward copies of the proxy
and other soliciting materials to persons for whom they hold
shares of common stock and request authority for the exercise of
proxies. In such cases, we will reimburse such record holders
for their reasonable expenses incurred for forwarding such
materials.
Voting
Results
The preliminary voting results will be announced at the annual
meeting. The final voting results will be tallied by our
Inspector of Elections and published in a Current Report on
Form 8-K
to be filed with the Securities and Exchange Commission, or the
SEC, within four business days of the annual meeting.
Delivery
of this Proxy Statement
The SEC has adopted rules that permit companies and
intermediaries (for example, brokers) to satisfy the delivery
requirements for annual reports and proxy statements with
respect to two or more security holders sharing the same address
by delivering a single annual report and proxy statement
addressed to those security holders. This process, which is
commonly referred to as householding, potentially
means extra convenience for security holders and cost savings
for companies.
A number of brokers with account holders who are our
stockholders will be householding our proxy
materials. A single annual report and proxy statement will be
delivered to multiple stockholders sharing an address unless
contrary instructions have been received from the affected
stockholders. Once you have received notice from your broker or
us that they will be householding communications to
your address, householding will continue until you
are notified otherwise or until you revoke your consent. We will
deliver promptly upon oral or written request a separate copy of
the annual report or proxy statement to a security holder at a
shared address to which a single copy of the documents was
delivered. If, at any time, you no longer wish to participate in
householding and would prefer to receive a separate
annual report and proxy statement, please notify your broker and
either mail your request to ArcSight, Inc., Attention: Corporate
Secretary, 5 Results Way, Cupertino, California 95014 or call
(408) 865-7000.
Stockholders who currently receive multiple copies of the proxy
statement at their address and would like to request
householding of their communications should contact
their broker and either mail your request to ArcSight, Inc.,
Attention: Corporate Secretary, 5 Results Way, Cupertino,
California 95014 or call
(408) 865-7000.
A copy of our Annual Report on
Form 10-K
for the fiscal year ended April 30, 2010, including the
financial statements, list of exhibits and any exhibit
specifically requested, filed with the SEC is available without
charge upon written request to: ArcSight, Inc., Attention:
Corporate Secretary, 5 Results Way, Cupertino, California
95014.
ELECTION
OF CLASS III DIRECTORS
(Item No. 1
on the Proxy Card)
Our board of directors currently consists of nine directors. Our
certificate of incorporation and bylaws provide for a classified
board of directors, divided into three classes. At each annual
meeting of stockholders, successors to the class of directors
whose term expires at that annual meeting will be elected for a
term to expire at the third
3
succeeding annual meeting. The individuals so elected will serve
until their successors are elected and qualified. This year the
terms of our Class III directors, currently consisting of
E. Stanton McKee, Jr., Thomas Reilly and Roger S. Siboni,
will expire at the annual meeting. At the annual meeting,
holders of common stock will be asked to vote on the election of
three directors as Class III directors, whose current term
will expire at our 2010 annual meeting.
The board of directors has nominated each of E. Stanton
McKee, Jr., Thomas Reilly and Roger S. Siboni to serve as a
Class III director for a three-year term that is expected
to expire at our annual meeting in 2013 and until his successor
is elected and qualified, or until his earlier death,
resignation or removal. You can find the principal occupation
and other information about the boards nominees, as well
as other board members, below.
Three of the continuing directors are Class I directors,
whose terms will expire at our 2011 annual meeting, and three of
the continuing directors are Class II directors, whose
terms will expire at our 2012 annual meeting.
The election of Class III directors will be determined by
the three nominees receiving the greatest number of votes from
shares eligible to vote. Unless a stockholder signing a proxy
withholds authority to vote for one or more of the boards
nominees in the manner described on the proxy, each proxy
received will be voted for the election of each of the
boards nominees. In the event that any nominee is unable
or declines to serve as a director at the time of the annual
meeting, the proxies will be voted for the nominee or nominees
who shall be designated by the present board of directors to
fill the vacancy. We are not aware that any of the nominees will
be unable or will decline to serve as a director.
There are no family relationships between any of our directors,
nominees or executive officers. There are also no arrangements
or understandings between any director, nominee or executive
officer and any other person pursuant to which he or she has
been or will be selected as a director
and/or
executive officer.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
THE ELECTION OF E. STANTON MCKEE, JR., THOMAS REILLY AND ROGER
S. SIBONI AS CLASS III DIRECTORS.
Information
Regarding Our Nominees and Directors
The following table lists the nominees and current members of
the board of directors by class, their ages as of August 1,
2010 and current positions with ArcSight. Biographical
information for each nominee
and/or
director is provided below.
Nominees
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Age
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Class(1)
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Position
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E. Stanton McKee,
Jr.(2)(3)
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66
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III
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Director
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Thomas
Reilly(4)
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48
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III
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President, Chief Executive Officer and Director
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Roger S.
Siboni(5)
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III
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Director
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Continuing Directors
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Class(1)
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Position
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Sandra
Bergeron(4)(5)
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51
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II
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Director
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William P.
Crowell(2)(4)
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69
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I
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Director
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Scott A.
Ryles(2)(3)
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I
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Director
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Craig
Ramsey(5)
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64
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II
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Director
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Ted
Schlein(4)(5)
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I
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Director
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Ernest von
Simson(2)(3)
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II
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Director
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The terms of Class III directors will expire (if elected)
at the 2013 annual meeting. The terms of Class I directors
will expire at the 2011 annual meeting. The terms of
Class II directors will expire at the 2012 annual meeting. |
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Member of the Nominating and Corporate Governance Committee. |
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Member of the Audit Committee. |
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Member of the Technology Strategy Committee. |
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Member of the Compensation Committee. |
Biographies
Nominees
for Class III Directors
E. Stanton McKee, Jr. has served as a director since
February 2005. From 1989 until his retirement in November 2002,
Mr. McKee served in various positions at Electronic Arts
Inc., a developer and publisher of interactive entertainment,
most recently as Executive Vice President and Chief Financial
and Administrative Officer. He also serves as a director of
LeapFrog Enterprises, Inc., a provider of technology-based
educational products, and of a private company. Mr. McKee
holds a B.A. in political science from Stanford University and
an M.B.A. from Stanford University Graduate School of Business.
Mr. McKees extensive financial and management experience,
including serving more than 13 years as the chief financial
officer of publicly traded software company and his service on
the boards of directors of several companies, including another
public company, as well as his understanding of our company and
business due to his long tenure with us a member of the board
led the board of directors to conclude that he should serve as a
director. In addition, our boards determination, in light
of his experience as a principal financial officer and director
overseeing or assessing the performance of public companies and
auditors as described above, that Mr. McKee is an
audit committee financial expert lends further
support to his financial acumen and qualifications for serving
on our board.
Thomas Reilly has served as our Chief Executive Officer
since October 2008, as our President since August 2007 and as a
director since June 2008. Mr. Reilly served as our Chief
Operating Officer from November 2006 to September 2008. From
April 2004 to November 2006, Mr. Reilly served as Vice
President of Business Information Services of IBM, a
multinational computer, technology, and IT consulting
corporation. From November 2000 until its acquisition in April
2004 by IBM, Mr. Reilly served as Chief Executive Officer
of Trigo Technologies, Inc., a product information management
software company. He holds a B.S. in mechanical engineering from
the University of California, Berkeley.
Mr. Reillys experiences as a senior executive of our
company, first as our Chief Operating Officer and now as our
Chief Executive Officer, give him unique insights into the
day-to-day
operations of the company and his membership on the board allows
him to best share these insights with the board. He also brings
to the board his strong background in senior management at
companies in the software industry.
Roger S. Siboni has served as a director since June 2009.
Mr. Siboni has been an independent investor since August
2003. Mr. Siboni previously served as President and Chief
Executive Officer of E.piphany, Inc., a provider of customer
interaction software, from August 1998 to July 2003. He also
served as chairman of the board of directors of E.piphany from
December 1999 until it was acquired by SSA Global Technologies,
Inc. in September 2005. Before joining E.piphany,
Mr. Siboni served in various positions at KPMG Peat Marwick
from July 1993 to August 1998, a worldwide accounting and
consulting organization, most recently as Deputy Chairman and
Chief Operating Officer. He currently serves on the boards of
Cadence Design Systems, Dolby Laboratories, Inc. and three
private companies, including IronPlanet, Inc. which filed a
Registration Statement on
Form S-1
with the SEC on March 18, 2010. He also served on the board
of FileNet Corporation from December 1998 until it was acquired
by IBM in October 2006 and on the board of infoGROUP Inc.
from January 2009 until it was acquired CCMP Capital Advisors in
July 2010. Mr. Siboni holds a B.S. degree in business
administration from the University of California, Berkeley, and
previously served as Chairman of the Advisory Board for the
Walter A. Hass School of Business at the University of
California, Berkeley.
Due to the fact that Mr. Siboni has served as a chairman of
the board of directors and Chief Executive Officer of a publicly
traded software company and as a deputy chairman and chief
operating officer of, and accountant at, a major accounting
firm, and currently serves as a director of a number of software
companies, including three other public companies, the board of
directors concluded that Mr. Siboni should serve as a
director.
5
Continuing
Directors
Sandra Bergeron has served as a director since May 2006.
Since June 2005, Ms. Bergeron has served as a Venture
Advisor to Trident Capital, a venture capital firm. From 1995 to
December 2005, Ms. Bergeron served in various executive
positions at McAfee, Inc., a software security company, most
recently as Executive Vice President of Mergers/Acquisitions and
Corporate Strategy. Ms. Bergeron currently serves as a
director of several private companies. She holds a B.B.A. in
information systems from Georgia State University and an M.B.A.
from Xavier University, Cincinnati.
Ms Bergerons experience in the venture capital industry
and as well as in the software security industry as an executive
and her understanding of our company through her more than four
years of service as a member of our board led the board to
conclude that she should serve as a director.
William P. Crowell has served as a director since March
2003. Since February 2003, Mr. Crowell has worked as an
independent consultant in the areas of information technology,
security and intelligence systems and serves as Chairman of the
Senior Advisory Group to the Director of National Intelligence.
He served as President and Chief Executive Officer of Cylink
Corporation, a provider of network security solutions, from 1998
until its acquisition by SafeNet, Inc. in February 2003. Prior
to Cylink, Mr. Crowell worked at the National Security
Agency, where he held a series of senior executive positions,
including Deputy Director of Operations and Deputy Director of
the NSA. He also serves as a director of five private companies,
including SafeNet Holding Corporation which filed a Registration
Statement on
Form S-1
with the SEC on July 12, 2010. Mr. Crowell holds a
B.A. in political science from Louisiana State University.
Mr. Crowells extensive expertise in the security and
information technology industry, his insights into the security
needs of U.S. Federal government agencies garnered from his
continuing tenure in the advisory group to the Director of
National Intelligence and in his prior role at the NSA and his
operational experience in the security industry, as well as his
understanding of our company and business gained through his
long tenure with us as a member of the board led the board to
conclude that he should serve as a director.
Craig Ramsey has served as a director since October 2002.
From July 2003 to September 2004, Mr. Ramsey served as
Chief Executive Officer of Solidus Networks Inc. (doing business
as Pay By Touch), a provider of authentication and payment
processing services. From 1996 to 2000, Mr. Ramsey served
as Senior Vice President, Worldwide Sales, of Siebel Systems,
Inc., a provider of eBusiness applications. From 1994 to 1996,
Mr. Ramsey served as Senior Vice President, Worldwide
Sales, Marketing and Support for nCube Corporation, a maker of
massively parallel computers. From 1968 to 1994, Mr. Ramsey
held various positions with Oracle Corporation, Amdahl
Corporation and IBM. He also serves as a director of
salesforce.com, inc., a provider of customer relationship
management services, and several private companies.
Mr. Ramsey holds a B.A. in economics from Denison
University.
Mr. Ramseys vast experience and understanding of
sales, channel programs and management in the software industry,
his service on the boards of directors of several companies,
including another public company as well as the insights he has
acquired from his more than seven years as a director of the
company led the board to conclude that he should serve as a
director.
Scott A. Ryles has served as a director since November
2003. Mr. Ryles has served as Vice Chairman of Cowen and
Company, LLC, an investment banking firm, since February 2007.
From December 2004 to September 2006, he served as Chief
Executive Officer of Procinea Management LLC, a private equity
firm. From 1999 to 2001, Mr. Ryles served as Chief
Executive Officer of Epoch Partners, Inc., an investment banking
firm, until its acquisition by The Goldman Sachs Group, Inc.
Prior to then, Mr. Ryles served as a Managing Director of
Merrill Lynch & Co., Inc., an investment banking firm.
He also currently serves as a director of a private company and
of The Gymboree Corporation, a specialty retailer operating
stores selling apparel and accessories for children, and of KKR
Financial Holdings LLC, a specialty finance company affiliated
with Kohlberg Kravis Roberts & Co. L.P. Mr. Ryles
holds a B.A. in economics from Northwestern University.
Mr. Ryless vast experience as an investment banker,
his expertise with regard to potential financing or other
strategic transactions, and his understanding of our company and
business due to his long tenure with us as a member of the board
led the board to conclude that he should serve as a director.
6
Ted Schlein has served as a director since March
2002. Mr. Schlein has served as a partner at
Kleiner Perkins Caufield & Byers, a venture capital
firm, since 1996. From 1986 to 1996, Mr. Schlein served in
various executive positions at Symantec Corporation, a provider
of Internet security technology and business management
technology solutions, most recently as Vice President of
Enterprise Products. He currently serves as a director of
several private companies, including IronPlanet, Inc. which
filed a Registration Statement on
Form S-1
with the SEC on March 18, 2010. Mr. Schlein holds a
B.A. in economics from the University of Pennsylvania.
Mr. Schleins experience both as a venture capitalist
and in a senior management roles in the security technology
industry and his extensive knowledge of our company due to his
long tenure with us as a member of the board led the board to
conclude that he should serve as a director.
Ernest von Simson has served as a director since October
2002, and as our lead independent director since June 2009. Mr.
von Simson has served as the President of Ostriker von Simson,
Inc., an information technology consulting firm, since 1999. He
also served as a senior partner of Cassius Advisors, an emerging
technology consulting firm, from 1999 to January 2006. Prior to
then, Mr. von Simson served as a Senior Partner at The Research
Board, Inc., a company that assists large companies with their
information technology strategies. He currently serves as a
director of two private companies. Mr. von Simson holds a B.A.
in international relations from Brown University and an M.B.A.
from New York University.
Mr. von Simsons deep understanding of and experience in
the information technology industry, experience with corporate
governance and other matters garnered from his service on other
companies board of directors and the insights he has
gained into our business during his more than seven years on our
board, including more than a year as our lead independent
director, led our board to conclude that he should serve as a
director.
Board
Meetings, Committees and Corporate Governance
Our board of directors had ten meetings during fiscal 2010 and,
in connection with each of those meetings, held executive
sessions of independent directors. Our board of directors also
acted by unanimous written consent on one occasion. During
fiscal 2010, each incumbent director attended at least 75% of
the aggregate number of (i) the meetings of the board of
directors and (ii) the meetings of the committees on which
he or she served (during the periods that he or she served). Our
board of directors has determined that all of our board members
other than Mr. Reilly are independent, as determined under
the rules of The NASDAQ Stock Market. Our board of directors
designated Ernest von Simson as our lead independent director in
June 2009. Our board of directors has established four
committees of the board that are currently in place: the audit
committee, compensation committee, nominating and corporate
governance committee and technology strategy committee.
Board
Leadership
Our boards leadership structure is comprised of our CEO,
several independent directors, and a lead independent director.
In June 2009, the board of directors designated Mr. von Simson
as its lead independent director. The lead independent director
presides at executive sessions of non-management or independent
directors and any meetings at which our Chief Executive Officer
is not present. The lead independent director also calls
meetings of the independent or non-management directors as may
be necessary from time to time. In addition, he discusses any
significant conclusions or requests arising from the independent
director sessions with our Chief Executive Officer, including
the scheduling of, and requested agenda items for, future
meetings of the our board of directors. He may also perform
other duties as may be, from time to time, set forth in our
bylaws or requested by our board of directors to assist it in
the fulfillment of its responsibilities, by individual
directors, or by our Chief Executive Officer.
Our board structure allows us to leverage the experience of our
CEO and the independent perspective of our lead independent
director. We believe that this structure, amplified by our
strong committee system, meets the current corporate governance
needs and oversight responsibilities of the board.
7
Role
of the Board in Risk Oversight
The board of directors is actively involved the oversight of our
risk management process. The board does not have a standing risk
management committee, but administers this oversight function
directly through the board as a whole, as well as through its
standing committees that address risks inherent in their
respective areas of oversight. In particular, our audit
committee has the responsibility to consider and discuss our
major financial risk exposures and the steps our management has
taken to monitor and control these exposures, our compensation
committee assesses and monitors whether any of our compensation
policies and programs has the potential to encourage excessive
risk-taking, our nominating and corporate governance committee
monitors our major legal compliance risk exposures and our
program for promoting and monitoring compliance with applicable
legal and regulatory requirements and our board is responsible
for monitoring and assessing strategic risk exposure, with
assistance from time to time by our new technology strategy
committee, and other risks not covered by our committees.
The full board, or the appropriate committee, receives reports
on risk facing ArcSight from our Chief Executive Officer or
other members of management to enable it to understand our risk
identification, risk management and risk mitigation strategies.
We believe that our boards leadership structure supports
effective risk management because it allows our lead independent
director and the independent directors on our committees to
exercise oversight over management.
Audit
Committee
Our audit committee is comprised of Mr. McKee, who is the
chair of the committee, and Messrs. Ryles and von Simson.
The composition of our audit committee meets the requirements
for independence under the current NASDAQ Stock Market and SEC
rules and regulations. Each member of our audit committee is
financially literate. In addition, our audit committee includes
a financial expert within the meaning of Item 407(d)(5)(ii)
of
Regulation S-K
promulgated under the Securities Act of 1933, as amended, or the
Securities Act. All audit services to be provided to us and all
permissible non-audit services to be provided to us by our
independent registered public accounting firm will be approved
in advance by our audit committee. Our audit committee
recommended, and our board of directors has adopted, a charter
for our audit committee. Our audit committee, among other
things, will:
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select a firm to serve as the independent registered public
accounting firm to audit our financial statements;
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help to ensure the independence of the independent registered
public accounting firm;
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discuss the scope and results of the audit with the independent
registered public accounting firm, and review, with management
and that firm, our interim and year-end operating results;
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develop procedures for employees to submit anonymously concerns
about questionable accounting or audit matters;
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review with management our major financial risk exposures
(including liquidity risk, credit/counterparty risk, and
accounting risk) and the steps management has taken to monitor
such exposures;
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consider the adequacy of our internal accounting controls and
audit procedures; and
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approve or, as permitted, pre-approve all audit and non-audit
services to be performed by the independent registered public
accounting firm.
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The audit committee met eight times during fiscal 2010,
including meetings with our independent registered public
accounting firm to review our quarterly and annual financial
statements and their review or audit of such statements. The
audit committee operates pursuant to the audit committee
charter, which has been posted on our website at
http://ir.arcsight.com/governance.cfm.
Compensation
Committee
Our compensation committee is comprised of Mr. Ramsey, who
is the chair of the committee, and Messrs. Crowell and
Schlein and Ms. Bergeron. The composition of our
compensation committee meets the requirements for independence
under the current NASDAQ Stock Market and SEC rules and
regulations. The purpose of our compensation committee is to
discharge the responsibilities of our board of directors
relating to
8
compensation of our executive officers. Our compensation
committee recommended, and our board of directors has adopted, a
charter for our compensation committee. Our compensation
committee, among other things, will:
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review and determine the compensation of our executive officers
and directors;
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administer our stock and equity incentive plans;
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review and make recommendations to our board of directors with
respect to incentive compensation and equity plans;
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review with management our major compensation-related risk
exposures and the steps management has taken to monitor or
mitigate such exposures; and
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establish and review general policies relating to compensation
and benefits of our employees.
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The compensation committee met eight times during fiscal 2010.
The compensation committee operates pursuant to the compensation
committee charter. Under its charter, which has been posted on
our website at
http://ir.arcsight.com/governance.cfm,
the compensation committee has authority to retain compensation
consultants, outside counsel and other advisors that the
committee deems appropriate, in its sole discretion, to assist
it in discharging its duties, and to approve the terms of
retention and fees to be paid to such consultants. In March
2009, our compensation committee again retained Compensia, a
compensation consulting company, to help evaluate our
compensation philosophy and provide guidance in administering
our compensation program in connection with the completion of
fiscal 2009 and the review of compensation for fiscal 2010. See
Compensation Discussion and Analysis for additional
discussion regarding the role of Compensia in executive
compensation.
On June 9, 2010, Mr. Crowell resigned from the
compensation committee to chair the technology strategy
committee and Mr. Siboni joined the compensation committee.
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee is comprised
of Mr. von Simson, who is the chair of the committee, and
Messrs. Crowell, McKee and Ryles. The composition of our
nominating and corporate governance committee meets the
requirements for independence under the current NASDAQ Stock
Market and SEC rules and regulations. Our nominating and
corporate governance committee has recommended, and our board of
directors has adopted, a charter for our nominating and
corporate governance committee. Our nominating and corporate
governance committee, among other things, will:
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identify, evaluate and recommend nominees for our board of
directors and committees of our board of directors;
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conduct searches for appropriate directors;
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evaluate the performance of our board of directors;
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consider and make recommendations to our board of directors
regarding the composition of our board of directors and its
committees;
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review related party transactions and proposed waivers of our
code of conduct;
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review and discuss public disclosures related to the
Boards leadership structure and its role in risk oversight;
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review developments in corporate governance practices; and
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evaluate the adequacy of, and make recommendations with respect
to, our corporate governance practices and reporting.
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The nominating and corporate governance committee met twice
times during fiscal 2010. The nominating and corporate
governance committee operates pursuant to the nominating and
corporate governance committee charter, which has been posted on
our website at
http://ir.arcsight.com/governance.cfm.
The nominating and corporate governance committee will consider
nominees recommended by stockholders for election as directors.
If a stockholder would like to recommend a director candidate
for the next annual meeting,
9
the stockholder must deliver the recommendation in writing to
the Corporate Secretary, ArcSight, Inc., 5 Results Way,
Cupertino, California 95014. The recommendation must be
submitted not less than 75 days nor more than 105 days
prior to the first anniversary of the date of the immediately
preceding annual meeting of stockholders. Evaluations of
candidates generally involve a review of background materials,
internal discussions and interviews with selected identified
candidates as appropriate. Candidates for the board of directors
are generally selected based on desired skills and experience in
the context of the existing composition of the board and needs
of the board and its committees at that time, including the
requirements of applicable SEC and NASDAQ rules. The nominating
and corporate governance committee does not assign specific
weights to particular criteria, and no particular criterion is
necessarily applicable to all candidates, and will choose
candidates to recommend for nomination based on the specific
needs of the board and ArcSight at that time. Although the
nominating and corporate governance committee does not have a
specific policy on diversity, in its consideration of the
specific needs of the board and ArcSight, the committee
considers diverse backgrounds so that the board composition
reflects a broad spectrum of experience and expertise. Final
approval of nominees to be presented for election is determined
by the full board.
The nominating and corporate governance committee recommended to
the board that Messrs. McKee, Reilly and Siboni be
nominated to serve as Class III directors.
Technology
Strategy Committee
Our technology strategy committee, which was formed in June
2010, is comprised of Mr. Crowell, who is the chair of the
committee, and Messrs. Reilly and Schlein and
Ms. Bergeron. The purpose of our technology strategy
committee is to review and make recommendations to our board of
directors relating to technological and strategic initiatives.
Our technology strategy committee, among other things, will:
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review and make recommendations with respect to major
technological and industry-related risks;
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review our technological development efforts; and
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support our board of directors or management in the development
and / or refine of our research, development and
related strategic initiatives and corporate development efforts.
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Communications
with Directors
Stockholders may communicate with the board by sending written
correspondence to: Board of Directors,
c/o Corporate
Secretary, ArcSight, Inc., 5 Results Way, Cupertino, California
95014. Communications are distributed to the board, or to any
individual directors as appropriate, depending on the facts and
circumstances outlined in the communication. The board has
instructed the Corporate Secretary to review all correspondence
and to determine, in his or her discretion, whether matters
submitted are appropriate for board consideration. In
particular, the board has directed that communications such as
product or commercial inquiries or complaints, resume and other
job inquiries, surveys and general business solicitations or
advertisements should not be forwarded to the board. In
addition, material that is unduly hostile, threatening, illegal,
patently offensive or similarly inappropriate or unsuitable will
be excluded, with the provision that any communication that is
filtered out must be made available to any non-management
director upon request. The Corporate Secretary may forward
certain communications elsewhere in the company for review and
possible response.
Director
Attendance of Annual Meetings
We encourage directors to attend our annual meetings of
stockholders but do not require attendance. Last year, four
directors attended our 2009 annual meeting of stockholders.
10
Director
Compensation
The compensation committee evaluates the appropriate level and
form of compensation for non-employee directors and recommend
changes to the board when appropriate. The board has adopted the
following policies with respect to the compensation of
non-employee directors:
Cash
Compensation
In fiscal 2010, each non-employee member of the board of
directors receives an annual cash retainer of $35,000. The lead
independent director of the board receives an additional annual
cash retainer of $10,000. The chairs of the audit committee, the
compensation committee, the nominating and corporate governance
committee and the technology strategy committee receive annual
retainers of $20,000, $10,000, $5,000 and $5,000, respectively
and each other member of the audit committee, the compensation
committee, the nominating and corporate governance committee and
the technology strategy committee receive annual retainers of
$8,000, $5,000, $2,500 and $2,500, respectively. We do not pay
fees to directors for attendance at meetings of our board of
directors and its committees.
All cash compensation to directors is paid in quarterly
installments upon continuing service. We also reimburse our
directors for reasonable expenses in connection with attendance
at board and committee meetings.
Equity
Compensation
Each person who is not an employee who becomes a member of our
board of directors will be granted an initial option to purchase
25,000 shares of our common stock upon election to our
board of directors. On the date of each annual stockholder
meeting, each non-employee director who continues to serve on
our board of directors immediately following such meeting will
automatically be granted an option to purchase
10,375 shares of our common stock. Each option will have an
exercise price equal to the fair market value of our common
stock on the date of grant, will have a ten-year term and will
terminate 90 days following the date the director ceases to
serve on our board of directors for any reason other than death
or disability, or 12 months following that date if the
termination is due to death or disability. Each initial grant
will vest and becomes exercisable as to 1/36th of the shares
each month after the grant date over three years. Each annual
grant will vest and become exercisable as to
1/12th of
the shares each month after the grant date over one year.
Director
Attendance Policy
In March 2008, our board of directors adopted a policy that, in
any fiscal year, each member of the our board of directors
should attend at least 75% of board meetings and 75% of the
meetings of each committee of which such director is a member,
and directed our compensation committee to consider changes to
our director compensation policy to encourage compliance with
this director attendance policy. In May 2008, our compensation
committee recommended that our board of directors adopt the
following compensation related measures as a component of the
director attendance policy:
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in the event that a director shall attend fewer than 75% of
board meetings in a fiscal year, the annual stock, option or
other equity grant to be issued, and any retainer fees to be
paid, to such director for the succeeding fiscal year shall be
reduced to 50% of the level of grant or fee normally to be paid
to directors generally for their services as board members in
accordance with our board compensation practices; and
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in the event that a director shall attend fewer than 75% of the
meetings in a fiscal year of a committee of which such director
is a member, the annual stock, option or other equity grant to
be issued, and any retainer fees to be paid, to such director in
respect of membership (including those in respect of services as
chairperson) of such committee for the succeeding fiscal year
shall be reduced to 50% of the level of grant or fee normally to
be paid to directors generally for service on such committee in
accordance with our board of directors compensation practices;
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provided, that, in the event that a director has failed to
attend a board or committee meeting, and:
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such director was not a member of the board or committee, as
applicable, at the time of such meeting;
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the meeting was a regular board or committee meeting and such
director was first provided notice of the meeting less than
three months in advance of such meeting, and promptly following
receipt of such notice the director notified our Chief Executive
Officer and General Counsel that such director does not expect
to be able to attend at the scheduled time; or
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the meeting was a special board or committee meeting and such
director was first provided notice of the meeting less than two
weeks in advance of such meeting, and promptly following receipt
of such notice the director notified our Chief Executive Officer
and General Counsel that such director does not expect to be
able to attend at the scheduled time;
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such meeting will be excluded from the calculation of percentage
of meetings attended for purposes the compensation component of
the director attendance policy. In June 2008, our board of
directors adopted this component of our director attendance
policy. See the discussion of director attendance during fiscal
2010 under Board Meetings, Committees and
Corporate Governance above.
Fiscal
2010 Compensation
The following table provides information for our fiscal year
ended April 30, 2010 regarding all plan and non-plan
compensation awarded to, earned by or paid to each person who
served as a non-employee director in fiscal 2010. Other than as
set forth in the table and the narrative that follows it, to
date we have not paid any fees to or reimbursed any expenses of
our directors, made any equity or non-equity awards to
directors, or paid any other compensation to directors. All
compensation that we paid to Mr. Reilly, our only employee
director, is set forth in the tables summarizing executive
officer compensation below. No compensation was paid to
Mr. Reilly in his capacity as a director.
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Fees Earned or
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Option
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Name
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Paid in
Cash(1)
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Awards(2)(3)(4)
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Total
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Sandra Bergeron
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$
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40,000
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$
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124,934
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$
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164,934
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William P. Crowell
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42,500
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124,934
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167,434
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E. Stanton McKee, Jr.
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57,500
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124,934
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182,434
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Craig Ramsey
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45,000
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124,934
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169,934
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Scott A. Ryles
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45,500
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124,934
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170,434
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Ted Schlein
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40,000
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124,934
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164,934
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Roger S. Siboni
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30,910
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(5)
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372,375
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403,285
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Ernest von Simson
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58,000
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124,934
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182,934
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(1) |
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These amounts reflect quarterly fees in fiscal 2010 for board
and committee service, including the fees paid for service as
our lead independent director. |
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(2) |
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Amounts shown in this column do not reflect dollar amounts
actually received by the non-employee director. Instead, these
amounts reflect the aggregate full grant date fair value
calculated in accordance with Financial Accounting Standards
Board Accounting Standards Codification Topic 718,
Compensation Stock Compensation, (formerly
SFAS 123R), or ASC 718, for awards granted during
2010. See Note 9 of the Notes to our Consolidated Financial
Statements in our annual report on
Form 10-K
for fiscal 2010 for a discussion of all assumptions made in
determining the grant date fair values. |
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(3) |
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In September 2009, in connection with our annual stockholders
meeting and consistent with the equity compensation policy
adopted by the board, we granted each non-employee director
(Ms. Bergeron and Messrs. Crowell, McKee, Ramsey,
Ryles, Schlein, Siboni and von Simson) an option to purchase
10,375 shares of our common stock at an exercise price of
$22.67 per share. The fair value of each such option was $12.04
per share. Each of these options: (i) vests as to 1/12th of
the shares of common stock underlying it monthly beginning one
month after the vesting start date; and (ii) contains
change of control provisions such that all unvested shares vest
immediately upon the closing of a change of control transaction.
We also awarded Mr. Siboni an option to purchase
25,000 shares of our common stock at an exercise price of
$18.60 per share in June 2009 upon his election to our board of
directors consistent with the equity compensation policy adopted
by the board. The fair value of each such option was $9.90 per
share. This option (i) vests as to 1/36th of the shares |
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each month after the grant date over three years; and
(ii) contains change of control provisions such that all
unvested shares vest immediately upon the closing of a change of
control transaction. |
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(4) |
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Each non-employee director serving at the time of our initial
public offering in February 2008 held, as of April 30,
2010, the following options to purchase shares of our common
stock which were granted in connection with our initial public
offering: Ms. Bergeron and Messrs. McKee, Ramsey,
Ryles and von Simson: 11, 250; Mr. Schlein: 3,438; and
Mr. Crowell: 5,319. Each non-employee director serving at
the time of our annual stockholders meeting in September 2008
held, as of April 30, 2010, the following options to
purchase shares of our common stock: Ms. Bergeron and
Messrs. McKee, Ramsey, Ryles and von Simson: 10,375; and
Mr. Crowell: 7,375. In addition to the options granted in
September 2008 and February 2008 and in fiscal 2010,
Ms. Bergeron and Mr. Ramsey each holds an outstanding
option to purchase 97,773 shares, Messrs. von Simson and
McKee each holds an outstanding option to purchase
87,773 shares, and Mr. Ryles holds an outstanding
option to purchase 63,773 shares. Each of the options
granted to our non-employee directors in connection with our
IPO: (i) vests as to 1/36th of the shares of common stock
underlying it monthly beginning one month after the vesting
start date; and (ii) contains change of control provisions
such that all unvested shares vest immediately upon the closing
of a change of control transaction. All other options not
described above held by non-employee directors are fully vested.
See Principal Stockholders for beneficial ownership
information for each of our directors. |
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(5) |
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Represents the pro rata portion of the annual retainer for
serving on the board of directors. Mr. Siboni was elected
to the board on June 10, 2009. |
Compensation
Committee Interlocks and Insider Participation
During fiscal 2010, our compensation committee consisted of
Messrs. Crowell, Ramsey and Schlein and Ms. Bergeron.
None of them has at any time in the last fiscal year or
previously been one of our officers or employees and none has
had any relationships with our company of the type that is
required to be disclosed under Item 404 of
Regulation S-K.
None of our executive officers has served as a member of the
board of directors, or as a member of the compensation or
similar committee, of any entity that has one or more executive
officers who served on our board of directors or compensation
committee during fiscal 2010.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, or the
Exchange Act, requires our directors and executive officers, and
persons who own more than 10% of our common stock, to file
initial reports of ownership and reports of changes in ownership
with the SEC. Such persons are required by SEC regulations to
furnish us with copies of all Section 16(a) forms they
file. Based solely on our review of the copies of such forms
furnished to us and written representations from these officers
and directors, we believe that all Section 16(a) filing
requirements were met during fiscal 2010.
Executive
Officers and Key Employees
Our executive officers and key employees, their positions and
their respective ages, as of August 1, 2010, are:
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Name
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Age
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Position(s)
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Thomas Reilly
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48
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President, Chief Executive Officer and Director
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Hugh S. Njemanze
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53
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Founder, Chief Technology Officer and Executive Vice President
of Research and Development
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Stewart Grierson
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44
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Chief Financial Officer
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Prescott B. Winter
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62
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Chief Technology Officer, Public Sector
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Joni Kahn
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55
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Senior Vice President of Services and Support
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Kevin P. Mosher
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53
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Senior Vice President of Worldwide Field Operations
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Jeffrey Scheel
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48
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Senior Vice President of Business Development
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Trâm T. Phi
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39
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Vice President, General Counsel and Secretary
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13
Our executive officers serve at the discretion of the board of
directors, subject to rights, if any, under contracts of
employment. See Executive
Compensation Employment, Severance and Change
of Control Arrangements. Biographical information for
Mr. Reilly is provided above. See
Information Regarding Our Nominees and
Directors.
Hugh S. Njemanze co-founded ArcSight in May 2000 and has
served as our Executive Vice President of Research Development
and Chief Technology Officer since March 2002. From 1993 to
2000, Mr. Njemanze served in various positions at Verity,
Inc., a provider of knowledge retrieval software products, most
recently as its Chief Technology Officer. He holds a B.S. in
computer science from Purdue University.
Stewart Grierson has served as our Chief Financial
Officer since October 2004 and also served as our Vice President
of Finance from March 2003 to April 2007. In addition, from
January 2003 to January 2006, he served as our Secretary. From
1999 to July 2002, Mr. Grierson served in several positions
for ONI Systems Corp., a provider of optical communications
equipment, including most recently as Vice President and
Corporate Controller. From 1992 to 1999, he served in various
roles in the audit practice at KPMG LLP. He holds a B.A. in
economics from McGill University and is a chartered accountant.
Prescott B. Winter has served as our Chief Technology
Officer for the Public Sector since March 2010. Prior to
ArcSight, Dr. Winter served as Associate Deputy Director of
National Intelligence for Information Integration under the
Director of National Intelligence from 2008 to 2009.
Dr. Winter served more than 25 years at the National
Security Agency, including positions as CIO and CTO; Chief, NSA
Commercial Solutions Center; Chief, Customer Response; and
Deputy Chief, Defensive Information Operations. Dr. Winter
holds a B.A. in history, an M.A. in East Asian Studies and a
Ph.D. in history from Stanford University.
Joni Kahn has served as our Senior Vice President of
Services and Support since July 2009. From December 2005 to
December 2007, Ms. Kahn served as the Executive Vice
President, Technology Solutions of BearingPoint, Inc., a
management and technology consulting company. From September
2002 to December 2005, Ms. Kahn served as Senior Group Vice
President of World Wide Professional Services at Business
Objects S.A., a company specializing in business intelligence
and enterprise information management. Prior to Business
Objects, Ms. Kahn was a member of the KPMG Consulting
Executive Committee in the 1990s. Ms. Kahn holds a B.B.A.
in accounting from the University of Wisconsin-Madison.
Kevin P. Mosher has served as our Senior Vice President
of Worldwide Field Operations since March 2004. From May 2002 to
March 2003, Mr. Mosher served as the President and Chief
Operating Officer of Rapt Inc., a provider of pricing and
profitability management solutions. From 1997 to 2001,
Mr. Mosher served as Senior Vice President of Sales at
Portal Software, Inc., a provider of billing and customer
management solutions. He also serves as a director of a private
company. Mr. Mosher holds a B.A. in economics from the
University of Connecticut.
Jeffrey Scheel has served as our Senior Vice President of
Business Development since June 2008. From November 2007 to May
2008, Mr. Scheel served as Vice President of Sales and
Corporate Development at Damballa, Inc., a provider of
protection against botnets. From June 2007 to October 2007,
Mr. Scheel served as a consultant to various technology
companies. From October 2006 to May 2007, he served as Executive
Vice President of GuardID, Inc., an anti-phishing products
company. From December 2005 until July 2006 following its
acquisition by RSA in 2006, Mr. Scheel served as Corporate
Development Officer at PassMark Security, Inc., an
authentication software company. From November 2004 until
December 2005 following its acquisition by PassMark, he served
as CEO of Vocent, Inc., an authentication software company. From
1996 to 1999 and from 2001 to November 2004, Mr. Scheel
served in several positions at Siebel Systems, Inc., a provider
of eBusiness applications, including most recently as Vice
President and General Manager of CRM Products. He holds a B.A.
in history from Stanford University and an M.B.A. from Harvard
Business School.
Trâm T. Phi has served as our Vice President,
General Counsel and Secretary since January 2006. From September
2002 to May 2005, Ms. Phi served in various positions at
InVision Technologies, Inc., a manufacturer of explosives
detection systems, most recently as Senior Vice President and
General Counsel, including following the acquisition of InVision
by General Electric Company in December 2004. From 1995 to
September 2002, she was an associate at Fenwick & West
LLP, a high technology law firm. Ms. Phi holds a B.A. in
political science from San Jose State University and a J.D.
from the University of California, Berkeley, School of Law
(Boalt Hall).
14
COMPENSATION
DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation
arrangements of our executive officers should be read together
with the compensation tables and related disclosures set forth
below. This discussion contains forward-looking statements that
are based on our current plans, considerations, expectations and
determinations regarding future compensation programs. The
actual amount and form of compensation and the compensation
programs that we adopt may differ materially from currently
planned programs as summarized in this discussion.
This section discusses the principles underlying our executive
compensation policies and decisions and the most important
factors relevant to an analysis of these policies and decisions.
It provides qualitative information regarding the manner and
context in which compensation is awarded to and earned by our
executive officers and places in perspective the data presented
in the tables and narrative that follow.
Compensation
Philosophy and Objectives
Our compensation program for executive officers is designed to
attract, as needed, individuals with the skills necessary for us
to achieve our business plan, to motivate those individuals, to
reward those individuals fairly over time, and to retain those
individuals who continue to perform at or above the levels that
we expect. It is also designed to link rewards to measurable
corporate and individual performance. We believe that the most
effective executive compensation program is one that is designed
to reward the achievement of specific annual, long-term and
strategic goals, and which aligns executives interests
with those of the stockholders by rewarding performance of
established goals, with the ultimate objective of improving
stockholder value. We evaluate compensation to ensure that we
maintain our ability to attract and retain talented employees in
key positions and that compensation provided to key employees
remains competitive relative to the compensation paid to
similarly situated executives of our peer companies. To that
end, we believe executive compensation packages provided by us
to our executive officers should include both cash and
stock-based compensation that reward performance as measured
against established goals.
We work within the framework of our
pay-for-performance
philosophy to determine each component of an executives
compensation package based on numerous factors, including:
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the individuals particular background and circumstances,
including training and prior relevant work experience;
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the individuals role with us and the compensation paid to
similar persons in the companies represented in the compensation
data that we review;
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the demand for individuals with the individuals specific
expertise and experience at the time of hire;
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performance goals and other expectations for the
position; and
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comparison to other executives within our company having similar
levels of expertise and experience.
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Role of
Executive Officers in Compensation Decisions
The compensation of Mr. Reilly as our Chief Executive
Officer, or CEO, is determined by our board of directors after
input from and consultation with our compensation committee,
which reviews his performance after taking input from the other
independent directors. The compensation for all other executive
officers is determined by our compensation committee after input
from and consultation with our CEO. Our CEO typically provides
annual recommendations to the compensation committee and
discusses with the compensation committee the compensation and
performance of all executive officers, other than himself,
during the first fiscal quarter. Consistent with our
compensation philosophy, each employees evaluation begins
with a written self-assessment, which is submitted to the
employees supervisor. The supervisor then prepares a
written evaluation based on the employees self-assessment,
the supervisors own evaluation of the employees
performance and input from others within the company. Our CEO
bases his recommendations in part upon annual performance
reviews of our executive officers, including a review of
self-evaluations prepared by such executive officers and
supervisor reviews when the executive officers report to someone
other than our CEO. Our compensation committee may exercise its
discretion in modifying any recommended compensation adjustments
or awards to executives. In addition, compensation committee
meetings typically have included, for all or a portion of each
meeting, not only the
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committee members and our CEO, but also Mr. Grierson,
Ms. Phi and Gail Boddy, the head of our human resources
department.
Components
of Executive Compensation
Our executive officers compensation has had three primary
components base compensation or salary, initial
stock option awards granted pursuant to our 2007 Equity
Incentive Plan and cash bonuses and stock option awards under a
performance-based bonus plan. We fix executive officer base
compensation at a level we believe enables us to hire and retain
individuals in a competitive environment and to reward
satisfactory individual performance and a satisfactory level of
contribution to our overall business goals. We also take into
account the base compensation that is payable by private and
public companies with which we believe we generally compete for
executives. To this end, we review a number of executive
compensation surveys of high technology companies located in the
San Francisco Bay Area annually when we review executive
compensation. We utilize salary as the base amount necessary to
match our competitors for executive talent. We designed our
executive bonus plan to focus our management on achieving key
corporate financial objectives, to motivate desired individual
behaviors and to reward substantial achievement of these company
financial objectives and individual goals. We utilize cash
bonuses under our bonus plan to reward performance achievements
with a time horizon of one year or less, and similarly, we
utilize equity grants under our bonus plan to provide additional
long-term rewards for short term performance achievements to
encourage similar performance over a longer term. We utilize
initial and refresh stock options to reward long-term
performance, with strong corporate performance and extended
officer tenure producing potentially significant value for the
officer.
We view these components of compensation as related but
distinct. Although our compensation committee does review total
compensation, we do not believe that significant compensation
derived from one component of compensation should negate or
reduce compensation from other components. We determine the
appropriate level for each compensation component based in part,
but not exclusively, on competitive benchmarking consistent with
our recruiting and retention goals, our view of internal equity
and consistency and other considerations we deem relevant, such
as rewarding extraordinary performance. We believe that, as is
common in the technology sector, stock option awards are a
significant compensation-related motivator in attracting and
retaining employees.
Our compensation committees current intent is to perform
at least annually a strategic review of our executive
officers compensation levels to determine whether they
provide adequate incentives and motivation to our executive
officers and whether they adequately compensate our executive
officers relative to comparable officers in other companies with
which we compete for executives. These companies may or may not
be public companies or even in all cases technology companies.
In March 2007, our compensation committee initially retained
Compensia, a compensation consulting company, to help evaluate
our compensation philosophy and provide guidance in
administering our compensation program in the future. Compensia
provides us with market data on a peer group of companies in the
technology sector, as well as advice in the review of
compensation. As in past years, in March 2010, our compensation
committee specifically retained Compensia to provide such data
and advice in connection with in connection with the completion
of fiscal 2010 (and review of compensation for fiscal 2011). The
information provided by Compensia is benchmarked against the
compensation we offer to ensure that our compensation program is
competitive. Our compensation committee plans to retain a
consultant to provide similar information and advice in future
years for consideration in establishing annual salary increases
and additional stock grants.
We account for equity compensation paid to our employees under
the rules of ASC 718, which requires us to estimate and
record an expense over the service period of the award.
Accounting rules also require us to record cash compensation as
an expense at the time the obligation is accrued. We structure
cash bonus compensation so that it is taxable to our executives
at the time it is paid to them. We currently intend that all
cash compensation paid will be tax deductible for us. However,
with respect to equity compensation awards, while any gain
recognized by employees from nonqualified options should be
deductible, to the extent that an option constitutes an
incentive stock option, gain recognized by the optionee will not
be deductible if there is no disqualifying disposition by the
optionee. In addition, if we grant restricted stock or
restricted stock unit awards that are not subject to performance
vesting, they may not be fully deductible by us at the time the
award is otherwise taxable to the employee.
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Base
Compensation
Our compensation committee generally consults benchmark data to
better inform its determination of the key elements of our
compensation program in order to develop a compensation program
that it believes will enable us to compete effectively for new
employees and retain existing employees. In general, this
benchmark data consists of compensation information from both
broad-based third-party compensation surveys and peer groups.
The compensation data consisted of salaries and other
compensation paid by companies in these surveys and peer groups
to executives in positions comparable to those held by our
executive officers. Because publicly-filed compensation data is
limited to the CEO, CFO and three to five most highly paid
executive officers, the peer group comparisons are limited to
Messrs. Reilly, Njemanze, Mosher and Grierson. While we
compete for executive talent to some degree with companies that
have revenues significantly in excess of those represented in
the surveys and peer groups, we believe that the companies
represented in the surveys and peer groups similarly compete
with such larger companies and hence are an appropriate
comparison for our employment market. Our compensation committee
realizes that using benchmark data may not always be
appropriate, but believes that it is the best alternative at
this point in the life cycle of our company. In addition to
benchmarking studies, our compensation committee has
historically taken into account input from other sources,
including input from the members of the compensation committee
(as well as any input that may be offered by other independent
members of our board of directors) and publicly available data
relating to the compensation practices and policies of other
companies within and outside of our industry.
For the review of compensation in connection with the completion
of fiscal 2010 and determination of base and target bonus
compensation for fiscal 2011, our compensation committee
utilized data from Compensia based on the Radford
High-Technology Executive Compensation and Sales Compensation
Surveys and a single peer group of companies that reflect our
industry, size and growth. The Radford survey utilized by
Compensia included companies nationally with revenues from
$90 million to $300 million, except that in case of
some of our executive officers the Radford data included a
broader group of companies with median revenues of approximately
$192 million (with the results size-adjusted based on the
scaling reflected in the primary survey), because data was
unavailable for comparable executives in the primary survey. The
peer group, which was selected based on the recommendations of
Compensia, after it consulted with Mr. Grierson, includes
Art Technology Group, Blue Coat Systems, Chordiant Software,
Cogent, CommVault Systems, DemandTec, Double-Take Software, EF
Johnson Technologies, Guidance Software, NetSuite, Opnet
Technologies, Rackspace, RightNow Technologies, Riverbed
Technology, SolarWinds, SonicWALL, Sourcefire, SuccessFactors,
Vasco Data Security International and Websense. As before,
Compensia initially proposed the makeup of the peer group based
on the public company peer group utilized in the prior year,
replacing a company that had been acquired. We believe that
collectively the peer groups used in fiscal 2010 and prior years
were at the time representative of companies in our size range
and industry that were a fair representation of the employment
market in which we compete.
Our compensation committee typically targets executive
officers salaries at a level that was at or near the
median of salaries of executives with similar roles at
comparable companies. Our compensation committee believes that
the median for base salaries is the minimum cash compensation
level that would allow us to attract and retain talented
officers. In instances where an executive officer is uniquely
key to our success, such as Mr. Njemanze, our compensation
committee may provide compensation in excess of the median. For
example, in the case of Mr. Njemanze, the compensation
committee determined to provide compensation about 19% in excess
of the median competitive salary in recognition of the fact
that, as one of our founders and our principal technical
contributor since we were founded, he has a unique understanding
of the technical underpinnings of our products and technologies
as well as the market in which we operate. Our compensation
committees choice of the foregoing salary target to apply
to the data in the compensation surveys reflected consideration
of our stockholders interests in paying what was
necessary, but not significantly more than necessary, to achieve
our corporate goals, while conserving cash as much as
practicable. We believe that, given the industry in which we
operate and the corporate culture that we have created, base
compensation at this level is generally sufficient to retain our
existing executive officers and to hire new executive officers
when and as required.
We annually review our base salaries, and may adjust them from
time to time based on market trends, including review of
benchmark information, as well as the recognition that
compensation levels are typically reviewed annually and survey
information may not fully reflect changes in salary levels over
time or particular acute
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geographic or market circumstances. We also review the
applicable executive officers responsibilities,
performance and experience. We do not provide formulaic base
salary increases to our executive officers. If necessary, we
also realign base salaries with market levels for the same
positions in companies of similar size to us represented in the
compensation data we review, if we identify significant market
changes in our data analysis. Additionally, we adjust base
salaries as warranted throughout the year for promotions or
other changes in the scope or breadth of an executives
role or responsibilities. For example, in June 2009 our
compensation committee approved an increase of
Mr. Scheels salary to reflect his key contributions
to us and our business development efforts, effective August
2009. In addition, in July 2009, the compensation committee
determined to increase the base salary for one of our executive
officers who is not a named executive officer to adjust the
salary to the median competitive level.
Equity
Compensation
All equity awards to our employees, including executive
officers, and to our directors have been granted and reflected
in our consolidated financial statements, based upon the
applicable accounting guidance, at the closing price of our
stock on The NASDAQ Global Market on the date of grant. We do
not have any program, plan or obligation that requires us to
grant equity compensation on specified dates and, we have not
timed equity grants in connection with the release or
withholding of material non-public information. It is possible
that we will establish programs or policies of this sort in the
future.
Authority to make equity-based awards to executive officers
rests with our compensation committee, which considers the
recommendations of our CEO in connection with grants to other
executive officers. Due to the stage of our business and our
evolving industry, we believe that equity awards will
incentivize our executive officers to achieve long-term
performance because they provide greater opportunities for our
executive officers to benefit from any future successes in our
business. Consistent with this view, our compensation committee
chose to make equity grants based on input from members of the
compensation committee (as well as any input that may be offered
by other independent members of our board of directors) drawing
on their experience as directors and executives at other
companies within and outside of our industry and based on
consideration of benchmarking information provided by Compensia,
as well as recommendations from our CEO.
Each executive officer is initially provided with an option
grant when they join our company based upon their position with
us and their relevant prior experience. These initial grants
generally vest over four years and no shares vest before the one
year anniversary of the option grant. We spread the vesting of
our options over four years to compensate executives for their
contribution over a period of time. Our compensation committee
has discretion to make equity grants to executive officers and
other employees from time to time separate from the equity
awards under our bonus plan described below, generally in light
of changes in the applicable executive officers
responsibilities, performance and experience or material changes
for comparable executives as reflected in benchmark data and not
reflected in the refresh grants we award under our bonus plan.
During fiscal 2010, we granted a discretionary award to
Mr. Scheel to reflect his key contributions to us and our
business development efforts, in addition to the option granted
to him as an equity bonus under our bonus plan, in the form of
an option to purchase 55,158 shares.
The value of the shares subject to the fiscal 2010 option grants
to named executive officers are reflected in the Summary
Compensation Table table below and further information
about these grants is reflected in the Fiscal 2010 Grants
of Plan-Based Awards table below.
Equity grants to executive officers are made pursuant to our
2007 Equity Incentive Plan which permits our compensation
committee flexibility in making a wide variety of equity awards.
Participation in the 2007 Employee Stock Purchase Plan is also
available to all executive officers on the same basis as our
other employees. However, any executive officers who are 5%
stockholders, or would become 5% stockholders as a result of
their participation in our 2007 Employee Stock Purchase Plan,
will be ineligible to participate in our 2007 Employee Stock
Purchase Plan.
Other than the equity plans described in this section, we do not
have any equity security ownership guidelines or requirements
for our executive officers and we do not have any formal or
informal policies or guidelines for allocating compensation
between long-term and currently paid out compensation, between
cash and non-cash compensation or among different forms of
non-cash compensation. Other than Mr. Njemanze, who has
owned a
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substantial number of shares as a founder of ArcSight, our
equity compensation plans have provided the principal method for
our executive officers to acquire equity or equity-linked
interests in our company.
Cash
Bonuses under Our Bonus Plan
In the past we have paid bonuses annually, usually during the
first quarter of our fiscal year following the year of the bonus
plan. However, under our bonus plan for fiscal 2010, we
determined to pay a portion of the bonuses quarterly in order to
reward achievement of our operating results targets from quarter
to quarter, while preserving a significant incentive from
achievement of our annual operating results targets. We base
bonuses for executive officers other than our CEO on three
components revenues, operating income and individual
contributions relative to individual performance objectives as
determined by the executive officers supervisor. The
individual performance objectives are determined by each
executive officers supervisor and might include such
objectives as budgeting and cost controls, hiring and personnel
development, strategic thinking and management. As with our
bonus plan for fiscal 2009, our compensation committee
determined that bonuses for executive officers under our bonus
plan for fiscal 2010 should also be based on the achievement of
targeted operating income goals. Our plan is structured so that
we will pay no bonus under this plan unless both the revenue and
operating income targets are achieved, regardless of an
individual executive officers contributions. If the
revenue and operating income components are achieved, executive
officers are eligible to receive bonuses at the target level.
Unlike our bonus plans for prior fiscal years, we determined to
pay each executive officer, other than Mr. Mosher, a bonus
in each fiscal quarter based on our performance relative to that
quarters revenue goal and the related operating income
goal, as an incentive to continued achievement of our quarterly
goals which we view as increasing the likelihood of
achieving or exceeding our annual goals. The bonus plan for
fiscal 2010 provides that the amount of any annual bonus payable
upon achievement of our annual revenue and operating income
goals will be reduced by the amount of any prior quarterly
payments. In order to balance the incentive and reward for
achievement of our quarterly goals against the risk that our
annual financial goals may not be achieved despite achievement
of quarterly goals in early fiscal quarters, our compensation
committee designed the quarterly aspect of our bonus plan so
that, absent a change of control or similar event, not more than
an aggregate of 37.5% of the target annual bonus will be payable
based on achievement of goals for the first three quarters of
our fiscal year, as more fully described below.
However, the actual portion of the eligible bonus that is
ultimately awarded is determined by our CEO, following
evaluation of the executive officers contributions by the
executive officers supervisor where such supervisor is not
the CEO. The compensation committee chose revenues and operating
income as the financial metrics for bonuses because it believed
that we should reward revenue growth, but only if that revenue
growth is achieved cost effectively. Likewise, it believed a
profitable company with little or no growth was not
acceptable. Thus, the compensation committee considered the
chosen metrics to be the best indicators of financial success
and stockholder value creation. The individual performance
objectives are determined by the executive officer to whom the
potential bonus recipient reports. We base bonuses for our CEO
on revenues and operating income. Our compensation committee
believes that our CEOs responsibility is the overall
performance of ArcSight as a company, with emphasis on
achievement of targeted revenues and operating income.
Consequently, while the independent directors have established
separate individual performance objectives for Mr. Reilly,
related to accomplishment of strategic objectives and executive
officer succession planning, the compensation committee
currently utilizes those only as a factor when evaluating
potential changes in Mr. Reillys base compensation
and potential discretionary equity awards under the bonus plan,
and not for determining Mr. Reillys annual bonus.
Payments of cash bonuses are contingent upon continued
employment through the actual date of payment.
In July 2009, our compensation committee adopted our bonus plan
for fiscal 2010 to reward all employees of the company,
including executive officers. The plan for fiscal 2010 focuses
on revenues and operating income. Under this plan, executive
officers other than Mr. Mosher will receive no payment
unless we achieve at least 95% of
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the targeted revenues and the related operating income goal.
Under the plan, if we achieve our annual revenue and operating
income goals, then our CEO will receive (less the amount of any
quarterly bonuses as described below):
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a payment of 52.5% of base salary if we achieve at least 95% but
less than 98% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 59.5% of base salary if we achieve at least 98% but
less than 100% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 70% of base salary if we achieve at least 100% but
less than 101% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 80% of base salary if we achieve at least 101% but
less than 103% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 85% of base salary if we achieve at least 103% but
less than 105% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 90% of base salary if we achieve at least 105% but
less than 107% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 95% of base salary if we achieve at least 107% but
less than 110% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target; and
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a payment of 100% of base salary if we achieve 110% or more of
the targeted revenues goal and we meet or exceed our operating
income target for that level of performance relative to our
revenue target,
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Messrs. Njemanze, Scheel and Grierson will receive:
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a payment of 33.75% of base salary if we achieve at least 95%
but less than 98% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 38.25% of base salary if we achieve at least 98%
but less than 100% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 45% of base salary if we achieve at least 100% but
less than 101% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 55% of base salary if we achieve at least 101% but
less than 103% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 65% of base salary if we achieve at least 103% but
less than 105% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 75% of base salary if we achieve at least 105% but
less than 107% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 85% of base salary if we achieve at least 107% but
less than 110% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target; and
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a payment of 100% of base salary if we achieve 110% or more of
the targeted revenues goal and we meet or exceed our operating
income target for that level of performance relative to our
revenue target,
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and our remaining executive officers other than Mr. Mosher
will receive:
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a payment of 26.25% of base salary if we achieve at least 95%
but less than 98% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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|
a payment of 29.75% of base salary if we achieve at least 98%
but less than 100% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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a payment of 35% of base salary if we achieve at least 100% but
less than 101% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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|
a payment of 45% of base salary if we achieve at least 101% but
less than 103% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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|
a payment of 55% of base salary if we achieve at least 103% but
less than 105% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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|
a payment of 65% of base salary if we achieve at least 105% but
less than 107% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target;
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|
a payment of 75% of base salary if we achieve at least 107% but
less than 110% of the targeted revenues goal and we meet or
exceed our operating income target for that level of performance
relative to our revenue target; and
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|
|
a payment of 100% of base salary if we achieve 110% or more of
the targeted revenues goal and we meet or exceed our operating
income target for that level of performance relative to our
revenue target.
|
Under the bonus plan for fiscal 2010, the amount of the bonus
payable to each executive officer, other than Mr. Mosher,
with respect to each quarter is 50% of the bonus amount payable
based on such executive officers base salary at the
performance level achieved (provided that the maximum amount of
such quarterly bonus payable in each quarter is 50% of the bonus
amount payable based on the percentage of the executive
officers base salary at the 100% target objective listed
above), based on the formulas described above, prorated for the
period covered and for the executive officers tenure with
us during such period. For example, because we achieved our
revenues and operating income at 95% or greater of target in the
first quarter, Mr. Reilly received a bonus for that quarter
equal to 50% x (52.5% x (CEO Annual Salary
¸
4)), or $24,609.38. Notwithstanding the foregoing, in the event
of a Corporate Transaction (as defined in ArcSights 2007
Equity Incentive Plan), each executive officer will receive a
true up bonus payment determined as if the maximum
amount of the bonus available in any previously completed
quarter of the fiscal year was based on 100% of the maximum
bonus amount payable based on such executives percentage
of base salary at the performance level achieved, as listed
above, prorated for the period covered and for the
individuals tenure with us during such period,
irrespective of the fact that the initial quarterly bonus
payments were limited to the bonus level at the target
objective, payable immediately prior to the closing of the
Corporate Transaction (i.e., each executive will receive a bonus
equal to the maximum percentage of base salary adjusted for such
individuals actual achievements against
his/her
objectives as determined in connection with the distribution(s)
in prior quarters, if applicable, less the amount previously
paid to such executive in such prior quarters). As with the
annual bonuses, the quarterly bonuses payable under the bonus
plan for fiscal 2010, including any true up bonus
21
in the event of a Corporate Transaction, are subject to each
executive officers individual achievement against his or
her individual objectives to the extent applicable. For
quantification of these potential true up payments,
please see the discussion under Employment,
Severance and Change of Control Arrangements below.
Based on our actual financial performance in fiscal 2010, we
achieved 106.4% of our revenue target of $170.5 million and
achieved non-GAAP operating income of $30.5 million (our
GAAP operating income of $19.4 million adjusted to exclude
$889,000 in amortization of intangible assets and
$10.2 million in stock-based compensation expense) well
above the $24.3 million target at that level (instead
achieving operating income equivalent to the target if revenues
had been achieved at the level of greater than 110% of target).
As a result, executive officers other than Mr. Mosher were
eligible for bonuses under the bonus plan for fiscal 2010 based
on achievement at the level of at least 105% but less than 107%
of target, based on our performance under the foregoing scale.
In addition, we achieved our revenues and operating income at
95% or greater of target in the first quarter of fiscal 2010 and
100% or greater of target in the second quarter and third
quarter of fiscal 2010, as a result of which we paid quarterly
bonuses in such quarters in accordance with the formula
described above. As previously discussed, the amount of annual
bonus payable to each executive officer under the 2010 Bonus
Plan upon achievement of our annual revenue and operating income
goals was reduced by the amount of quarterly bonuses previously
paid or payable by ArcSight to such executive officer.
In light of Mr. Moshers position as Senior Vice
President of Worldwide Field Operations, which primarily
involves responsibility for our sales and pre-sales efforts, we
feel it is more appropriate to tie the additional cash
incentives to his revenue-generating efforts and management of
the operating expenses and contribution margin for our sales
department, rather than tying his additional cash incentives
solely to the company-level financial objectives. For this
reason, as in prior years, we pay him a quarterly sales
commission pursuant to his Sales Commission Plan FY
2010, rather than the bonus discussed above for other executive
officers. Under the plan, which was approved in final form by
the compensation committee in July 2009, Mr. Mosher is
entitled to the following quarterly commission payments based on
achieving or exceeding quarterly revenues targets:
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provided that actual revenues exceed 90% of the revenues target
for the period, $250 multiplied by the percentage of revenues
target achieved up to 95%; plus
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$1,250 multiplied by the percentage of revenues target achieved
in excess of 95% up to 100%; plus
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$3,000 multiplied by the percentage of revenues target achieved
in excess of 100% up to 105%; plus
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$6,000 multiplied by the percentage of revenues target achieved
in excess of 105%; plus
|
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|
|
if actual revenues met or exceeded the revenues target for the
period, an additional $10,000,
|
in each case, where the percentage of revenues target achieved
and the percentages defining each range of performance above are
rounded to the nearest tenth of a percent and multiplied by 100.
In addition, under his plan, Mr. Mosher will receive an
additional commission in the event that he achieves or exceeds
his revenues target and either (i) actual operating
expenses for the sales department are less than or equal to the
sales operating expense target, or (ii) actual contribution
margins for the sales department are equal to or greater than
the sales contribution margin target. Actual sales contribution
margins are determined by subtracting actual sales operating
expenses from actual revenues for the quarter. The quarterly
commission amounts payable to Mr. Mosher upon achievement
of his fiscal 2010 quarterly operating expense or contribution
margin targets vary by level of achievement relative to his
quarterly revenues target. The potential amounts payable to
Mr. Mosher in any fiscal quarter at each revenues target
achievement level are:
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|
Revenue Target Achievement Level
|
|
Quarterly Amount
|
|
Up to 100%
|
|
$
|
10,000
|
|
More than 100% and up to 105%
|
|
|
23,000
|
|
More than 105% and up to 115%
|
|
|
35,000
|
|
More than 115%
|
|
|
40,000
|
|
22
Based on our actual financial performance in fiscal 2010
relative to his targets, the company paid Mr. Mosher a cash
bonus of $375,750 in accordance with his plan (which includes
the quarterly commissions to which Mr. Mosher was entitled
under his plan).
The target level bonus for executive officers amount is
generally set at a level based on the median for executives with
similar roles at comparable companies according to the survey
and peer group data described above. The target and
maximum bonus amounts that could be earned by each
named executive officer in fiscal 2010 are reflected in the
Fiscal 2010 Grants of Plan-Based Awards table below.
Our annual cash bonuses, as opposed to our equity grants, are
designed to more immediately reward our executive officers for
their performance during the most recent fiscal year. We believe
that the immediacy of these cash bonuses, in contrast to our
equity grants which vest over a period of time, provides a
significant incentive to our executives towards achieving their
respective individual objectives, and thus our company-level
objectives. Thus, we believe our cash bonuses are an important
motivating factor for our executive officers, in addition to
being a significant factor in attracting and retaining our
executive officers.
We do not have a formal policy regarding adjustment or recovery
of awards or payments if the relevant performance measures upon
which they are based are restated or otherwise adjusted in a
manner that would reduce the size of the award or payment. Our
compensation committee believes that the issue is best addressed
when the need actually arises, and when all of the facts
regarding the restatement or adjustment are known.
Equity
Bonuses under Our Bonus Plan
Our compensation committee believes that granting additional
stock options on an annual basis to existing executive officers
provides an important incentive to retain executives and rewards
them for short-term company performance while also creating
long-term incentives to sustain that performance. Under our
bonus plan for fiscal 2010, the compensation committee approved
a pool of 720,625 shares of common stock to be granted
during the first quarter of fiscal 2011 to our officers,
including our executive officers, on the achievement of the
targeted revenues goal, and, for the officers other than our
CEO, individual performance objectives, for the reasons
described above for cash bonuses. In prior years, the
compensation committee has set the number of shares available
for grant at the beginning of the fiscal year when the plan was
adopted and then adjusted the amount or made additional shares
available for award in connection with the completion of the
fiscal year to take into account changes in the number of
officers participating, the cumulative achievement of quarterly
revenue and operating income targets within the fiscal year to
reward performance and in recognition of our benchmark targets
in light of updated compensation data from our compensation
consultant. Rather than continuing that practice, the
compensation committee simply determined the size of the equity
pool under the bonus plan for fiscal 2010 once in April 2010 in
connection with the fiscal 2010 year-end review, in light
of those factors as well as the relative retention value of
existing grants held by key executive officers. We expect our
compensation committee will follow this revised practice in
future fiscal years. The annual grant to our CEO is determined
by our compensation committee after input from and consultation
with the other independent members of our board of directors.
The annual grants to all other executive officers are determined
by our compensation committee after input from and consultation
with our CEO. Our compensation committee may exercise its
discretion in modifying any recommended adjustments or awards to
executives.
In accordance with the process described above, for grants under
our bonus plan for fiscal 2010, our compensation committee
determined the amount of Mr. Reillys grant based on
the level of our achievement of the targeted revenue and
operating income goals and its evaluation of
Mr. Reillys contribution toward that achievement
relative to the contribution of the remainder of our officers,
based on their performance under their individual performance
objectives and their respective relative contributions to our
success as determined in connection with the evaluations
described above for determination of cash bonuses under our
bonus plan for fiscal 2009, as well as their desire to preserve
a portion of the pool to adjust the aggregate equity incentive
levels for key executive officers whose equity holdings were low
relative to peers at comparable companies. Following that
23
determination, Mr. Reilly made recommendations to our
compensation committee regarding, and our compensation committee
ultimately determined, the awards made to our other executive
officers.
When making the recommendation and determining the amounts of
the awards, consideration was given to the median equity
compensation of executives with similar roles at comparable
companies according to the survey and peer group data described
above. See footnote (2) to the Fiscal 2010 Grants of
Plan-Based Awards table below for the specific amounts of
these grants for our named executive officers. Equity grants
made pursuant to the bonus plan vest over four fiscal years and
no shares vest before the first day of the succeeding fiscal
year (the fiscal year following the fiscal year in which the
options were actually granted). In addition to the annual awards
pursuant to our bonus plan, grants of stock options may be made
to executive officers following a significant change in job
responsibility or in recognition of a significant achievement.
The shares underlying, exercise price
and grant date fair value of option awards made to
each named executive officer in fiscal 2010 are reflected in the
Fiscal 2010 Grants of Plan-Based Awards table below.
The compensation committee has the discretion to award cash
bonuses or equity-based grants outside of our bonus plan, which
it has exercised in prior fiscal years, but did not exercise in
fiscal 2010. In May 2010, the compensation committee reviewed
information from Compensia regarding appropriate levels of
annual refresh grants for the group of officers covered by our
bonus plan for fiscal 2010, our actual financial performance in
fiscal 2010 and the recommendations of Mr. Reilly, and
approved grants to plan participants for the aggregate
720,625 shares available 720,500 shares (leaving
125 shares unused), including options for an aggregate of
384,500 shares granted to executive officers. The amounts
granted and exercise price for each grant to our named executive
officers under our Fiscal Year 2010 Management Bonus Plan are
reflected in the footnotes to the Fiscal 2010 Grants of
Plan-Based Awards and Outstanding Equity Awards at
April 30, 2010 tables below. In May 2010, our
compensation committee also approved two separate option grants
to Mr. Njemanze aggregating 400,000 shares (including
the shares subject to the option awarded to him under the bonus
plan for fiscal 2010) in order to provide a strong
retention incentive for him in recognition of his expected
continued extraordinary and unique role in our success. The
first 200,000 share option (which included
85,000 shares under the bonus plan for fiscal
2010) vests as to 25% of the shares on May 1, 2011,
with the remainder vesting monthly over the following three
years. The second 200,000 share option vests as to 75% of
the shares on May 1, 2013,with the remaining 25% vesting on
May 1, 2014.
Severance
and Change of Control Payments
Under the offer letters and option grant agreements with some of
our executive officers we are, required to make specified
severance payments and accelerate the vesting of equity awards
in the event of a termination in connection with a change in
control. For quantification of and additional information
regarding these severance and change of control arrangements,
please see the discussion under Employment,
Severance and Change of Control Arrangements below. Our
board of directors determined to provide these severance and
change of control arrangements in order to mitigate some of the
risk that exists for executives working in a small, dynamic
startup company, an environment where there is a meaningful
likelihood that we may be acquired. These arrangements are
intended to attract and retain qualified executives that have
alternatives that may appear to them to be less risky absent
these arrangements, and to mitigate a potential disincentive to
consideration and execution of such an acquisition, particularly
where the services of these executive officers may not be
required by the acquirer.
Other
Benefits
In addition to participation in the 2007 Employee Stock Purchase
Plan as discussed above, executive officers are eligible to
participate in all of our employee benefit plans, such as
medical, dental, vision, group life, disability, and accidental
death and dismemberment insurance and our 401(k) plan, in each
case on the same basis as other employees. We do not match
employee contributions under our 401(k) plan. We also provide
vacation and other paid holidays to all employees, including our
executive officers, which are comparable to those provided at
peer companies. There were no special benefits or perquisites
provided to any executive officer in fiscal 2010.
24
Compensation
Committee Report
The compensation committee has reviewed and discussed the
Compensation Disclosure and Analysis set forth above with our
management. Based on its review and discussions, the
compensation committee recommended to our board of directors
that the Compensation Disclosure and Analysis be included in
this proxy statement.
Submitted by the Compensation Committee of
the Board of Directors,
Craig Ramsey
Sandra Bergeron
Ted Schlein
Roger Siboni
25
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table sets forth certain information with respect
to compensation awarded to, earned by or paid to each person who
served as our Chief Executive Officer, our Chief Financial
Officer and each of our three other most highly compensated
executive officers whose compensation was more than $100,000
during the fiscal year ended April 30, 2010, 2009 and 2008.
We refer to these executive officers as our named
executive officers elsewhere in this proxy statement.
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Non-Equity
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Name and
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Fiscal
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|
Option
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|
Incentive Plan
|
|
All Other
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Principal Position
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Year
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|
Salary(1)
|
|
Awards(2)
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|
Compensation(3)
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Compensation
|
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Total
|
|
Thomas Reilly
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2010
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$
|
375,000
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$
|
1,210,981
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|
$
|
337,500
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|
|
|
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$
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1,923,481
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|
President and Chief
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2009
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|
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|
343,750
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(4)
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1,804,212
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318,750
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2,466,712
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|
Executive Officer
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2008
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300,000
|
|
|
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225,000
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|
|
|
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525,000
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Stewart Grierson
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2010
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255,000
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620,507
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191,250
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|
|
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1,066,757
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Chief Financial Officer
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2009
|
|
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|
255,000
|
|
|
|
172,314
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|
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|
174,038
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|
|
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601,352
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2008
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234,167
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(6)
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168,750
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191,250
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594,167
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Hugh S. Njemanze
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2010
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300,000
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827,342
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225,000
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|
|
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1,352,342
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Chief Technology Officer
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2009
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300,000
|
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172,314
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208,650
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680,964
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and Executive Vice President of Research and Development
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2008
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289,583
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(7)
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168,750
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225,000
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683,333
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Kevin Mosher
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2010
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300,000
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620,507
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$
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375,750
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(8)
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1,296,257
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Senior Vice President of Worldwide Field Operations
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2009
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300,000
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150,774
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231,500
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(9)
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682,274
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Jeffrey Scheel
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2010
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250,000
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823,932
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187,500
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1,261,432
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Senior Vice President of Business Development
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2009
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192,497
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(10)
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176,800
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105,749
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10,000
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(11)
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485,046
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(1) |
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The amounts in this column include payments by us in respect of
accrued vacation, holidays and sick days, as well as any salary
contributed by the named executive officer to our 401(k) plan. |
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(2) |
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Amounts shown in this column do not reflect dollar amounts
actually received by the officer. Instead, these amounts reflect
the aggregate full grant date fair value calculated in
accordance with ASC 718 for awards granted during 2010. See
Note 9 of the Notes to our Consolidated Financial
Statements in our annual report on
Form 10-K
for fiscal 2010 for a discussion of all assumptions made in
determining the grant date fair values. The number of stock
options granted in 2010 to our Named Executive Officers is shown
in the Fiscal 2010 Grants of Plan Based Awards table
included below |
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(3) |
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The amounts in this column reflect amounts paid pursuant to our
Fiscal Year 2008 Management Bonus Plan, our Fiscal Year 2009
Management Bonus Plan and our Fiscal Year 2010 Management Bonus
Plan. For a description of these plans, see Compensation
Discussion and Analysis Cash Bonuses under Our Bonus
Plan. |
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(4) |
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In September 2008, Mr. Reillys annual salary was
increased to $375,000, effective October 1, 2008. |
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(6) |
|
In March 2008, Mr. Griersons annual salary was
increased to $255,000, effective March 1, 2008. |
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(7) |
|
In September 2007, Mr. Njemanzes annual salary was
increased to $300,000, effective October 1, 2007. |
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(8) |
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This amount was paid pursuant to pursuant to
Mr. Moshers Sales Commission Plan FY
2010. For a description of this plan, see Compensation
Discussion and Analysis Cash Bonuses under Our Bonus
Plan. |
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(9) |
|
This amount was paid pursuant to pursuant to
Mr. Moshers Sales Commission Plan FY
2009. For a description of this plan, see Compensation
Discussion and Analysis Cash Bonuses under Our Bonus
Plan. |
26
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(10) |
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Mr. Scheel began service with us in June 2008.
Mr. Scheels annual salary was $210,000 in fiscal 2009. |
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(11) |
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This amount was paid as an initial signing bonus in June 2008. |
For a description of the material terms of offer letters and
employment agreements for the named executive officers, see
Employment, Severance and Change of Control
Arrangements, below.
Fiscal
2010 Grants of Plan-Based Awards
The following table summarizes grants made to each of our named
executive officers in fiscal 2010.
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Estimated
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Possible Future
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Grant Date
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Payouts
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Number of
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Exercise
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Fair Value
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Estimated Possible Future Payouts Under Non-Equity
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Under Equity
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Securities
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Price of
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of Stock and
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Grant
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Incentive Plan
Awards(1)
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Incentive Plan
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Underlying
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Option
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Option
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Name
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Date
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Target
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Maximum
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|
Awards(2)
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Options(3)
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Awards
|
|
Awards(4)
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|
Thomas Reilly
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|
6/9/09
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|
|
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125,000
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|
$
|
18.00
|
|
|
$
|
1,210,981
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|
|
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|
|
$
|
262,500
|
|
|
$
|
375,000
|
|
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Stewart Grierson
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6/9/09
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|
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|
|
|
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|
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64,050
|
|
|
|
18.00
|
|
|
|
620,507
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|
|
|
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|
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|
|
114,750
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|
255,000
|
|
|
|
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Hugh S. Njemanze
|
|
|
6/9/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,400
|
|
|
|
18.00
|
|
|
|
827,342
|
|
|
|
|
|
|
|
|
135,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Mosher
|
|
|
6/9/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,050
|
|
|
|
18.00
|
|
|
|
620,507
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Scheel
|
|
|
6/9/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,890
|
|
|
|
18.00
|
|
|
|
289,570
|
|
|
|
|
6/9/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,158
|
|
|
|
18.00
|
|
|
|
534,362
|
|
|
|
|
|
|
|
|
112,500
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column reflect amounts payable pursuant to
our Fiscal Year 2010 Management Bonus Plan, except for amounts
payable to Mr. Mosher pursuant to his Sales Commission
Plan FY 2010. |
|
(2) |
|
As described in Compensation Discussion and
Analysis Equity Bonuses under Our Bonus Plan,
all of our executive officers were eligible to receive options
to purchase shares of our common stock pursuant to our Fiscal
Year 2010 Management Bonus Plan. These options were allocated
out of a pool of 720,625 shares of our common stock for all
of our officers, including our executive officers. There were no
threshold, target or maximum amounts for these option grants, as
the allocation of shares to the eligible executives was
determined by our compensation committee, with input from
Mr. Reilly, except that Mr. Reilly had no input into
his option grant. In May 2010, we granted the following options
to purchase shares of our common stock at an exercise price of
$21.63 per share pursuant to the allocation determined by our
compensation committee and Mr. Reilly: Mr. Reilly,
131,500 shares; Mr. Grierson, 42,500 shares;
Mr. Njemanze, 400,000 shares; Mr. Mosher,
36,000 shares; and Mr. Scheel, 36,000 shares. For
additional information on these grants, see the footnotes to the
Outstanding Equity Awards at April 30, 2010
table. |
|
(3) |
|
Each stock option was granted pursuant to our 2007 Equity
Incentive Plan. Each option vests as to 1/4th of the shares of
common stock underlying it on May 1, 2010 and vests as to
1/48th of the underlying shares monthly thereafter until fully
vested on May 1, 2013 and is exercisable as it vests. Each
of these stock options expires ten years from the date of grant.
These stock options are also subject to accelerated vesting upon
involuntary termination or constructive termination following a
change of control of us, as discussed below in
Employment, Severance and Change of Control
Arrangements. |
|
(4) |
|
Amounts shown in this column do not reflect dollar amounts
actually received by the officer. Instead, these amounts reflect
the aggregate full grant date fair value calculated in
accordance with ASC 718 for awards granted during 2010.
Please see Note 9 of the Notes to our Consolidated
Financial Statements in our annual report on
Form 10-K
for fiscal 2010 for a discussion of all assumptions made in
determining the grant date fair values of the options we granted
in fiscal 2010. |
|
(5) |
|
There is not a maximum amount that Mr. Mosher may receive
under his Sales Commission Plan FY 2010, For a
description of this plan, see Compensation Discussion and
Analysis Cash Bonuses under Our Bonus Plan. |
27
Outstanding
Equity Awards at April 30, 2010
The following table summarizes outstanding equity awards held by
each of our named executive officers as of April 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Underlying Unexercised
|
|
Option
|
|
Options
|
|
|
Options(1)
|
|
Exercise
|
|
Expiration
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price(2)
|
|
Date
|
|
Thomas
Reilly(3)
|
|
|
14,705
|
(4)
|
|
|
|
|
|
$
|
6.80
|
|
|
|
1/23/2017
|
|
|
|
|
775,575
|
(4)
|
|
|
|
|
|
|
6.80
|
|
|
|
1/23/2017
|
|
|
|
|
290,484
|
(4)
|
|
|
|
|
|
|
6.80
|
|
|
|
1/23/2017
|
|
|
|
|
22,191
|
(5)
|
|
|
24,122
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
50,000
|
(6)
|
|
|
150,000
|
(6)
|
|
|
7.76
|
|
|
|
9/30/2018
|
|
|
|
|
75,000
|
(7)
|
|
|
125,000
|
(7)
|
|
|
7.76
|
|
|
|
9/30/2018
|
|
|
|
|
|
(8)
|
|
|
125,000
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
Stewart
Grierson(9)
|
|
|
80,000
|
(10)
|
|
|
|
|
|
|
0.48
|
|
|
|
10/5/2014
|
|
|
|
|
25,000
|
(10)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/25/2015
|
|
|
|
|
62,500
|
(10)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/25/2015
|
|
|
|
|
23,255
|
(11)
|
|
|
495
|
(11)
|
|
|
6.08
|
|
|
|
6/4/2016
|
|
|
|
|
5,398
|
(12)
|
|
|
2,005
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
5,888
|
(12)
|
|
|
6,459
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
18,687
|
(5)
|
|
|
20,313
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
|
(8)
|
|
|
64,050
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
Hugh S.
Njemanze(13)
|
|
|
125,000
|
(10)
|
|
|
|
|
|
|
0.80
|
|
|
|
2/2/2015
|
|
|
|
|
25,000
|
(10)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/25/2015
|
|
|
|
|
23,255
|
(11)
|
|
|
495
|
(11)
|
|
|
6.08
|
|
|
|
6/4/2016
|
|
|
|
|
5,398
|
(12)
|
|
|
2,005
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
17,388
|
(12)
|
|
|
6,459
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
18,687
|
(5)
|
|
|
20,313
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
|
(8)
|
|
|
85,400
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
Kevin
Mosher(14)
|
|
|
25,000
|
(10)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/25/2015
|
|
|
|
|
41,976
|
(10)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/25/2015
|
|
|
|
|
23,255
|
(11)
|
|
|
495
|
(11)
|
|
|
6.08
|
|
|
|
6/4/2016
|
|
|
|
|
2,556
|
(12)
|
|
|
950
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
15,672
|
(12)
|
|
|
5,822
|
(12)
|
|
|
10.00
|
|
|
|
8/6/2017
|
|
|
|
|
16,351
|
(5)
|
|
|
17,774
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
|
(8)
|
|
|
64,050
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
Jeffrey
Scheel(14)
|
|
|
836
|
(15)
|
|
|
21,667
|
(15)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
|
(8)
|
|
|
29,890
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
|
|
|
|
(8)
|
|
|
55,158
|
(8)
|
|
|
18.00
|
|
|
|
6/8/2019
|
|
|
|
|
(1) |
|
Each stock option was granted pursuant to our 2002 Stock Plan or
2007 Equity Incentive Plan. The vesting and exercisability of
each stock option is described in the footnotes below. Each of
these stock options expires ten years from the date of grant.
These stock options are also subject to accelerated vesting upon
involuntary termination or constructive termination following a
change of control, as discussed below in
Employment, Severance and Change of Control
Arrangements. |
28
|
|
|
(2) |
|
Represents the fair market value of a share of our common stock
on the options grant date, as determined by our board of
directors, or if the grant date was after our initial public
offering, the closing price of our common stock on the grant
date. |
|
(3) |
|
In May 2010, we granted Mr. Reilly an option to purchase
131,500 shares of our common stock at an exercise price of
$21.63 per share pursuant to our Fiscal Year 2010 Management
Bonus Plan. This option vests as to
1/4th of the
shares of common stock underlying it on May 1, 2011 and as
to 1/48th of the underlying shares monthly thereafter until
fully vested on May 1, 2014. For a description of this
plan, see Compensation Discussion and Analysis
Equity Bonuses under Our Bonus Plan. |
|
(4) |
|
Includes options to purchase 14,705 shares,
856,748 shares, and 290,484 shares granted to
Mr. Reilly concurrently in connection with his hiring. Each
of the option to purchase 14,705 shares and the option to
purchase 856,748 shares vested as to 1/4th of the shares of
common stock underlying it on November 27, 2007 and as to
1/48th of the underlying shares monthly thereafter until fully
vested on November 27, 2010. The option to purchase
290,484 shares vested as to 1/4th of the shares of common
stock underlying it on November 27, 2007 and as to 1/48th
of the underlying shares monthly thereafter until fully vested
on November 27, 2010. |
|
(5) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on May 1, 2009 and vests as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2012. |
|
(6) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on October 1, 2009 and vests as to 1/48th of
the underlying shares monthly thereafter until fully vested on
October 1, 2012. |
|
(7) |
|
Option vests, commencing on November 1, 2008, as to 1.3889%
of the underlying shares each full month until fully vested on
October 1, 2014. |
|
(8) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on May 1, 2010 and as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2013. |
|
(9) |
|
In May 2010, we granted Mr. Grierson an option to purchase
42,500 shares of our common stock at an exercise price of
$21.63 per share pursuant to our Fiscal Year 2010 Management
Bonus Plan. This option vests as to
1/4th of the
shares of common stock underlying it on May 1, 2011 and as
to 1/48th of the underlying shares monthly thereafter until
fully vested on May 1, 2014. For a description of this
plan, see Compensation Discussion and Analysis
Equity Bonuses under Our Bonus Plan. |
|
(10) |
|
This stock option is fully vested. |
|
(11) |
|
This stock option is fully vested and exercisable as of
May 1, 2010 |
|
(12) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on May 1, 2008 and vests as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2011. |
|
(13) |
|
In May 2010, we granted Mr. Njemanze two separate options
to purchase an aggregate of 400,000 shares of our common
stock at an exercise price of $21.63 per share, including 85,000
pursuant to our Fiscal Year 2010 Management Bonus Plan. The
first 200,000 share option (which included
85,000 shares under the bonus plan for fiscal
2010) vests as to 1/4th of the shares of common stock
underlying it on May 1, 2011 and as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2014. The second 200,000 share option vests as
to 75% of the shares on May 1, 2013, with the remaining 25%
vesting on May 1, 2014. For a description of this plan, see
Compensation Discussion and Analysis Equity
Bonuses under Our Bonus Plan. |
|
(14) |
|
In May 2009, we granted Messrs. Mosher and Scheel each an
option to purchase 36,000 shares of our common stock at an
exercise price of $21.63 per share pursuant to our Fiscal Year
2010 Management Bonus Plan. Each option vested as to 1/4th of
the shares of common stock underlying it on May 1, 2011 and
as to 1/48th of the underlying shares monthly thereafter until
fully vested on May 1, 2014. For a description of this
plan, see Compensation Discussion and Analysis
Equity Bonuses under Our Bonus Plan. |
|
(15) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on June 16, 2009 and vests as to 1/48th of
the underlying shares monthly thereafter until fully vested on
June 16, 2013. |
29
Option
Exercises and Stock Vested in Fiscal 2010
The following table shows the number of options exercised by our
named executive officers during the fiscal year ended
April 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Value
|
|
|
|
Shares Acquired
|
|
|
Realized on
|
|
Name
|
|
on Exercise (#)
|
|
|
Exercise
($)(1)
|
|
|
Thomas Reilly
|
|
|
81,173
|
|
|
$
|
1,328,672
|
|
Stewart Grierson
|
|
|
131,500
|
|
|
|
2,941,460
|
|
Hugh S. Njemanze
|
|
|
|
|
|
|
|
|
Kevin Mosher
|
|
|
|
|
|
|
|
|
Jeffrey Scheel
|
|
|
17,497
|
|
|
|
275,521
|
|
|
|
|
(1) |
|
Based on the difference between the closing price of our common
stock reported on The NASDAQ Global Market on the exercise date
and the exercise price of the option. |
Employment,
Severance and Change of Control Arrangements
Under our offer letter with Mr. Reilly, if he is subject to
an involuntary termination within 12 months of a change in
control, then for 12 months following that termination he
is entitled to continued payment of his then-current annual base
salary and accelerated vesting of all remaining unvested stock
options.
Under our offer letter with Mr. Grierson, if he is subject
to an involuntary termination within six months of a change in
control, then for three months following such termination he is
entitled to continued payment of his then-current base salary
and COBRA health insurance premiums, and will also receive
accelerated vesting of 50% of his remaining unvested stock
options as of his termination date.
Under our offer letter with Mr. Njemanze, if we terminate
his employment for any reason, then for six months following
such termination he is entitled to continued payment of his
then-current base salary.
Under our offer letter with Mr. Mosher, if he is subject to
an involuntary termination within 12 months of a change in
control, then for 12 months following that termination he
is entitled to continued payment of his then-current annual base
salary and COBRA health insurance premiums, and will also
receive accelerated vesting of unvested stock options that would
have vested if his actual period of service was 24 months
after his termination date.
Absent a change of control event, no executive officer other
than Mr. Njemanze is entitled upon termination to either
equity vesting acceleration or cash severance payments.
For Mr. Reilly, cause is defined as the occurrence of any
of the following:
|
|
|
|
|
willful failure by the executive officer to substantially
perform his duties under his employment agreement, after receipt
of a written warning from our board of directors;
|
|
|
|
a willful act by the executive officer that is injurious to us;
|
|
|
|
a willful breach by the executive officer of a material
provision of his employment agreement or offer letter; or
|
|
|
|
a material violation by the executive officer of a federal or
state law or regulation applicable to our business.
|
For Messrs. Reilly, Grierson, and Mosher, involuntary
termination is defined as the occurrence of any of the following:
|
|
|
|
|
we terminate the executive officer without cause; or
|
|
|
|
the executive officer resigns within 30 days after the
scope of his or her job responsibilities or authority was
materially reduced without his or her written consent.
|
30
In addition, the resignation by Messrs. Grierson or Reilly
within 30 days after receipt of notice that his principal
workplace will be relocated 100 miles or more from its
location at the time of notice shall constitute involuntary
termination.
For Messrs. Grierson and Mosher cause is defined as the
occurrence of any of the following:
|
|
|
|
|
the commission of an act of embezzlement, fraud, dishonesty or
breach of fiduciary duty to us;
|
|
|
|
deliberate and repeated violation of our rules or the valid
instructions of our board of directors or an authorized officer;
|
|
|
|
any unauthorized disclosure by the executive officer of any of
our secrets or confidential information;
|
|
|
|
the inducement of any of our clients or customers to break any
contract with us; or
|
|
|
|
the engagement in any conduct that could reasonably be expected
to result in loss, damage or injury to us.
|
A change of control will occur, generally, in the event of a
merger, sale of our assets or a stock acquisition in which the
stockholders of our company will hold less than 50% of the stock
of the acquiring company following the transaction.
The following table summarizes the benefits payable to each
named executive officer pursuant to the arrangements described
above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of
|
|
|
|
|
|
Involuntary Termination Within
|
|
|
|
Control
|
|
|
Termination
|
|
|
One Year of a Change of Control
|
|
|
|
True Up
|
|
|
|
|
|
Acceleration of
|
|
|
|
|
|
Acceleration of
|
|
Name
|
|
Bonus(1)
|
|
|
Salary
|
|
|
Equity Vesting
|
|
|
Salary
|
|
|
Equity
Vesting(2)
|
|
|
Thomas Reilly
|
|
$
|
60,938
|
|
|
|
|
|
|
|
|
|
|
$
|
375,000
|
(3)
|
|
$
|
7,798,096
|
(4)
|
Stewart Grierson
|
|
|
49,406
|
|
|
|
|
|
|
|
|
|
|
|
68,410
|
(5)
|
|
|
357,732
|
(6)
|
Hugh S. Njemanze
|
|
|
58,125
|
|
|
$
|
150,000
|
(7)
|
|
|
|
|
|
|
150,000
|
(7)
|
|
|
|
|
Kevin Mosher
|
|
|
58,125
|
|
|
|
|
|
|
|
|
|
|
|
318,641
|
(8)
|
|
|
647,297
|
(9)
|
Jeffrey Scheel
|
|
|
48,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects one quarter of true up bonus. Calculated as
if the highest level of performance objectives were obtained
during the fiscal quarter prior to the change of control. |
|
(2) |
|
Calculated based on the termination or change of control taking
place as of April 30, 2010, the last day of our most recent
fiscal year, and based on the closing price on that day of
$22.81 per share. |
|
(3) |
|
Reflects continued base salary for 12 months following an
involuntary termination within 12 months of a change in
control. See the narrative description of the terms of
Mr. Reillys employment arrangements, above, for more
information. |
|
(4) |
|
Mr. Reilly is entitled to accelerated vesting of 100% of
his remaining unvested stock options upon an involuntary
termination of Mr. Reilly within 12 months of a change
in control. See the narrative description of the terms of
Mr. Reillys employment arrangements, above, for more
information. |
|
(5) |
|
Reflects continued base salary and COBRA health insurance
premiums for three months following an involuntary termination
within six months of a change in control. See the narrative
description of the terms of Mr. Grierson employment
arrangements, above, for more information. |
|
(6) |
|
Reflects accelerated vesting of 50% of Mr. Griersons
remaining unvested stock options following an involuntary
termination within six months of a change in control. See the
narrative description of the terms of Mr. Grierson
employment arrangements, above, for more information. |
|
(7) |
|
Reflects continued base salary for six months following
termination. Mr. Njemanze is entitled to this continued
base salary regardless of the circumstances of his termination.
See the narrative description of the terms of Mr. Njemanze
employment arrangements, above, for more information. |
|
(8) |
|
Reflects continued base salary and COBRA health insurance
premiums for 12 months following an involuntary termination
within 12 months of a change in control. See the narrative
description of the terms of Mr. Moshers employment
arrangements, above, for more information. |
31
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|
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(9) |
|
Mr. Mosher is entitled to accelerated vesting of unvested
stock options that would have vested if his actual period of
service was 24 months after his termination date upon an
involuntary termination of Mr. Mosher within 12 months
of a change in control. See the narrative description of the
terms of Mr. Moshers employment arrangements, above,
for more information. |
Limitation
on Liability and Indemnification Matters
Our certificate of incorporation contains provisions that limit
the liability of our directors for monetary damages to the
fullest extent permitted by Delaware law. Consequently, our
directors will not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary
duties as directors, except liability for:
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any breach of the directors duty of loyalty to us or our
stockholders;
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any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
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any transaction from which the director derived an improper
personal benefit.
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Our certificate of incorporation provides that we are required
to indemnify our directors and our bylaws provide that we are
required to indemnify our directors and officers, in each case
to the fullest extent permitted by Delaware law. Any repeal of
or modification to our certificate of incorporation or bylaws
may not adversely affect any right or protection of a director
or officer for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
Our bylaws also provide that we must advance expenses incurred
by a director or officer in advance of the final disposition of
any action or proceeding, and permit us to secure insurance on
behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in that capacity
regardless of whether we would otherwise be permitted to
indemnify him or her under the provisions of Delaware law. We
have entered and expect to continue to enter into agreements to
indemnify our directors, executive officers and other employees
as determined by our board of directors. With certain
exceptions, these agreements provide for indemnification for
related expenses including, among other things, attorneys
fees, judgments, fines and settlement amounts incurred by any of
these individuals in any action or proceeding. We believe that
these bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors
and officers. We also maintain directors and
officers liability insurance.
The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws may discourage
stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty. They may also reduce the
likelihood of derivative litigation against our directors and
officers, even though an action, if successful, might benefit us
and other stockholders. Further, a stockholders investment
may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. At present, there
is no material pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification
is sought, and we are not aware of any threatened litigation
that may result in claims for indemnification.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the executive officer and director arrangements
discussed above under Election of Class III
Directors Director Compensation and
Executive Compensation, below is a description of
transactions since May 1, 2009 to which we have been a
party, in which the amount involved in the transaction exceeds
or will exceed $120,000, and in which any of our directors,
executive officers or beneficial holders of more than 5% of our
capital stock, or any immediate family member of, or person
sharing the household with any of these individuals, had or will
have a direct or indirect material interest.
32
Stock
Option Grants
We have granted some of our executive officers and directors
equity-based awards. See the related descriptions in this
prospectus under the captions Election of Class III
Directors Director Compensation and
Executive Compensation.
Employment
Arrangements and Indemnification Agreements
We have entered into employment arrangements with our executive
officers. See Executive Compensation
Employment, Severance and Change of Control Arrangements
for information regarding these arrangements with our named
executive officers.
We have entered or will enter into indemnification agreements
with our directors and executive officers. The indemnification
agreements and our certificate of incorporation and bylaws
require us to indemnify our directors and executive officers to
the fullest extent permitted by Delaware law. See
Executive Compensation Limitation on Liability
and Indemnification Matters.
Review,
Approval or Ratification of Transactions with Related
Parties
Our policy and the charters of our nominating and corporate
governance committee and our audit committee require that any
transaction with a related party that must be reported under
applicable rules of the SEC, other than compensation related
matters, must be reviewed and approved or ratified by our
nominating and corporate governance committee, unless the
related party is, or is associated with, a member of that
committee, in which event the transaction must be reviewed and
approved by our audit committee. These committees have not
adopted policies or procedures for review of, or standards for
approval of, these transactions.
33
PRINCIPAL
STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
August 1, 2010 for:
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each person who we know beneficially owns more than 5% of our
common stock;
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each of our directors;
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each of our named executive officers; and
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all of our directors and executive officers as a group.
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We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the table below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws.
Applicable percentage ownership is based on
34,452,675 shares of common stock outstanding at
August 1, 2010. In computing the number of shares of common
stock beneficially owned by a person and the percentage
ownership of that person, we deemed to be outstanding all shares
of common stock subject to options, warrants or other
convertible securities held by that person or entity that are
currently exercisable or exercisable within 60 days of
August 1, 2010. We did not deem these shares outstanding,
however, for the purpose of computing the percentage ownership
of any other person. Unless otherwise indicated, the address of
each beneficial owner listed in the table below is
c/o ArcSight,
Inc., 5 Results Way, Cupertino, California 95014.
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Shares
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Name of Beneficial Owner
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Beneficially Owned
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Percentage
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Directors and Executive Officers:
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Thomas
Reilly(1)
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1,315,961
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3.7
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%
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Sandra
Bergeron(2)
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128,210
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*
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William P.
Crowell(3)
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21,506
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*
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E. Stanton McKee,
Jr.(4)
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118,210
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*
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Craig
Ramsey(5)
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1,221,392
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3.5
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Scott A.
Ryles(6)
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95,140
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*
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Ted
Schlein(7)
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2,761,613
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8.0
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Roger S.
Siboni(8)
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21,167
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*
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Ernest von
Simson(9)
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107,068
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*
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Stewart
Grierson(10)
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273,522
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*
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Kevin
Mosher(11)
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281,317
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*
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Hugh S.
Njemanze(12)
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972,802
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2.8
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Jeffrey
Scheel(13)
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34,342
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*
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All executive officers and directors as a group
(14 persons)(14)
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7,487,883
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20.1
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Other 5% Stockholders:
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Entities affiliated with FMR
LLC(15)
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4,975,070
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14.4
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%
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Entities affiliated with Kleiner Perkins Caufield &
Byers(7)
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3,493,360
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10.1
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Daly Gamma Limited
Partnership(16)
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1,974,534
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5.7
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* |
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Less than 1% |
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(1) |
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Includes options exercisable for 1,309,166 shares of common
stock within 60 days of August 1, 2010 of which
96,829 shares, as of August 1, 2010, would be subject
to a right of repurchase in our favor upon exercise and
Mr. Reillys cessation of service prior to vesting. |
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(2) |
|
Includes options exercisable for 128,210 shares of common
stock within 60 days of August 1, 2010. |
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(3) |
|
Includes options exercisable for 21,506 shares of common
stock within 60 days of August 1, 2010. |
34
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(4) |
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Includes options exercisable for 118,210 shares of common
stock within 60 days of August 1, 2010. |
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(5) |
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Represents 725,062 shares held by Mr. Ramsey,
201,090 shares held by Mr. Ramsey and Maja Ramsey, his
wife, together, and 167,030 shares held by Ms. Ramsey,
and includes options exercisable for 128,210 shares of
common stock within 60 days of August 1, 2010 that are
held by Mr. Ramsey. |
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(6) |
|
Represents 330 shares acquired by the Scott A.
Ryles & Marcia T. Ryles Trust in pro rata
distributions by Kleiner, Perkins, Caulfield & Byers
X-A, L.P. on June 23, 2009 and June 24, 2010, and
600 shares held by Mr. Ryles. Includes options
exercisable for 94,210 shares of common stock within
60 days of August 1, 2010. Excludes
3,493,360 shares held by entities affiliated with Kleiner
Perkins Caufield & Byers. Mr. Ryles is a limited
partner in KPCB Holdings, Inc., as nominee; however,
Mr. Ryles does not have voting or dispositive power with
respect to these shares and disclaims beneficial ownership
except to the extent of his pecuniary interest in these shares. |
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(7) |
|
Includes options exercisable for 11,312 shares of common
stock within 60 days of August 1, 2010. Includes
1,371,399 shares beneficially owned by Kleiner Perkins
Caufield & Byers IX-A, L.P.; 42,337 shares
beneficially owned by Kleiner Perkins Caufield & Byers
IX-B, L.P.; 1,207,162 shares beneficially owned by Kleiner
Perkins Caufield & Byers X-A, L.P.; 34,047 shares
beneficially owned by Kleiner Perkins Caufield & Byers
X-B, L.P.;
85,835 shares beneficially owned by Ted Schlein, Trustee,
Schlein Family Trust Dtd 4/20/99, 330 shares held by
Mr. Schleins sister, 66 shares held by
Mr. Schleins
father-in-law,
and 9,125 shares held by Mr. Schlein. Excludes
1,974,534 shares held by Daly Alpha Limited Partnership and
Daly Gamma Limited Partnership. See footnote (15) for
information regarding those shares. Excludes 838,415 shares
held by other entities affiliated with Kleiner Perkins
Caufield & Byers as to which Mr. Schlein does not
have voting or dispositive power. Shares are held for
convenience in the name of KPCB Holdings, Inc., as
nominee for the account of entities affiliated with
Kleiner Perkins Caufield & Byers and others. KPCB
Holdings, Inc. has no voting, dispositive or pecuniary interest
in any such shares. Mr. Schlein disclaims beneficial
ownership of any of the shares held by the aforementioned
entities, except to the extent of his pecuniary interest
therein. The address of entities affiliated with Kleiner Perkins
Caufield & Byers is 2750 Sand Hill Road, Menlo Park,
California 94025. |
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(8) |
|
Includes options exercisable for 20,791 shares of common
stock within 60 days of August 1, 2010. Excludes
3,493,360 shares held by entities affiliated with Kleiner
Perkins Caufield & Byers. Mr. Siboni is a limited
partner in KPCB Holdings, Inc., as nominee; however,
Mr. Siboni does not have voting or dispositive power with
respect to these shares and disclaims beneficial ownership
except to the extent of his pecuniary interest in these shares. |
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(9) |
|
Includes 2,572 shares distributed to the reporting
persons spouse in a pro rata distribution by KPCB
Holdings. Includes options exercisable for 98,210 shares of
common stock within 60 days of August 1, 2010.
Excludes 3,493,360 shares held by entities affiliated with
Kleiner Perkins Caufield & Byers. Mr. von Simson is a
limited partner in KPCB Holdings, Inc., as nominee; however, Mr.
von Simson does not have voting or dispositive power with
respect to these shares and disclaims beneficial ownership
except to the extent of his pecuniary interest in these shares. |
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(10) |
|
Represents 13,632 shares held by Mr. Grierson and
10,000 shares held by Mr. Grierson and Jennifer
Murray, his wife, together, and includes options exercisable for
249,890 shares of common stock within 60 days of
August 1, 2010 that are held by Mr. Grierson. |
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(11) |
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Includes options exercisable for 152,813 shares of common
stock within 60 days of August 1, 2010. |
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(12) |
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Represents 249,295 shares held by Mr. Njemanze and
472,500 shares held by Mr. Njemanze and Cherl M.
Njemanze, his wife, together, and includes options exercisable
for 251,007 shares of common stock within 60 days of
August 1, 2010 that are held by Mr. Njemanze. |
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(13) |
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Includes options exercisable for 33,349 shares of common
stock within 60 days of August 1, 2010. |
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(14) |
|
Includes options exercisable for 2,746,404 shares of common
stock within 60 days of August 1, 2010 of which
96,829 shares, as of August 1, 2010, would be subject
to a right of repurchase in our favor upon exercise and
Mr. Reillys cessation of service prior to vesting.
Excludes the shares indicated to be excluded in footnote (7). |
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(15) |
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Includes 4,975,070 shares beneficially owned by Fidelity
Management & Research Company (Fidelity),
a wholly-owned subsidiary of FMR LLC. Fidelity Growth Company
Fund, an investment company registered |
35
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under the Investment Company Act of 1940, owns 3,317,419 of the
shares held in aggregate by Fidelity. Edward C. Johnson 3rd,
Chairman of FMR LLC and FMR LLC, through its control of
Fidelity, each has sole power to dispose of the shares owned by
Fidelity. Members of the family of Edward C. Johnson 3rd or
trusts for their benefit, own shares of FMR LLC with the right
to cast approximately 49% of the total votes which may be cast
by all holders of FMR LLC voting stock. Neither FMR LLC, nor
Edward C. Johnson 3rd, has the sole power to vote or direct the
voting shares owned directly by the Fidelity Funds, which power
resides with the Funds Board of Trustees. The address of
FMR LLC is 82 Devonshire Street, Boston, Massachusetts 02109.
The address of Fidelity Growth Company Fund is 82 Devonshire
Street, Boston, Massachusetts 02109. |
|
(16) |
|
Daly Gamma, Inc. is the general partner of Daly Gamma Limited
Partnership (Daly Gamma), and Daly Alpha, Inc. is
the sole shareholder of Daly Gamma, Inc. Alex Daly is the sole
shareholder of Daly Alpha, Inc. KPCB Holdings, Inc. has voting
power over the shares held by Daly Gamma pursuant to a voting
agreement, dated as of October 3, 2002, between KPCB
Holdings, Inc. and Daly Alpha Limited Partnership, the prior
owner of the shares owned by Daly Gamma. Alex Daly has
dispositive power over these shares. The address of Daly Gamma
is 1643 Brickell Avenue, Suite #3502, Miami, Florida 33129.
Neither we nor our affiliates have had a material relationship
with Alex Daly or Daly Gamma during the past three years. |
36
REPORT OF
THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The audit committee of the board of directors is composed of
Mr. McKee, who is the chair of the audit committee, and
Messrs. Ryles and von Simson, each of whom the board of
directors has determined is an independent director, as
independence for audit committee members is defined in The
NASDAQ Stock Markets listing standards. The board of
directors has determined that Mr. McKee is an audit
committee financial expert as defined in Item 407(d)
of
Regulation S-K
promulgated under the Securities Act and the Exchange Act.
As members of the audit committee for fiscal 2010, we assist the
board of directors in fulfilling its responsibilities relating
to the oversight of the accounting, financial reporting,
internal controls, financial practices and audit activities of
ArcSight and its subsidiaries. The audit committee operates
under a charter.
In fulfilling its oversight role, the audit committee has
reviewed and discussed with management and the independent
registered public accounting firm ArcSights audited
financial statements. The audit committee met eight times during
fiscal 2010, including meetings with ArcSights independent
registered public accounting firm to review ArcSights
quarterly and annual financial statements and their review or
audit of such statements. It is not the duty of the audit
committee to plan or conduct audits or to determine that the
financial statements are complete and accurate and conform to
generally accepted accounting principles. Management is
responsible for the preparation, presentation, and integrity of
ArcSights financial statements, accounting and financial
reporting principles, internal controls, and procedures designed
to ensure compliance with accounting standards, applicable laws
and regulations. Ernst & Young LLP, ArcSights
independent registered public accounting firm, is responsible
for performing an independent audit of ArcSights
consolidated financial statements in accordance with generally
accepted auditing standards and expressing an opinion on the
effectiveness of ArcSights internal control over financial
reporting.
The audit committee discussed with ArcSights independent
registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61
(Communication with audit committees). ArcSights
independent registered public accounting firm also provided to
the audit committee the written disclosures and the letter
required by Independence Standards Board Standard No. 1
(Independence Discussions with audit committees), and the audit
committee discussed with the independent registered public
accounting firm that firms independence.
Based upon the audit committees review and discussions
referred to above, the audit committee recommended to the board
of directors that ArcSights audited consolidated financial
statements be included in ArcSights Annual Report on
Form 10-K
for the fiscal year ended April 30, 2010, filed with the
SEC on July 9, 2010.
Submitted by the Audit Committee of
the Board of Directors,
E. Stanton McKee, Jr.
Scott Ryles
Ernest von Simson
37
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
ERNST & YOUNG LLP, FOR FISCAL YEAR ENDING APRIL 30,
2011
(Item No. 2
on the Proxy Card)
Our audit committee has selected, and is submitting for
ratification by the stockholders its selection of, the firm of
Ernst & Young LLP, or EY, to serve as our independent
registered public accounting firm for the fiscal year ending
April 30, 2011 and until their successors are appointed.
Although action by stockholders is not required by law, the
audit committee has determined that it is desirable to request
approval of this selection by the stockholders. Notwithstanding
the selection, the audit committee, in its discretion, may
direct the appointment of a new independent registered public
accounting firm at any time during the year, if the audit
committee feels that such a change would be in the best
interests of ArcSight and its stockholders. In the event of a
negative vote on ratification, the audit committee will
reconsider the selection of EY as our independent registered
public accounting firm.
The following table sets forth the aggregate fees and related
expenses for professional services provided by EY during fiscal
2010 and 2009. The audit committee considered the provision of
the services corresponding to these fees, and the audit
committee believes that the provision of these services is
compatible with EY maintaining its independence. The audit
committee pre-approval policies and procedures require prior
approval of each engagement of EY to perform services. We
adopted these pre-approval policies in accordance with the
requirements of the Sarbanes-Oxley Act and the professional
services listed below were approved in accordance with these
policies.
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Fiscal Year
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2010
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2009
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Audit fees
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$
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1,180,000
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$
|
1,100,000
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|
Audit-related fees
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|
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|
Tax fees
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|
118,656
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|
15,406
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|
All other fees
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|
5,000
|
|
|
|
5,000
|
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|
|
|
|
|
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Total
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|
$
|
1,303,656
|
|
|
$
|
1,120,406
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|
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|
Audit
Fees
Fees for EY audit services include fees associated with the
annual audit, quarterly reviews of financial statements and
accounting consultations.
Tax
Fees
Fees for EY tax services include fees associated with domestic
and international tax advice, planning and compliance.
All Other
Fees
In both fiscal years, other fees consist of professional
services rendered in connection with the filing of our
Form S-8
registration statements.
Representatives of EY are expected to be at the annual meeting.
Representatives of EY will be given the opportunity to make a
statement if they desire to do so, and they will be available to
respond to appropriate questions.
THE BOARD
OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2011.
38
STOCKHOLDER
PROPOSALS FOR THE 2011 ANNUAL MEETING OF
STOCKHOLDERS
Under our bylaws, stockholders who wish to present proposals for
action, or to nominate directors, at our next annual meeting of
stockholders (that is, the next annual meeting following the
annual meeting to which this proxy statement relates) must give
written notice thereof to our Corporate Secretary at the address
set forth on the cover page of this proxy statement in
accordance with the provisions of our bylaws, which require that
such notice be given not less than 75 days nor more than
105 days prior to the first anniversary of the date of the
immediately preceding annual meeting of stockholders. To be
timely for the 2011 annual meeting of stockholders, a
stockholders notice must be received by us between
June 7, 2011 and July 7, 2011. Such proposals should
be delivered or mailed to the attention of our Corporate
Secretary at our principal executive offices, which are
ArcSight, Inc., 5 Results Way, Cupertino, California 95014.
If the date of the 2011 annual meeting is more than 30 days
before or more than 60 days after the anniversary date of
the 2010 annual meeting, in order for a notice to be timely, it
must be delivered no earlier than 105 days and not later
than 75 days prior to the 2011 annual meeting or the close
of business on the 10th day following the day on which we first
publicly announce the date of the 2011 annual meeting.
These stockholder notices must contain information required by
our bylaws. We reserve the right to reject, rule out of order,
or take other appropriate action with respect to any proposal
that does not comply with these and other applicable
requirements. If a matter is properly brought before our next
annual meeting under the procedures outlined in this paragraph,
the proxy holders named by our board of directors will have the
discretion to vote on such matter without having received
directions from stockholders delivering proxies to them for such
meeting, provided that our proxy statement for our next meeting
briefly describes the matter and how the proxy holders intend to
vote on it.
In order for proposals to be eligible for inclusion in our proxy
statement and proxy card for the next annual meeting pursuant to
Rule 14a-8
under the Exchange Act, stockholder proposals would have to be
received by our Corporate Secretary no later than April 15,
2011 and satisfy the conditions established by the SEC for
stockholder proposals. In order for such stockholder proposals
to be eligible to be brought before the stockholders at the 2011
annual meeting, the stockholder submitting such proposals must
also comply with the procedures, including the deadlines,
required by our then current Bylaws, as referenced in the
preceding paragraph. Stockholder nominations of directors are
not stockholder proposals within the meaning of
Rule 14a-8
and are not eligible for inclusion in our proxy statement. Any
such nominations should comply with our Bylaws.
TRANSACTION
OF OTHER BUSINESS
At the date of this proxy statement, the board of directors
knows of no other business that will be conducted at the 2010
annual meeting of stockholders other than as described in this
proxy statement. If any other matter or matters are properly
brought before the annual meeting, or any adjournment or
postponement of the annual meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgment.
By Order of the Board of Directors,
Trâm T. Phi
Vice President, General Counsel and Secretary
August 13, 2010
39
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
We encourage you to take advantage of Internet or telephone voting.
Both are available 24 hours per day, 7 days per week.
Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to the
stockholder meeting date.
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http://www.proxyvoting.com/ARST |
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Use the Internet to vote your proxy.
Have your proxy card in hand when you
access the web site. |
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OR
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TELEPHONE |
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1-866-540-5760 |
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Use any touch-tone telephone to vote your
proxy. Have your proxy card in hand when
you call. |
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If you vote your proxy by Internet
or by telephone, you do NOT need to
mail back your proxy card. |
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To vote by mail, mark, sign and date
your proxy card and return it in the
enclosed postage-paid envelope. |
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Your Internet or telephone vote
authorizes the named proxies to vote
your shares in the same manner as if
you marked, signed and returned your
proxy card. |
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77112 |
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6 FOLD AND DETACH HERE 6 |
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR THE
PROPOSALS. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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Please mark your
votes as indicated
in this example |
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x |
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The Board of Directors recommends a vote FOR Items 1 and 2.
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FOR ALL
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WITHHOLD FOR ALL
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EXCEPTIONS
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FOR
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AGAINST
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ABSTAIN |
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ITEM 1-Election of Class III Directors for a three-year
term expiring at the 2013 Annual Meeting:
Nominees: 01 E. Stanton McKee, Jr.
02 Thomas Reilly
03 Roger S. Siboni
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o
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ITEM 2-To ratify
the appointment of
Ernst & Young LLP
as the independent
registered public
accounting firm of
ArcSight, Inc. for
its fiscal year
ending April 30,
2011.
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o
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o
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(INSTRUCTIONS: To withhold authority to vote for any individual
nominee, mark the Exceptions box above and
write that nominees name in the space provided below.) |
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*Exceptions |
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Mark Here for Address Change or Comments SEE REVERSE
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o |
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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. |
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Signature
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Signature
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Date |
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You can now access your ArcSight, Inc. account online.
Access
your ArcSight, Inc. account online via Investor ServiceDirect® (ISD).
BNY Mellon Shareowner Services, the transfer agent for ArcSight, Inc., now makes it easy and
convenient to get current information on your shareholder account.
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View account status
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Make address changes |
View certificate history
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Obtain a duplicate 1099 tax form |
View book-entry information |
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Visit us on the web at http://www.bnymellon.com/shareowner/isd
For Technical Assistance Call 1-877-978-7778 between 9am-7pm
Monday-Friday Eastern Time
Investor ServiceDirect®
Available 24 hours per day, 7 days per week
TOLL FREE NUMBER: 1-877-251-3575
Choose MLinkSM for fast, easy and secure 24/7 online access to your
future proxy materials, investment plan statements, tax documents and more. Simply
log on to Investor
ServiceDirect® at www.bnymellon.com/shareowner/isd where
step-by-step instructions will prompt you through enrollment.
Important notice regarding the Internet availability of proxy materials for the Annual Meeting
of Stockholders. The Proxy Statement and the 2010 Annual Report to Stockholders are available
at: http://www.proxydocs.com/arst
6 FOLD AND DETACH HERE 6
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ARCSIGHT, INC.
ANNUAL MEETING OF STOCKHOLDERS SEPTEMBER 20, 2010
The undersigned hereby appoints Thomas Reilly and Stewart Grierson, and each of them, with power
to act without the other and with power of substitution, as proxies and attorneys-in-fact and hereby
authorizes them to represent and vote, as provided on the other side, all the shares of ArcSight, Inc.
Common Stock that the undersigned is entitled to vote, and, in their discretion, to vote upon such
other business as may properly come before the Annual Meeting of Stockholders of ArcSight, Inc. to
be held September 20, 2010 (the Annual Meeting) or any adjournment thereof, with all powers that
the undersigned would possess if present at the Annual Meeting.
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Address Change/Comments (Mark the corresponding box on the reverse side) |
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BNY MELLON SHAREOWNER SERVICES P.O. BOX 3550 SOUTH HACKENSACK, NJ 07606-9250 |
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(Continued and to be marked, dated and signed, on the other side) |
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77112 |