FORM DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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
Check the appropriate box:
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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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Definitive Additional Materials |
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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)
Payment of Filing Fee (Check the appropriate box):
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ARCSIGHT,
INC.
5 Results Way
Cupertino, California 95014
August 20,
2009
Dear Stockholder:
You are cordially invited to attend the annual meeting of
stockholders of ArcSight, Inc. to be held at 5 Results Way,
Cupertino, California on September 24, 2009 at
10:00 a.m. Pacific Time. At the annual meeting, you
will be asked to vote upon two proposals: the election of three
Class II 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, 2010.
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, 2009. 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, 2009, 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 24, 2009
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders of
ArcSight, Inc., a Delaware corporation, will be held at 5
Results Way, Cupertino, California on September 24, 2009 at
10:00 a.m. Pacific Time. At the annual meeting, our
stockholders will be asked to consider and vote upon:
1. The election of three Class II directors to serve
on our board of directors, each to serve until our annual
meeting of stockholders to be held in 2012 and until his or her
successor is elected and qualified, or until his or her 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, 2010.
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, 2009 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 20, 2009
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 5 Results Way,
Cupertino, California on September 24, 2009 at
10:00 a.m. Pacific 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 II directors to serve until the annual
meeting of stockholders to be held in 2012; (ii) the
ratification of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending
April 30, 2010; 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 20,
2009. 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, 2009, 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
33,153,053 shares of our common stock outstanding and
entitled to vote, held of record by 59 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, 2010. 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, 2010
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, 2010.
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 23, 2009.
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 23, 2009. 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.
Delivery
of this Proxy Statement
The Securities and Exchange Commission, or 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) 864-2600.
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) 864-2600.
A copy of our Annual Report on
Form 10-K
for the fiscal year ended April 30, 2009, 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 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 succeeding annual meeting. The
individuals so elected will serve until their successors are
elected and qualified. This year the terms of our Class II
directors, currently consisting of Sandra Bergeron, Craig Ramsey
and Ernest von Simson, 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 II directors,
whose current term will expire at our 2009 annual meeting.
3
The board of directors has nominated each of Sandra Bergeron,
Craig Ramsey and Ernest von Simson to serve as a Class II
director for a three-year term that is expected to expire at our
annual meeting in 2012 and until his or her successor is elected
and qualified, or until his or her 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 III directors, whose
terms will expire at our 2010 annual meeting.
The election of Class II 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 SANDRA BERGERON, CRAIG RAMSEY AND ERNEST VON
SIMSON AS CLASS II 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,
2009 and current positions with ArcSight. Biographical
information for each nominee
and/or
director is provided below.
Nominees
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Name
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Age
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Class(1)
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Position
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Sandra
Bergeron(2)
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50
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II
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Director
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Craig
Ramsey(2)
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63
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II
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Director
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Ernest von
Simson(3)(4)
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II
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Director
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Continuing Directors
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Name
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Age
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Class(1)
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Position
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William P.
Crowell(2)(3)
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Director
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E. Stanton McKee,
Jr.(3)(4)
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III
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Director
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Thomas Reilly
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III
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President, Chief Executive Officer and Director
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Scott A.
Ryles(3)(4)
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50
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Director
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Ted
Schlein(2)
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45
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Director
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Roger S. Siboni
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III
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Director
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The terms of Class II directors will expire (if elected) at
the 2012 annual meeting. The terms of Class I directors
will expire at the 2011 annual meeting. The terms of
Class III directors will expire at the 2010 annual meeting. |
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Member of the Compensation Committee. |
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Member of the Nominating and Corporate Governance Committee. |
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Member of the Audit Committee. |
4
Biographies
Nominees
for Class II 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.
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.
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, 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.
Continuing
Directors
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 Sun Microsystems
Federal, a wholly-owned subsidiary of Sun Microsystems, and four
private companies. Mr. Crowell holds a B.A. in political
science from Louisiana State University.
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.
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. 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 currently
serves as a director of a private company. He holds a B.S. in
mechanical engineering from the University of California,
Berkeley.
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
5
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 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.
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. Mr. Schlein holds a B.A. in
economics from the University of Pennsylvania.
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 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.
infoGROUP Inc. and three private companies.
Mr. Siboni holds a B.S. degree in business administration
from the University of California at Berkeley, and previously
served as Chairman of the Advisory Board for the Walter A. Hass
School of Business at the University of California at Berkeley.
Board
Meetings, Committees and Corporate Governance
The board of directors had nine meetings during fiscal 2009 and,
in connection with each of those meetings, held executive
sessions of independent directors and, when Mr. Shaw
remained a director, also held sessions of non-management
directors. During fiscal 2009, 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 three committees of the Board that are currently in
place: the audit committee, compensation committee and
nominating and corporate governance committee.
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.
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
6
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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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 ten times during fiscal 2009, 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 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; 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 eleven times during fiscal 2009
and acted by unanimous written consent on one occasion. 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
2008, 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 2008 and the review of compensation for fiscal 2009. See
Compensation Discussion and Analysis for additional
discussion of regarding the role of Compensia in executive
compensation.
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
7
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 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 five times
during fiscal 2009. 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, 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. 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 Ms. Bergeron and Messrs. Ramsey and von
Simson be nominated to serve as Class II directors.
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, three
directors attended our 2008 annual meeting of stockholders.
8
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 2009, the chairs of the audit committee, the
compensation committee and the nominating and corporate
governance committee receive annual retainers of $15,000,
$10,000 and $5,000, respectively. Each member of the audit
committee, the compensation committee and the nominating and
corporate governance committee receive annual retainers of
$8,000, $5,000 and $2,500, respectively. We do not pay fees to
directors for attendance at meetings of our board of directors
and its committees. In June 2009, our compensation committee
recommended, and our board of directors adopted, a policy
whereby each non-employee member of the board of directors will
receive an annual cash retainer of $35,000; the lead independent
director of the board will receive an additional annual cash
retainer of $10,000; and the annual cash retainer for the chair
of the audit committee of the board will be increased from
$15,000 to $20,000.
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
In fiscal 2009, our policy provided that each person who is not
an employee who becomes a member of our board of directors will
be granted an initial option to purchase 11,250 shares of
our common stock upon election to our board of directors. In
June 2009, our compensation committee recommended, and our board
of directors adopted, a policy whereby 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
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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
2009 under Board Meetings, Committees and
Corporate Governance above.
Fiscal
2009 Compensation
The following table provides information for our fiscal year
ended April 30, 2009 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 2009. 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. All compensation that we paid to
Mr. Shaw when he was our Chief Executive Officer is set
forth in the tables summarizing executive officer compensation
below. No compensation was paid to Mr. Reilly in his
capacity as a director. Similarly, no compensation was paid to
Mr. Shaw in his capacity as our chairman of the board
during the period that he also served as our Chief Executive
Officer. In September 2008, our compensation committee
recommended, and our board of directors adopted, a policy
whereby Mr. Shaw, in his capacity as only chairman of the
board, would receive an annual retainer of $15,000 and an option
to purchase 10,375 shares of our common stock on the date
that his retirement as our Chief Executive Officer became
effective (after which he served only as chairman of the board).
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Fees Earned or
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Option
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Name
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Paid in
Cash(1)
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Awards(2)
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Total
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Sandra Bergeron
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$
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5,000
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$
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130,321
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$
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135,321
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William P. Crowell
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7,500
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39,454
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46,954
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E. Stanton McKee, Jr.
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17,500
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41,700
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59,200
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Craig Ramsey
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10,000
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39,454
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49,454
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Scott A. Ryles
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10,500
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39,454
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49,954
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Ted Schlein
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5,000
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39,454
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44,454
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Robert Shaw
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7,617
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(3)
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15,650
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23,267
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Ernest von Simson
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13,000
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39,454
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52,454
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(1) |
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These amounts reflect quarterly fees in fiscal 2009 for service
on our board committees or, with respect to Mr. Shaw, as
our chairman of the board beginning on the date that his
retirement as our Chief Executive Officer became effective
(after which he served only as chairman of the board). |
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(2) |
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In accordance with SEC rules, the amounts in this column
represent the amounts that we would have recognized as
compensation expense for financial statement reporting purposes
for any part of fiscal 2009 in accordance with Statement of
Financial Accounting Standards No. 123(R), Share-Based
Payment, or SFAS 123R, in connection |
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with all of the options previously issued to the named director
had we applied the modified prospective transition method
without reflecting the estimate for forfeitures related to
service-based vesting used for financial statement reporting
purposes, rather than the prospective transition method actually
utilized by us for financial statement reporting purposes. In
September 2008, 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 and von Simson) an option to purchase
10,375 shares of our common stock at an exercise price of
$8.30 per share. The fair value of each such option was $3.87
per share. See Note 9 of the Notes to our Consolidated
Financial Statements in our annual report on
Form 10-K
for fiscal 2009 for a discussion of all assumptions made in
determining the grant date fair values. 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. In addition, as of
April 30, 2009, each non-employee director
(Ms. Bergeron and Messrs. Crowell, McKee, Ramsey,
Ryles, Schlein and von Simson) holds an option to purchase
11,250 shares of our common stock, which was granted in
connection with our initial public offering in February 2008,
and, in addition to the options granted in September 2008 and
February 2008, Mr. Crowell holds an outstanding option to
purchase 81,773 shares, Mr. Ryles holds an outstanding
option to purchase 87,773 shares, and Ms. Bergeron and
Messrs. McKee, Ramsey, and von Simson each holds an
outstanding option to purchase 97,773 shares. Each of the
options granted to our non-employee directors in February 2008:
(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. Each of the options, other
than the options granted in September 2008 or February 2008:
(i) is immediately exercisable; (ii) vests as to
1/48th of the shares of common stock underlying it monthly
beginning one month after the vesting start date, except that
Ms. Bergerons option vests as to 1/4th of the shares
one year after the vesting start date and as to an additional
1/48th of the shares each month thereafter; and
(iii) contains change of control provisions such that all
unvested shares vest immediately upon the closing of a change of
control transaction. See Principal and Selling
Stockholders for beneficial ownership information for each
of our directors. |
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(3) |
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Includes $2,603 in reimbursement for premiums relating to the
portion of Mr. Shaws current life insurance policy
covering the months during which Mr. Shaw served as our
chairman of the board. Mr. Shaw resigned as chairman of the
board in March 2009. |
Resignation
of Robert Shaw
In March 2009, in connection with the resignation of
Mr. Shaw as our chairman and as a member of our board of
directors, and in light of the circumstances of
Mr. Shaws resignation, our compensation committee
confirmed that the cash bonus that Mr. Shaw was eligible to
receive in respect of his prior service as our Chief Executive
Officer, prorated for the portion of fiscal 2009 that
Mr. Shaw actually served in such capacity, that had been
payable in the event that Mr. Shaw continuously served as
chairman of the board until the date that our executive officers
were paid cash bonuses under our bonus plan for fiscal 2009,
would still be paid to Mr. Shaw (to the extent otherwise
payable in accordance with the plan), irrespective of his
resignation. The prorated bonus had originally been approved by
our compensation committee in connection with
Mr. Shaws retirement as our Chief Executive Officer
in September 2008. Because Mr. Shaws resignation as
our chairman and as a member of our board of directors was a
result of a disability, the stock options held by Mr. Shaw
will be exercisable to the extent vested as of his resignation
until the first anniversary of his resignation. After
Mr. Shaws retirement, our compensation committee
confirmed that, following the expiration of the then current
insurance term, we would be responsible for premiums relating to
the portion of Mr. Shaws current life insurance
policy covering the months during which Mr. Shaw served as
our chairman of the board. See the discussion of our
arrangements with Mr. Shaw in connection with his
retirement as our Chief Executive Officer in September 2008
under Compensation Discussion and Analysis
Severance and Change of Control Payments below.
Compensation
Committee Interlocks and Insider Participation
During fiscal 2009, 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
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Item 404 of
Regulation S-K,
except that Mr. Ramsey is also a director and 10%
stockholder of M-Factor, which provided event planning and
hosting services to us in fiscal 2009. See Certain
Relationships and Related Party Transactions Event
Planning Agreement. 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 2009.
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 2009.
Executive
Officers
Our executive officers their positions, and their respective
ages, as of August 1, 2009, 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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47
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President, Chief Executive Officer and director
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Hugh S. Njemanze
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52
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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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43
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Chief Financial Officer
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Reed T. Henry
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45
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Senior Vice President of Marketing
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Kevin P. Mosher
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52
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Senior Vice President of Worldwide Field Operations
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Jeffrey Scheel
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47
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Senior Vice President of Business Development
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Trâm T. Phi
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38
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Vice President, General Counsel and Secretary
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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 Agreements and Offer Letters. 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.
Reed T. Henry has served as our Senior Vice President of
Marketing since May 2007, and also served as our Senior Vice
President of Business Development from May 2007 to June 2008.
From 2001 to August 2005, Mr. Henry served in several
positions for SeeBeyond Technology Corporation, a provider of
enterprise integration software, including most recently as
Senior Vice President, Marketing, Alliances and Business
Development and previously as Senior Vice President,
Professional Services, Customer Support and Alliances. Following
the acquisition of SeeBeyond by Sun Microsystems, Inc. in August
2005, Mr. Henry served in the same role for Sun
Microsystems until October 2005. Prior to SeeBeyond,
Mr. Henry served as Vice President of Strategy and New
Business at eBay, Inc., an internet auction company, and as Vice
President of Marketing and Product Management for Vertical
Networks, Inc., a provider of integrated voice/data
communications platforms and associated computer
12
telephony applications, which he co-founded in 1996.
Mr. Henry holds a B.S. in electrical engineering from the
University of Washington, an M.S. in electrical engineering from
the California Institute of Technology and an M.B.A. from
Stanford University Graduate School of Business.
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).
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
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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, and before him
Mr. Shaw, 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. 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 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
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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 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. In
March 2008, our compensation committee specifically retained
Compensia to provide such data and advice in connection with the
review of compensation for fiscal 2009, and in March 2009 again
retained Compensia to provide such data and advice in connection
with the completion of fiscal 2009 (and review of compensation
for fiscal 2010). 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 SFAS 123R, 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.
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
Mr. Reilly, and before him Mr. Shaw, and
Messrs. Njemanze, Mosher and Grierson. In connection, with
the hiring of Mr. Scheel in June 2008, only survey data was
reviewed for comparable position salary information. 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.
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For the review of compensation in connection with the completion
of fiscal 2009 and determination of base and target bonus
compensation for fiscal 2010, 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
$80 million to $250 million, except that in case of
one of our executive officers the Radford data included a
broader group of companies with average revenues of
approximately $215 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, Omniture, Opnet Technologies,
Rackspace, RightNow Technologies, Riverbed Technology,
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
companies that had been acquired and expanding the remaining
group to include another recently public company with similar
growth characteristics. We believe that collectively the peer
groups used in fiscal 2009 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 pre-public and small public 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. 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. In
connection with the hiring of Mr. Scheel, our Senior Vice
President of Business Development, in June 2008, our
compensation committee approved a salary approximately 10% above
the median competitive salary in light of his broad ranging
corporate and business development background in the enterprise
software and services industry. 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 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 the
case of Mr. Njemanze to reflect his key contributions to us
and the development of our products and technologies. For a
discussion of the adjustments to Mr. Reillys
compensation in connection with his promotion to be our CEO, see
Compensation Arrangements with New Chief
Executive Officer below.
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
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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 grants to executive officers rests with our
compensation committee, although, as noted above, our
compensation committee does consider the recommendations of our
CEO, in connection with grants to other executive officers.
Authority to make equity-based awards to executive officers
rests with our compensation committee, which considers the
recommendations of our CEO. 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. In addition, one of the
initial stock option grants made to Mr. Reilly in
connection with his hiring in November 2006 vested as to
approximately one quarter of the shares upon the achievement of
specified milestones relating to business planning and
operations, sales, services and support execution, and company
positioning, market and product strategy, during his first year
of employment at the company, and, if such milestones were
achieved, the remaining shares vest monthly over the subsequent
three years, with such option terminating if the milestones were
not achieved. Prior to hiring Mr. Reilly, we had not had an
individual serving in the separate role of chief operating
officer (the role in which he was initially hired). The
compensation committee and our board of directors determined to
include performance criteria, in addition to the typical
time-based vesting, for the option covering approximately
1/4th of the total number of shares granted to
Mr. Reilly in order to ensure that we did not incur the
dilution associated with this grant unless we realized the
benefits anticipated when hiring an individual at this level. In
December 2007, based on the recommendation of Mr. Shaw, our
compensation committee determined that Mr. Reilly had
achieved the performance milestones.
The value of the shares subject to the fiscal 2009 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 2009 Grants
of Plan-Based Awards table below.
In November 2007, our board of directors adopted new equity
compensation plans. The 2007 Equity Incentive Plan replaced our
2002 Stock Plan immediately following our initial public
offering in February 2008, affording our compensation committee
much greater 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 Messrs. Shaw and
Njemanze, 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
Generally, we have paid bonuses annually, usually during the
first quarter of our fiscal year. Under our bonus plan for
fiscal 2009 (and in prior years), we determined not to pay
bonuses quarterly or semi-annually because our compensation
committee believed an annual orientation was appropriate given
the fluctuations in our operating
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results from quarter to quarter. 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 2008,
our compensation committee determined that bonuses for executive
officers under our bonus plan for fiscal 2009 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. 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, and consequently did not establish separate
individual performance objectives for Mr. Reilly, or before
him Mr. Shaw. Payments of cash bonuses are contingent upon
continued employment through the actual date of payment.
In July 2008, our compensation committee adopted our bonus plan
for fiscal 2009 to reward all employees of the company,
including executive officers. The plan for fiscal 2009 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 the targeted revenues and
operating income goals. Under the plan, if we achieve these
goals, then our CEO will receive:
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a payment of 50% of base salary if we achieve more than 95% 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 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 85% of base salary if we achieve at least 105% 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;
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a payment of 90% of base salary if we achieve at least 110% but
less than 115% 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 115% 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 and Grierson will receive:
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a payment of 35% of base salary if we achieve more than 95% 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 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 more than 101% 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 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;
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a payment of 75% of base salary if we achieve at least 110% but
less than 115% 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 115% 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 25% of base salary if we achieve more than 95% 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 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 55% of base salary if we achieve at least 105% 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;
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a payment of 70% of base salary if we achieve at least 110% but
less than 115% 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 115% 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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Based on our actual financial performance in fiscal 2009, we
achieved 98% of our revenue target of $138.5 million and
achieved non-GAAP operating income (our GAAP operating income of
$11.8 million adjusted to exclude $842,000 in amortization
of intangible assets and $6.2 million in stock-based
compensation expense) well above the $13.5 million target
at that level (instead achieving operating income equivalent to
the target if revenues had been achieved at the level of at
least 105% but less than 110% of target). As a result, executive
officers other than Mr. Mosher would have been eligible for
bonuses under the bonus plan for fiscal 2009 based on
achievement at the level of at least 95% but less than 100% of
target, based on our performance under the foregoing scale.
However, in June 2009, in light of the exceedingly difficult
macroeconomic and market conditions in which our actual level of
performance was achieved, our compensation committee elected to
exercise its discretion and determined to award bonuses to our
executive officers other than Mr. Mosher as if our actual
achievement had been at the level of at least 105% but less than
110% of target.
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
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objectives. For this reason, we pay him a quarterly sales
commission pursuant to his Sales Commission Plan FY
2009, 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 2008, Mr. Mosher is
entitled to quarterly commission payments based on achievement
of quarterly revenues targets, and 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. Based on the same considerations discussed above
with respect to the award of discretionary bonuses to executive
officers, our compensation committee determined to award to
Mr. Mosher a cash bonus of $80,000 (in addition to the
quarterly commissions to which Mr. Mosher was entitled
under his commission 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 2009 are reflected in the
Fiscal 2009 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 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 2009, the compensation committee approved
a pool of 557,000 shares of common stock to be granted
during the first quarter of fiscal 2010 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. 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 2009, 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. Following that 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 2009 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
20
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 2009 are reflected in the
Fiscal 2009 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. In May
and June 2009, the compensation committee reviewed information
from Compensia regarding appropriate levels of annual refresh
grants for the additional group of officers covered by our bonus
plan for fiscal 2009 and the rate of aggregate equity
compensation awards and the allocation of such awards between
executives and employees at comparable companies. In conjunction
with its determination of cash bonuses in June 2008, in light of
the expanded number of executives to be covered by the plan
since the size of the option pool was initially set, the level
of the our actual revenue and operating income performance for
fiscal 2009 and the exceedingly difficult macroeconomic and
market conditions in which that level of performance was
achieved, our compensation committee exercised its discretion to
make 297,000 additional shares of common stock (in addition to
the 557,000 share option pool described above) available
for award in connection with the completion of fiscal 2009 to
reward performance and in recognition of our benchmark targets
in light of compensation data provided by Compensia, and
approved grants to plan participants for the aggregate
854,000 shares available, including options for an
aggregate of 438,845 shares granted to executive officers.
The amounts granted and exercise price for each grant to our
named executive officers under our Fiscal Year 2009 Management
Bonus Plan are reflected in the footnotes to the Fiscal
2009 Grants of Plan-Based Awards and Outstanding
Equity Awards at April 30, 2009 tables below.
Severance
and Change of Control Payments
When we retained Mr. Shaw in August 2001, we entered into
an employment agreement, which was amended initially in August
2004 as the initial term expired and then amended again
effective in August 2007 as the term expired for the amended
employment agreement. Under our employment agreement and option
grant agreements with Mr. Shaw we were, and 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 employment
agreement and option grant agreements with Mr. Shaw also
provided severance and acceleration of vesting if we terminated
his employment without cause or if he terminated his employment
for good reason. 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.
In September 2008, Mr. Shaw retired as our CEO effective
October 1, 2008, although he continued as chairman of our
board of directors, at which time our employment agreement with
him expired. In connection with his retirement and as an
inducement in connection with his continued service as chairman,
our board of directors and compensation committee approved the
following arrangement with Mr. Shaw, effective upon his
retirement:
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Mr. Shaw would be entitled to payment of his COBRA health
insurance premiums for 12 months;
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Mr. Shaw would retain the use of his then current
administrative assistant for 12 months;
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Mr. Shaws then existing unvested stock options to
purchase our shares would continue to vest for so long as he
continued to serve as chairman of the board in accordance with
their existing terms, provided that in the event that
Mr. Shaw continued to serve as chairman of the board
through September 30, 2009, then any then remaining
unvested portion of such stock options would accelerate and
become fully vested;
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21
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in the event that Mr. Shaw continuously served as chairman
until the date that our executive officers were paid cash
bonuses pursuant to our bonus plan for fiscal 2009,
Mr. Shaw would receive additional cash compensation equal
to the bonus that he would have been eligible to receive if he
had continued to serve as our CEO, but prorated for the portion
of fiscal 2009 that Mr. Shaw actually served as our CEO;
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Mr. Shaw would also receive compensation substantially
identical to that awarded to the chair of our audit committee
(annual cash retainer of $15,000 and a ten-year option to
purchase 10,375 shares with an exercise price equal to fair
market value on the date of grant, vesting and becoming
exercisable as to
1/12th of
the shares each month after the grant date); and
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as with our other non-employee directors, in the event of a
change of control of ArcSight, the vesting of all outstanding
awards held by Mr. Shaw would have accelerated and become
exercisable (as applicable) in full prior to the consummation of
such a change of control.
|
In March 2009, Mr. Shaw resigned as chairman of the board
and as a member of our board of directors due to a serious
health condition. See the discussion of the compensation
arrangements with Mr. Shaw in connection with his
resignation as chairman of the board and a member of our board
of directors under Director
Compensation Resignation of Robert Shaw above.
Compensation
Arrangements with New Chief Executive Officer
Upon Mr. Shaws retirement as our CEO in September
2008, Mr. Reilly was appointed our as President and CEO,
effective October 1, 2008 (prior to then he had served as
our President and Chief Operating Officer). In connection with
that appointment, our compensation committee approved the
following additional compensation for Mr. Reilly:
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Mr. Reillys annual base salary was increased to
$375,000 from $300,000;
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Mr. Reilly was granted a new option to purchase
200,000 shares of our common stock, vesting pro rata
monthly over four years; and
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Mr. Reilly was granted an additional new option to purchase
200,000 shares of our common stock, vesting pro rata
monthly over six years.
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In connection with approval of this additional compensation for
Mr. Reilly, our compensation committee considered
Mr. Reillys existing compensation arrangements and
the compensation information that had previously been provided
by Compensia with respect to our CEO.
Perquisites
and Other Personal Benefits
In September 2007, we entered into an employment agreement with
Mr. Shaw, effective as of August 2007, under which he
received a minimum annual salary of $414,500, and we were
obligated to pay or reimburse him for the following perquisites
and other personal benefits:
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an apartment near our corporate headquarters, together with
related utilities;
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commercial airfare for travel between Mr. Shaws
residences outside of the San Francisco Bay Area and our
corporate headquarters, and an automobile for use when he is in
the San Francisco Bay Area, provided that the aggregate
reimbursement for these items and the apartment and utilities
discussed above would not exceed $125,000 in the aggregate in
any fiscal year;
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premiums for a life insurance policy in the amount of
$2.0 million payable to the beneficiary designated by
Mr. Shaw; and
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cash in an amount equal to the federal and state income and
payroll taxes on the foregoing items.
|
In addition, our employment agreement with Mr. Shaw
provided for the severance and change of control benefits
described under Severance and Change of
Control Arrangements above. Our employment agreement with
Mr. Shaw expired upon his retirement as our CEO effective
October 1, 2008, although he continued as Chairman of our
board of directors. See the discussion of the compensation
arrangements with Mr. Shaw in
22
connection with his retirement under Severance
and Change of Control Payments and the discussion of the
arrangements with Mr. Shaw upon his resignation as Chairman
and a member of our board of directors in March 2009 under
Director Compensation Resignation
of Robert Shaw above. With the exception of the
Mr. Shaws life insurance policy, the premiums for
which were paid during fiscal 2008 and the term of which ran
through January 2009, Mr. Shaws perquisites
terminated upon his retirement as our CEO. After
Mr. Shaws retirement, our compensation committee
confirmed that, following the expiration of the then current
insurance term, we would be responsible for premiums relating to
the portion of Mr. Shaws current life insurance
policy covering the months during which Mr. Shaw served as
our chairman of the board.
Other
Benefits
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 2009 other than Mr. Shaw as
described above.
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
William Crowell
Ted Schlein
23
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 $100,000
during the fiscal year ended April 30, 2009, 2008 and 2007.
The table also includes one former executive officer who
departed from ArcSight during fiscal 2009. We refer to these
executive officers as our named executive officers
elsewhere in this proxy statement.
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Non-Equity
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Name and
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Fiscal
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Option
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Incentive Plan
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All Other
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Principal Position
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Year
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Salary(1)
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Awards(2)
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Compensation(3)
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Compensation
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Total
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Thomas Reilly
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2009
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$
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343,750
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(4)
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$
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1,451,272
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$
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318,750
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$
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2,113,772
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President and Chief
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2008
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300,000
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1,210,897
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225,000
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1,735,897
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Executive Officer
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2007
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129,615
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(5)
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512,812
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48,125
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690,552
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Stewart Grierson
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2009
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255,000
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107,439
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174,038
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536,477
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Chief Financial Officer
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2008
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234,167
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(6)
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65,878
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191,250
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491,295
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2007
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230,000
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25,646
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75,268
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330,914
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Hugh S. Njemanze
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2009
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300,000
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110,151
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208,650
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618,801
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Chief Technology Officer
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2008
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289,583
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(7)
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77,697
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225,000
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592,280
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and Executive Vice President of Research and Development
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2007
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270,833
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50,966
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105,875
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427,674
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Kevin Mosher
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2009
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300,000
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93,467
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$
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231,500
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(8)
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624,967
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Senior Vice President of
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Worldwide Field Operation
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Reed T. Henry
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2009
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249,996
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235,976
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109,998
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595,970
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Senior Vice
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2008
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246,310
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(9)
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204,248
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159,834
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610,392
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President of Marketing
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Robert W. Shaw
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2009
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232,323
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(10)
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188,999
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(11)
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146,802
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152,453
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(12)
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720,577
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Former Chief Executive
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2008
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410,438
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157,718
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310,875
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222,589
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(13)
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1,101,620
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Officer
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2007
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400,000
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197,987
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154,000
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220,743
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(14)
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972,730
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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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In accordance with SEC rules, the amounts in this column
represent the amounts that we would have recognized as
compensation expense for financial statement reporting purposes
for any part of each year reported in accordance with
SFAS 123R in connection with all of the options previously
issued to the named executive officer had we applied the
modified prospective transition method without reflecting the
estimate for forfeitures related to service-based vesting used
for financial statement reporting purposes, rather than the
prospective transition method actually utilized by us for
financial statement reporting purposes. Please see Note 9 of the
Notes to our Consolidated Financial Statements in our annual
report on
Form 10-K
for fiscal 2009 for a discussion of all assumptions made in
determining the grant date fair values of the options we granted. |
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(3) |
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The amounts in this column reflect amounts paid pursuant to our
Fiscal Year 2007 Management and Employee Bonus Plan, our Fiscal
Year 2008 Management Bonus Plan and our Fiscal Year 2009
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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(5) |
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Mr. Reilly began service with us in November 2006.
Mr. Reillys annual salary was $300,000 in fiscal 2007. |
24
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(6) |
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In March 2008, Mr. Griersons annual salary was
increased to $255,000, effective March 1, 2008. |
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(7) |
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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
2009. For a description of this plan, see Compensation
Discussion and Analysis Cash Bonuses Under Our Bonus
Plan. |
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(9) |
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Mr. Henry began service with us in May 2007.
Mr. Henrys annual salary was $250,000 in fiscal 2008. |
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(10) |
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Mr. Shaw resigned his position as Chief Executive Officer
effective October 1, 2008. Mr. Shaws annual
salary was $414,500 in fiscal 2009. |
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(11) |
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This amount does not include the value of the option to purchase
10,375 shares of our common stock we granted to
Mr. Shaw in October 2008 in his capacity solely as chairman
of our board of directors. Mr. Shaw resigned his position
as Chief Executive Officer effective October 1, 2008. |
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(12) |
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Includes $69,240 in tax reimbursements (related to the following
items), $37,237 in apartment expenses and utilities, $21,866 in
commuting airfare and taxis, and also includes life insurance
premiums, automobile expenses and yacht and country club
memberships for the portion of the fiscal year prior to his
resignation as Chief Executive Officer. See Compensation
Discussion and Analysis Perquisites and Other
Personal Benefits. |
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(13) |
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Includes $102,028 in tax reimbursements (related to the
following items), $48,872 in apartment expenses and utilities,
$45,387 in commuting airfare and taxis, and also includes life
insurance premiums, automobile expenses and yacht and country
club memberships. See Compensation Discussion and
Analysis Perquisites and Other Personal
Benefits. |
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(14) |
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Includes $101,203 in tax reimbursements (related to the
following items), $47,579 in apartment expenses and utilities
and $40,450 in commuting airfare and taxis, and also includes
life insurance premiums, automobile expenses and yacht and
country club memberships. |
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
2009 Grants of Plan-Based Awards
The following table summarizes grants made to each of our named
executive officers in fiscal 2009.
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Estimated
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Possible Future
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Grant Date
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Estimated Possible Future
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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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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
|
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Awards(4)
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Thomas Reilly
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6/18/08
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46,313
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(5)
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$
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8.50
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$
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204,703
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10/1/08
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200,000
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(6)
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7.76
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782,000
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10/1/08
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200,000
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(7)
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7.76
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818,000
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$
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262,500
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$
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375,000
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Stewart Grierson
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6/18/08
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39,000
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(5)
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8.50
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172,380
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114,750
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255,000
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Hugh S. Njemanze
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6/18/08
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39,000
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(5)
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8.50
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172,380
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135,000
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300,000
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|
|
|
|
|
|
|
|
|
|
|
|
Kevin Mosher
|
|
|
6/18/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,125
|
(5)
|
|
|
8.50
|
|
|
|
150,833
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reed T. Henry
|
|
|
6/18/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,250
|
(5)
|
|
|
8.50
|
|
|
|
129,285
|
|
|
|
|
|
|
|
|
87,500
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Shaw
|
|
|
6/18/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,937
|
(8)
|
|
|
8.50
|
|
|
|
269,342
|
|
|
|
|
10/1/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,375
|
(9)
|
|
|
7.76
|
|
|
|
37,558
|
|
|
|
|
|
|
|
|
290,150
|
|
|
|
414,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts in this column reflect amounts payable pursuant to
our Fiscal Year 2009 Management Bonus Plan. |
25
|
|
|
(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 2009 Management Bonus Plan. These options were allocated
out of a pool of 854,000 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, and before him Mr. Shaw, except that
Mr. Reilly, and before him Mr. Shaw, had no input into
his option grant. In June 2009, we granted the following options
to purchase shares of our common stock at an exercise price of
$18.00 per share pursuant to the allocation determined by our
compensation committee and Mr. Reilly: Mr. Reilly,
125,000 shares; Mr. Grierson, 64,050 shares;
Mr. Njemanze, 85,400 shares; Mr. Mosher,
64,050 shares; and Mr. Henry, 36,295 shares. For
additional information on these grants, see the footnotes to the
Outstanding Option Awards at Fiscal
2009 Year-End table. |
|
(3) |
|
Each stock option was granted pursuant to our 2007 Equity
Incentive Plan. |
|
(4) |
|
The amounts in this column represent the grant date fair value,
computed in accordance with SFAS 123R, of each option
granted to the named executive officer in fiscal 2009, less in
the case of modified or replacement options the fair value of
the option modified or replaced. Our compensation cost for these
option grants is similarly based on the grant date fair value
but is recognized over the period, typically four years, during
which the named executive officer must provide services in order
to earn the award. Please see Note 9 of the Notes to our
Consolidated Financial Statements in our annual report on
Form 10-K
for fiscal 2009 for a discussion of all assumptions made in
determining the grant date fair values of the options we granted
in fiscal 2009. |
|
(5) |
|
The option vests 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) |
|
The option vests 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) |
|
The option vests as to 1.3889% of the underlying shares each
full month commencing with November 1, 2008 until fully
vested on October 1, 2014. |
|
(8) |
|
The option vests 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 |
|
(9) |
|
The option vested as to 1/12th of the shares of common stock
underlying it on November 1, 2008 and vested as to 1/12th
of the underlying shares monthly thereafter. The stock options
held by Mr. Shaw will be exercisable to the extent vested
as of his resignation until March 14, 2010. |
Each of the grants made on June 18, 2008 and
October 1, 2008 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.
26
Outstanding
Equity Awards at April 30, 2009
The following table summarizes outstanding equity awards held by
each of our named executive officers as of April 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
1/24/2017
|
|
|
|
|
856,748
|
(4)
|
|
|
|
|
|
|
6.80
|
|
|
|
1/24/2017
|
|
|
|
|
290,484
|
(4)
|
|
|
|
|
|
|
6.80
|
|
|
|
1/24/2017
|
|
|
|
|
|
(5)
|
|
|
46,313
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
|
|
|
|
(6)
|
|
|
200,000
|
(6)
|
|
|
7.76
|
|
|
|
9/30/2018
|
|
|
|
|
16,666
|
(7)
|
|
|
183,334
|
(7)
|
|
|
7.76
|
|
|
|
9/30/2018
|
|
Stewart
Grierson(8)
|
|
|
25,000
|
(9)
|
|
|
|
|
|
|
0.16
|
|
|
|
1/29/2013
|
|
|
|
|
25,000
|
(9)
|
|
|
|
|
|
|
0.16
|
|
|
|
7/16/2013
|
|
|
|
|
18,750
|
(9)
|
|
|
|
|
|
|
0.24
|
|
|
|
1/22/2014
|
|
|
|
|
131,250
|
(9)
|
|
|
|
|
|
|
0.48
|
|
|
|
10/6/2014
|
|
|
|
|
25,000
|
(9)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
62,500
|
(9)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
17,317
|
(10)
|
|
|
6,433
|
(10)
|
|
|
6.08
|
|
|
|
6/5/2016
|
|
|
|
|
11,426
|
(11)
|
|
|
12,421
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
3,547
|
(11)
|
|
|
3,856
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
|
(5)
|
|
|
39,000
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
Hugh S.
Njemanze(12)
|
|
|
125,000
|
(9)
|
|
|
|
|
|
|
0.80
|
|
|
|
2/3/2015
|
|
|
|
|
25,000
|
(9)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
17,317
|
(10)
|
|
|
6,433
|
(10)
|
|
|
6.08
|
|
|
|
6/5/2016
|
|
|
|
|
11,426
|
(11)
|
|
|
12,421
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
3,547
|
(11)
|
|
|
3,856
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
|
(5)
|
|
|
39,000
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
Kevin
Mosher(8)
|
|
|
25,000
|
(9)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
41,976
|
(9)
|
|
|
|
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
17,317
|
(10)
|
|
|
6,433
|
(10)
|
|
|
6.08
|
|
|
|
6/5/2016
|
|
|
|
|
1,680
|
(11)
|
|
|
1,826
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
10,299
|
(11)
|
|
|
11,195
|
(11)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
|
(5)
|
|
|
34,125
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
Reed T.
Henry(13)
|
|
|
13,333
|
(14)
|
|
|
26,667
|
(14)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
33,179
|
(14)
|
|
|
57,805
|
(14)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
|
(5)
|
|
|
29,250
|
(5)
|
|
|
8.50
|
|
|
|
6/17/2018
|
|
Robert W.
Shaw(15)
|
|
|
240,000
|
(9)
|
|
|
|
|
|
|
0.80
|
|
|
|
2/3/2015
|
|
|
|
|
125,000
|
(9)
|
|
|
|
|
|
|
0.80
|
|
|
|
2/3/2015
|
|
|
|
|
47,916
|
(16)
|
|
|
|
(16)
|
|
|
4.00
|
|
|
|
5/26/2015
|
|
|
|
|
31,709
|
(16)
|
|
|
|
(16)
|
|
|
6.08
|
|
|
|
6/5/2016
|
|
|
|
|
1,493
|
(16)
|
|
|
|
(16)
|
|
|
6.08
|
|
|
|
6/5/2016
|
|
|
|
|
12,618
|
(16)
|
|
|
|
(16)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
8,006
|
(16)
|
|
|
|
(16)
|
|
|
10.00
|
|
|
|
8/7/2017
|
|
|
|
|
4,322
|
(16)
|
|
|
|
(16)
|
|
|
7.76
|
|
|
|
9/30/2018
|
|
|
|
|
(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. |
27
|
|
|
(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 June 2009, we granted Mr. Reilly an option to purchase
125,000 shares of our common stock at an exercise price of
$18.00 per share pursuant to our Fiscal Year 2009 Management
Bonus Plan. This option vests 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. For a description of this plan, see
Compensation Discussion and Analysis Equity
Bonuses Under Our Bonus Plan. |
|
(4) |
|
Includes options to purchase 856,748 shares,
14,705 shares and 290,484 shares granted to
Mr. Reilly concurrently in connection with his hiring. Each
of the option to purchase 856,748 shares and the option to
purchase 14,705 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 vests 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) |
|
In June 2009, we granted Messrs. Grierson and Mosher each
an option to purchase 64,050 shares of our common stock at
an exercise price of $18.00 per share pursuant to our Fiscal
Year 2009 Management Bonus Plan. Each 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. For a description of
this plan, see Compensation Discussion and
Analysis Equity Bonuses Under Our Bonus Plan. |
|
(9) |
|
This stock option is fully vested. |
|
(10) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on May 1, 2007 and vests as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2010. |
|
(11) |
|
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. |
|
(12) |
|
In June 2009, we granted Mr. Njemanze an option to purchase
85,400 shares of our common stock at an exercise price of
$18.00 per share pursuant to our Fiscal Year 2009 Management
Bonus Plan. The option vests 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. For a description of this plan, see
Compensation Discussion and Analysis Equity
Bonuses Under Our Bonus Plan. |
|
(13) |
|
In June 2009, we granted Mr. Henry an option to purchase
36,295 shares of our common stock at an exercise price of
$18.00 per share pursuant to our Fiscal Year 2009 Management
Bonus Plan. The option vests as to 1/4th of the shares of common
stock underlying it on May 1, 2010 and as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 1, 2013. For a description of this plan, see
Compensation Discussion and Analysis Equity
Bonuses Under Our Bonus Plan. |
|
(14) |
|
Option vested as to 1/4th of the shares of common stock
underlying it on May 7, 2008 and vests as to 1/48th of the
underlying shares monthly thereafter until fully vested on
May 7, 2011. |
|
(15) |
|
In September 2008, Mr. Shaw submitted his resignation as
Chief Executive Officer and, in March 2009, resigned as Chairman
of the board of directors at which point all of his outstanding
options ceased vesting. Because Mr. Shaws resignation
as Chairman and as a member of the board of directors was a
result of a disability, the board determined that the stock
options held by Mr. Shaw will be exercisable to the extent
vested as of his resignation until the first anniversary of his
resignation. |
|
(16) |
|
This stock option has ceased to vest and all unvested options as
of March 16, 2009 have been cancelled. |
28
Option
Exercises and Stock Vested in Fiscal 2009
The following table shows the number of options exercised by our
named executive officers during the fiscal year ended
April 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
Value
|
|
|
Shares Acquired
|
|
Realized on
|
Name
|
|
on Exercise (#)
|
|
Exercise
($)(1)
|
|
Thomas Reilly
|
|
|
|
|
|
|
|
|
Stewart Grierson
|
|
|
|
|
|
|
|
|
Hugh S. Njemanze
|
|
|
|
|
|
|
|
|
Kevin Mosher
|
|
|
|
|
|
|
|
|
Reed T. Henry
|
|
|
20,000
|
|
|
$
|
94,143
|
|
Robert W. Shaw
|
|
|
335,000
|
(2)
|
|
|
3,393,177
|
(2)
|
|
|
|
(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. |
|
(2) |
|
Represents 335,000 shares acquired by Mr. Shaw
following his resignation as Chief Executive Officer effective
October 1, 2008. |
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.
Under our offer letter with Mr. Henry, if he is subject to
an involuntary termination within 12 months of a change in
control, then for three months following that 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.
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
|
29
|
|
|
|
|
a material violation by the executive officer of a federal or
state law or regulation applicable to our business.
|
For Messrs. Reilly, Grierson, Mosher and Henry, 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.
|
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 , Mosher and Reed, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary Termination Within
|
|
|
Termination
|
|
One Year of a Change of Control
|
|
|
|
|
Acceleration of
|
|
|
|
Acceleration of
|
Name
|
|
Salary
|
|
Equity Vesting
|
|
Salary
|
|
Equity
Vesting(1)
|
|
Thomas Reilly
|
|
|
|
|
|
|
|
|
|
$
|
375,000
|
(2)
|
|
$
|
6,936,798
|
(3)
|
Stewart Grierson
|
|
|
|
|
|
|
|
|
|
|
68,183
|
(4)
|
|
|
209,324
|
(5)
|
Hugh S. Njemanze
|
|
$
|
150,000
|
(6)
|
|
|
|
|
|
|
150,000
|
(6)
|
|
|
|
|
Kevin Mosher
|
|
|
|
|
|
|
|
|
|
|
317,731
|
(7)
|
|
|
247,405
|
(8)
|
Reed T. Henry
|
|
|
|
|
|
|
|
|
|
|
66,933
|
(9)
|
|
|
311,923
|
(10)
|
|
|
|
(1) |
|
Calculated based on the termination or change of control taking
place as of April 30, 2009, the last day of our most recent
fiscal year, and based on the closing price on that day of
$15.10 per share. |
|
(2) |
|
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. |
|
(3) |
|
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. |
|
(4) |
|
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. |
|
(5) |
|
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. |
30
|
|
|
(6) |
|
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. |
|
(7) |
|
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. |
|
(8) |
|
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. |
|
(9) |
|
Reflects continued base salary and COBRA health insurance
premiums for three months following an involuntary termination
within 12 months of a change in control. See the narrative
description of the terms of Mr. Henrys employment
arrangements, above, for more information. |
|
(10) |
|
Reflects accelerated vesting of 50% of Mr. Henrys
remaining unvested stock options following an involuntary
termination within 12 months of a change in control. See
the narrative description of the terms of Mr. Henrys
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:
|
|
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
|
unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
|
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
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.
31
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the executive officer and director arrangements
discussed above under Election of Directors
Director Compensation and Executive
Compensation, below is a description of transactions since
May 1, 2007 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.
Investors
Rights Agreement
We have entered into an amended and restated investors
rights agreement with the purchasers of our previously
outstanding Series A preferred stock, Series B
preferred stock and Series C preferred stock, including
entities with which certain of our directors are affiliated, the
holders of our previously outstanding Series B preferred
stock warrants and certain of the purchasers of our outstanding
common stock. Mr. Schlein, one of our directors, is a
partner at Kleiner Perkins Caufield & Byers; entities
affiliated with Kleiner Perkins Caufield & Byers held
shares of our Series A preferred stock, Series B
preferred stock and Series C preferred stock and a
Series B preferred stock warrant. For more information on
these entities, see Principal Stockholders.
Messrs. Ryles and von Simson, two of our directors, are
limited partners in KPCB Holdings, Inc., which holds, as
nominee, the shares of our stock held by entities affiliated
with Kleiner Perkins Caufield & Byers. On the
completion of our initial public offering, all outstanding
warrants were exercised or net exercised, and all shares of
preferred stock converted into common stock.
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
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 Limitations on
Liability and Indemnification Matters.
Event
Planning Agreement
During fiscal 2009 and 2008, we entered into various agreements
with M-Factor to provide event planning and hosting of our
corporate events. A member of our board of directors is also a
director and 10% stockholder of M-Factor. During fiscal 2009 and
2008, we recorded expenses of $1.5 million and
$1.2 million, respectively, related to such activities. All
such activities were provided in the ordinary course of business
at prices and on terms and conditions that we believe are the
same as those that would result from arms-length
negotiations between unrelated parties.
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.
32
PRINCIPAL
STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
August 1, 2009 for:
|
|
|
|
|
each person who we know beneficially owns more than 5% of our
common stock;
|
|
|
|
each of our directors;
|
|
|
|
each of our named executive officers; and
|
|
|
|
all of our directors and executive officers as a group.
|
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
33,153,053 shares of common stock outstanding at
August 1, 2009. 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, 2009. 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.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Name of Beneficial Owner
|
|
Beneficially Owned
|
|
|
Percentage
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Thomas
Reilly(1)
|
|
|
1,208,600
|
|
|
|
3.5
|
%
|
Sandra
Bergeron(2)
|
|
|
114,085
|
|
|
|
|
*
|
William P.
Crowell(3)
|
|
|
86,085
|
|
|
|
|
*
|
E. Stanton McKee,
Jr.(4)
|
|
|
114,085
|
|
|
|
|
*
|
Craig
Ramsey(5)
|
|
|
1,207,267
|
|
|
|
3.6
|
|
Scott A.
Ryles(6)
|
|
|
96,850
|
|
|
|
|
*
|
Ted
Schlein(7)
|
|
|
3,645,163
|
|
|
|
11.0
|
|
Roger S.
Siboni(8)
|
|
|
2,271
|
|
|
|
|
*
|
Ernest von
Simson(9)
|
|
|
115,371
|
|
|
|
|
*
|
Stewart
Grierson(10)
|
|
|
325,651
|
|
|
|
|
*
|
Hugh S.
Njemanze(11)
|
|
|
1,091,689
|
|
|
|
3.3
|
|
Reed T.
Henry(12)
|
|
|
41,990
|
|
|
|
|
*
|
Kevin
Mosher(13)
|
|
|
281,229
|
|
|
|
|
*
|
All executive officers and directors as a group
(15 persons)(14)
|
|
|
8,451,737
|
|
|
|
23.6
|
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
Entities affiliated with Kleiner Perkins Caufield &
Byers(7)
|
|
|
3,539,928
|
|
|
|
10.7
|
%
|
Wellington Management Company,
LLC(15)
|
|
|
3,290,739
|
|
|
|
9.9
|
|
Entities affiliated with FMR
LLC(16)
|
|
|
3,037,614
|
|
|
|
9.2
|
|
Robert W.
Shaw(17)
|
|
|
2,121,064
|
|
|
|
6.3
|
|
Daly Gamma Limited
Partnership(18)
|
|
|
1,974,534
|
|
|
|
6.0
|
|
Entities affiliated with TCW Group,
Inc.(19)
|
|
|
1,672,285
|
|
|
|
5.0
|
|
33
|
|
|
(1) |
|
Includes options exercisable for 1,202,930 shares of common
stock within 60 days of August 1, 2009, of which
338,899 shares would be subject to a right of repurchase in
our favor upon exercise and Mr. Reillys cessation of
service prior to vesting. |
|
(2) |
|
Includes options exercisable for 114,085 shares of common
stock within 60 days of August 1, 2009, of which
18,333 shares would be subject to a right of repurchase in
our favor upon exercise and Ms. Bergerons cessation
of service prior to vesting. |
|
(3) |
|
Includes options exercisable for 86,085 shares of common
stock within 60 days of August 1, 2009 |
|
(4) |
|
Includes options exercisable for 114,085 shares of common
stock within 60 days of August 1, 2009. |
|
(5) |
|
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 114,085 shares of
common stock within 60 days of August 1, 2009 that are
held by Mr. Ramsey. |
|
(6) |
|
Includes options exercisable for 96,085 shares of common
stock within 60 days of August 1, 2009. Excludes
3,539,928 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. |
|
(7) |
|
Includes options exercisable for 4,396 shares of common
stock within 60 days of August 1, 2009. Includes
1,828,532 shares beneficially owned by Kleiner Perkins
Caufield & Byers IX-A, L.P.; 56,450 shares
beneficially owned by Kleiner Perkins Caufield & Byers
IX-B, L.P.; 1,609,550 shares beneficially owned by Kleiner
Perkins Caufield & Byers X-A, L.P.; 45,396 shares
beneficially owned by Kleiner Perkins Caufield & Byers
X-B, L.P.; 88,527 shares beneficially owned by Ted Schlein,
Trustee, Schlein Family Trust Dtd 4/20/99,
11,916 shares held by Mr. Schlein, 330 shares
held by Mr. Schleins sister and 66 shares held
by Mr. Schleins
father-in-law.
Excludes 1,974,534 shares held by Daly Alpha Limited
Partnership and Daly Gamma Limited Partnership. See footnote
(18) for information regarding those shares. Excludes
1,397,355 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. |
|
(8) |
|
Includes options exercisable for 2,083 shares of common
stock within 60 days of August 1, 2009. Excludes
3,539,928 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. |
|
(9) |
|
Includes options exercisable for 114,085 shares of common
stock within 60 days of August 1, 2009. Excludes
3,539,928 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. |
|
(10) |
|
Represents 2,132 shares held by Mr. Grierson and
10,000 shares held by Mr. Grierson and Jennifer
Murray, his wife, together, and includes options exercisable for
313,519 shares of common stock within 60 days of
August 1, 2009 that are held by Mr. Grierson. |
|
(11) |
|
Represents 328,170 shares held by Mr. Njemanze and
562,500 shares held by Mr. Njemanze and Cherl M.
Njemanze, his wife, together, and includes options exercisable
for 201,019 shares of common stock within 60 days of
August 1, 2009 that are held by Mr. Njemanze. |
|
(12) |
|
Includes options exercisable for 41,990 shares of common
stock within 60 days of August 1, 2009. |
|
(13) |
|
Includes options exercisable for 112,725 shares of common
stock within 60 days of August 1, 2009. |
34
|
|
|
(14) |
|
Includes options exercisable for 2,633,505 shares of common
stock within 60 days of August 1, 2009, of which
363,483 shares would be subject to vesting and a right of
repurchase in our favor upon exercise and the executive
officers or directors cessation of service prior to
vesting. Excludes the shares indicated to be excluded in
footnote (7). |
|
(15) |
|
Based solely on a Schedule 13G filed with the SEC on
July 10, 2009. Represents shares of our common stock owned
of record by clients of Wellington Management Company, LLP
(Wellington Management). Wellington Management, in
its capacity as investment adviser, has shared voting power with
respect to 2,931,769 shares and shared dispositive power
with respect to 3,290,739 shares. The address of Wellington
Management Company, LLP is 75 State Street, Boston,
Massachusetts 02109. |
|
(16) |
|
Includes (a) 275,000 shares beneficially owned by
Fidelity Management & Research Company
(Fidelity), a wholly-owned subsidiary of FMR LLC;
(b) 64,600 shares beneficially owned by Pyramis Global
Advisors, LLC (PGALLC), an indirect wholly-owned
subsidiary of FMR LLC; (c) 2,646,066 shares
beneficially owned by Pyramis Global Advisors Trust Company
(PGATC), an indirect wholly-owned subsidiary of FMR
LLC; and (d) 51,948 shares beneficially owned by FIL
Limited (FIL) and various foreign-based subsidiaries
that provide investment advisory and management services to a
number of
non-U.S.
investment companies and certain institutional investors. Edward
C. Johnson 3rd, Chairman of FMR LLC and FIL, and FMR LLC,
through its control of Fidelity, each has sole power to dispose
of the 275,000 shares owned by Fidelity. Edward C. Johnson
3 rd and FMR LLC, through its control of PGALLC, each has sole
dispositive power over 64,600 shares and sole power to vote
or to direct the voting of 64,600 shares owned by the
institutional accounts or funds advised by PGALLC. Edward C.
Johnson 3 rd and FMR LLC, through its control of PGATC, each has
sole dispositive power over 2,646,066 shares and sole power
to vote or to direct the voting of 1,871,370 shares owned
by institutional accounts managed by PGATC. Partnerships
controlled predominantly by members of the family of Edward C.
Johnson 3 rd or trusts for their benefit, own shares of FIL
voting stock with the right to cast approximately 47% of the
total votes which may be cast by all holders of FIL voting
stock. FMR LLC and FIL are separate and independent corporate
entities, and their boards of directors are generally composed
of different individuals. The address of FMR LLC is 82
Devonshire Street, Boston, Massachusetts 02109. The address of
PGALLC and PGATC is 53 State Street, Boston, Massachusetts
02109. The address of FIL is Pembroke Hall, 42 Crow Lane,
Hamilton, Bermuda. |
|
(17) |
|
Includes options exercisable for 471,064 shares of common
stock within 60 days of August 1, 2009. |
|
(18) |
|
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. |
|
(19) |
|
Represents 1,672,285 shares beneficially owned by The TCW
Group, Inc. (TCW), on behalf of itself and its
direct and indirect subsidiaries, which collectively constitute
the TCW Group, Inc. Business Unit (TCW Business
Unit). The ultimate parent company of TCW is Societe
Generale, S.A.(SG). The principal business of SG is
acting as a holding company for a global financial services
group, which includes certain distinct specialized business
units that are independently operated, including the TCW
Business Unit. SG, for purposes of the federal securities laws,
may be deemed ultimately to control TCW and the TCW Business
Unit. SG, its executive officers and directors, and its direct
and indirect subsidiaries (including all business units except
the TCW Business Unit), may beneficially own shares of the
securities of ArcSight and SG disclaims beneficial ownership of
the shares beneficially owned by the TCW Business Unit. The TCW
Business Unit disclaims beneficial ownership of the shares
beneficially owned by SG and any of SGs other business
units. The address of the TCW Business Unit is 865 South
Figueroa Street, Los Angeles, CA 90017. |
35
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 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 2009, 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 board of directors has
determined that each member of the audit committee is an
independent director as defined in The NASDAQ Stock
Markets listing standards. 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 ten times during
fiscal 2009, 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. 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 our 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, our independent registered public
accounting firm, is responsible for expressing an opinion on the
conformity of our audited financial statements to generally
accepted accounting principles.
The audit committee discussed with our independent registered
public accounting firm the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with
audit committees). Our 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 our audited consolidated financial statements
be included in our Annual Report on
Form 10-K
for the fiscal year ended April 30, 2009, filed with the
SEC on July 8, 2009.
Submitted by the Audit Committee of
the Board of Directors,
E. Stanton McKee, Jr.
Scott Ryles
Ernest von Simson
36
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
ERNST & YOUNG LLP, FOR FISCAL YEAR ENDING APRIL
30, 2010
(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, 2010 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
2009 and 2008. 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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2009
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2008
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Audit fees
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$
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1,383,808
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$
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2,705,665
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Audit-related fees
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Tax fees
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56,406
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48,516
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All other fees
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5,000
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Total
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$
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1,445,214
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$
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2,754,181
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For the fiscal year ended April 30, 2009, fees for EY audit
services include fees associated with the annual audit,
quarterly reviews of financial statements and accounting
consultations.
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 2010.
37
STOCKHOLDER
PROPOSALS FOR THE 2010 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 2010 annual meeting of stockholders, a
stockholders notice must be received by us between
June 11, 2010 and July 11, 2010. 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 2010 annual meeting is more than 30 days
before or more than 60 days after the anniversary date of
the 2009 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 2010 annual meeting or the close
of business on the 10th day following the day on which we
first publicly announce the date of the 2010 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 22,
2010 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 2010
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 2009
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 20, 2009
38
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY.
We encourage you to take advantage of Internet or telephone voting.
Both are available 24 hours a day, 7 days a 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 website. |
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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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54477-1 |
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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 II Directors for a three-year
term expiring at the 2012 Annual Meeting:
Nominees: 01 Sandra Bergeron
02 Craig Ramsey
03 Ernest von Simson
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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,
2010.
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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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Signature
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Signature
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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. |
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
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.
TOLL FREE NUMBER: 1-877-251-3575
Important notice regarding the Internet availability of proxy materials for the Annual Meeting
of Stockholders. The Proxy Statement and the 2009 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 24, 2009
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 24, 2009 (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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54477-1 |